WORLD TRADE  
ORGANIZATION  WT/DS316/AB/R 
18 May 2011 
 (11-2462) 
 Original:   English 
  
 
     
 
    
 
     
EUROPEAN COMMUNITIES AND CERTAIN MEMBER  
STATES – MEASURES AFFECTING TRADE IN  
LARGE CIVIL AIRCRAFT 
 
  
AB-2010-1 
 
 
    
 
    
Report of the Appellate Body 
  BCI deleted, as indicated [***] WT/DS316/AB/R 
Page i 
 
 
  I. Introduction................................................................................................................... ..............1  
A. The United States' Claims before the Panel ...................................................................4  
B. The Panel's Findings .....................................................................................................5  
C. Appellate Proceedings .................................................................................................11  
II. Arguments of the Participants and the Third Participants.........................................................16  
A. Claims of Error by the European Union – Appellant ..................................................16  
1. The Panel's Terms of Reference .....................................................................16  
(a) The Spanish PROFIT programme .....................................................16  
(b) The French R&TD grants ..................................................................18  
2. The Temporal Scope of Article 5 of the SCM Agreement ..............................20  
3. The Life of a Subsidy and Intervening Events................................................25  
(a) Whether the Panel erred in its in terpretation and application of 
Articles 1, 5, and 6 of the SCM Agreement ........................................25  
(b) Whether the Panel erred in its in terpretation and application of 
the "privatization" case law ...............................................................28  
(c) Whether the Panel erred in finding that the transactions did not 
"withdraw" the benefit conferred by  the past subsidies, within 
the meaning of Articles 4.7 and 7.8 of the SCM Agreement ..............31  
(d) Whether the Panel violated Article 11 of the DSU............................34  
(e) Whether the Panel erred by finding that there was no 
requirement to conduct a "pass-through" analysis.............................36  
(f) Conclusion .........................................................................................37  
4. The 1992 Agreement ......................................................................................37  
(a) The meaning of Article 31(3)(c) of the Vienna Convention ..............38  
(b) Whether Article 4 of the 1992 Agreement is relevant to 
interpreting the term "benefit" in Article 1.1(b) of the 
SCM Agreement .................................................................................40  
(c) Whether Article 4 of the 1992 Agreement is a relevant fact to 
establish the market benchmark.........................................................41  
5. LA/MSF Benefit Benchmark..........................................................................41  
(a) Whether the Panel erred in finding that the LA/MSF measures 
confer a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement .................................................................................41  
(b) The Panel's criticisms of the European Communities' 
benchmark..........................................................................................47  
(c) The relevance of sales forecasts.........................................................50  
6. Export Subsidies .............................................................................................50  
(a) The first set of grounds of appea l:  Alleged legal errors in the 
Panel's interpretation of the term s "contingent", "tied-to", and 
"actual or anticipated"........................................................................51  
(b) The second set of grounds of app eal:  Alleged legal errors in 
the Panel's application of the standard set out by the Panel...............57  
(c) The third set of grounds of appea l:  Alleged legal errors in the 
Panel's application of the correct legal standard of contingency .......62  
(d) The fourth set of grounds of appeal:  Further alleged legal 
errors..................................................................................................63  
7. The EC Framework Programmes ...................................................................64  
8. Infrastructure Measures ..................................................................................66  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page ii  
 
  (a) Financial contribution........................................................................66  
(b) Benefit................................................................................................71  
9. Equity Infusions..............................................................................................76  
(a) Capital investments............................................................................76  
(b) Share transfer .....................................................................................80  
10. The Subsidized Product and Product Market..................................................83  
(a) Whether the Panel erred in assessing displacement on the basis 
of a single product and a single-product market................................85  
11. Serious Prejudice ............................................................................................94  
(a) Displacement of Boeing LCA from the European Communities 
and certain third country markets ......................................................94  
(b) Lost sales in the same market ..........................................................100  
(c) Non-LA/MSF subsidies ...................................................................106  
(d) The relevance of the 1992 Agreement.............................................109  
(e) Contingent appeal on the existence of suppressed and 
depressed prices for the Boeing 777 ................................................109  
B. Arguments of the United States – Appellee ................................................................109  
1. The Panel's Terms of Reference ...................................................................109  
(a) The Spanish PROFIT programme ...................................................109  
(b) The French R&TD grants ................................................................111  
2. The Temporal Scope of Article 5 of the SCM Agreement ............................113  
3. The Life of a Subsidy and Intervening Events..............................................118  
(a) Whether the Panel erred in its in terpretation and application of 
Articles 1, 5, and 6 of the SCM Agreement ......................................118  
(b) Whether the Panel erred in its in terpretation and application of 
the "privatization" case law .............................................................121  
(c)
 Whether the Panel erred in finding that the transactions did not 
"withdraw" the benefit conferred by  the past subsidies, within 
the meaning of Articles 4.7 and 7.8 of the SCM Agreement ............124  
(d) Whether the Panel violated Article 11 of the DSU..........................127  
(e) Whether the Panel erred by finding that there was no 
requirement to conduct a "pass-through" analysis...........................130  
(f) Conclusion .......................................................................................131  
4. The 1992 Agreement ....................................................................................131  
(a) The meaning of Article 31(3)(c) of the Vienna Convention ............132  
(b) Whether Article 4 of the 1992 Agreement is relevant to 
interpreting the term "benefit" in Article 1.1(b) of the 
SCM Agreement ...............................................................................133  
(c) Whether Article 4 of the 1992 Agreement is a relevant fact to 
establish the market benchmark.......................................................134  
5. LA/MSF Benefit Benchmark........................................................................134  
(a) Whether the Panel erred in finding that the LA/MSF measures 
confer a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement ...............................................................................134  
(b) The Panel's criticisms of the European Communities' 
benchmark........................................................................................139  
(c) The relevance of sales forecasts.......................................................142   BCI deleted, as indicated [***] WT/DS316/AB/R 
Page iii 
 
 
  6. Export Subsidies ...........................................................................................142  
(a) The first set of grounds of appea l:  Alleged legal errors in the 
Panel's interpretation of the term s "contingent", "tied-to", and 
"actual or anticipated"......................................................................142  
(b) The second set of grounds of app eal:  Alleged legal errors in 
the Panel's application of the standard set out by the Panel.............149  
(c) The third set of grounds of appea l:  Alleged legal errors in the 
Panel's application of the correct legal standard of contingency .....153  
(d) The fourth set of grounds of appeal:  Further alleged legal 
errors................................................................................................154  
7. The EC Framework Programmes .................................................................155  
8. Infrastructure Measures ................................................................................157  
(a) Financial contribution......................................................................157  
(b) Benefit..............................................................................................161  
9. Equity Infusions............................................................................................164  
(a) Capital investments..........................................................................164  
(b) Share transfer ...................................................................................167  
10. The Subsidized Product and Product Market................................................171  
(a) Whether the Panel erred in assessing displacement on the basis 
of a single product and a single-product market..............................173  
11. Serious Prejudice ..........................................................................................179  
(a) Displacement of Boeing LCA from the European Communities 
and certain third country markets ....................................................180  
(b) Lost sales in the same market ..........................................................186  
(c) Non-LA/MSF subsidies ...................................................................192  
(d) The relevance of the 1992 Agreement.............................................194  
C. Claims of the United States – Other Appellant ..........................................................195  
1. The LA/MSF "Programme"..........................................................................195  
2. Export Subsidies ...........................................................................................198  
(a) The alleged requirement imposed by the Panel on evidence 
concerning motivation .....................................................................199  
(b) The United States' request for completion of the analysis...............202  
D. Arguments of the European Union – Appellee ..........................................................203  
1. The LA/MSF "Programme"..........................................................................203  
2. Export Subsidies ...........................................................................................207  
(a) The alleged requirement imposed by the Panel on evidence 
concerning motivation .....................................................................208  
(b) The United States' request for completion of the analysis...............209  
E. Arguments of the Third Participants ..........................................................................213  
1. Australia........................................................................................................213  
(a) The temporal scope of Article 5 of the SCM Agreement .................213  
(b) The LA/MSF "Programme".............................................................213  
(c) The 1992 Agreement .......................................................................214  
(d) Export subsidies...............................................................................215  
(e) Infrastructure measures....................................................................216  
(f) The subsidized product and product market ....................................217  
(g) Adverse effects ................................................................................217  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page iv  
 
  2. Brazil.............................................................................................................218  
(a) The LA/MSF "Programme".............................................................218  
(b) Export subsidies...............................................................................218  
(c) The subsidized product and product market ....................................220  
(d) Adverse effects ................................................................................221  
3. Canada ..........................................................................................................221  
(a) The life of a subsidy and intervening events ...................................221  
(b) Export subsidies...............................................................................223  
(c) The EC Framework Programmes ....................................................225  
(d) Infrastructure measures....................................................................225  
(e) Adverse effects ................................................................................226  
4. China.............................................................................................................227  
(a) The life of a subsidy and intervening events ...................................227  
(b) Export subsidies...............................................................................228  
(c) Infrastructure measures....................................................................231  
5. Japan .............................................................................................................233  
(a) The life of a subsidy and intervening events ...................................233  
(b) Export subsidies...............................................................................233  
(c) Infrastructure measures....................................................................235  
(d) Adverse effects ................................................................................235  
6. Korea.............................................................................................................236  
(a) Export subsidies...............................................................................236  
(b) Infrastructure measures....................................................................237  
III. Issues Raised in This Appeal ..................................................................................................2 38 
IV. Overview of the M easures at Issue .........................................................................................244  
A. Introduction ...............................................................................................................244  
B. Background to the Creation of Airbus SAS ................................................................245  
C. Launch Aid/Member State Financing ........................................................................249  
1. The Individual LA/MSF Measures ...............................................................250  
2. The Contractual Framework for LA/MSF ....................................................251  
3. The Features of Individual LA/MSF Contracts ............................................257  
4. The Alleged LA/MSF Programme ...............................................................259  
D. The EIB Loans ...........................................................................................................259  
E. Research and Technological Development Funding .................................................260  
1. The EC Framework Programmes .................................................................260  
2. R&TD Funding by the French Government .................................................264  
3. R&TD Funding by German Authorities .......................................................264  
4. R&TD Funding by the Spanish Government................................................265  
5. R&TD Funding by the UK Government ......................................................265  
F. Infrastructure and Infrastructure-Related Grants .....................................................265  
1. The Mühlenberger Loch Industrial Site........................................................265  
2. The Bremen Airport Runway Extension.......................................................266  
3. The Aéroconstellation Industrial Site ...........................................................267  
4. Regional Infrastructure-Related Grants ........................................................268  
G. German and French Restructuring Measures ...........................................................268   BCI deleted, as indicated [***] WT/DS316/AB/R 
Page v 
 
 
  V. Preliminary Issues ............................................................................................................. ......270  
A. The Panel's Terms of Reference .................................................................................270  
1. The Panel's Findings.....................................................................................270  
2. The Panel's Assessment of the Panel Request ..............................................272  
B. The Temporal Scope of Article 5 of the SCM Agreement ..........................................277  
1. Article 28 of the Vienna Convention ............................................................280  
2. Whether Article 5 of the SCM Agreement  Applies to Pre-1995 
Measures .......................................................................................................280  
3. The Interpretation of Article 5 of the SCM Agreement  in the Light of 
the Principle of Non-Retroactivity Reflected in Article 28 of the Vienna Convention ........................................................................................285  
4. The Tokyo Round Subsidies Code ................................................................290  
5. Conclusion ....................................................................................................291  
C. The Life of a Subsidy and Intervening Events ............................................................292  
1. Continuity of Benefit – The Panel's Interpretation of Articles 1, 5, and 
6 of the SCM Agreement ...............................................................................293  
(a) The Panel's findings.........................................................................293  
(b) Do Articles 1, 5, and 6 of the SCM Agreement  require the 
demonstration of a "continuing benefit"? ........................................295  
2. Analysis of "Extinction", "Extraction", and "Pass-Through" of 
Subsidies.......................................................................................................303  
(a) Extinction of subsidies.....................................................................304  
(b) Extraction of subsidies.....................................................................315  
(c) "Withdrawal" of subsidies within the Meaning of Articles 4.7 
and 7.8 of the SCM Agreement
........................................................321  
(d) Claims under Article 11 of the DSU................................................324  
3. The "Pass-Through" of Subsidies .................................................................326  
VI. Launch Aid/Member State Financing .....................................................................................332  
A. The LA/MSF "Programme" .......................................................................................332  
1. Arguments on Appeal ...................................................................................334  
2. Analysis ........................................................................................................336  
B. LA/MSF Benefit ..........................................................................................................340  
1. The Panel's Findings.....................................................................................340  
2. The Measures at Issue...................................................................................352  
3. Did the Panel Err in Concluding that the Challenged LA/MSF 
Measures Confer a Benefit?..........................................................................355  
(a) The determination of benefit under Article 1.1(b) of the 
SCM Agreement ...............................................................................355  
(b) The relevance of the 1992 Agreement.............................................360  
(c) The Panel's approach to the determination of benefit......................368  
(d) Alternative market benchmarks developed by the United States 
and the European Communities.......................................................370  
(e) Overview of the Panel's assessment of the Ellis and Whitelaw 
project-specific risk premia .............................................................372  
(f) Do the European Union's alle gations concern errors of 
application or errors under Article 11 of the DSU?.........................377  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page vi  
 
  (g) The Panel's assessment of the project-specific risk premium 
proposed by the United States .........................................................381  
(h) The Panel's assessment of the project-specific risk premium 
proposed by the European Communities .........................................388  
(i) Conclusion on the Panel's finding of benefit ...................................400  
4. The Panel's Statement about the Relevance of the Number of Sales 
over which Full Repayment is Expected ......................................................404  
VII. Non-LA/MSF Measures..........................................................................................................40 7 
A. The EC Framework Programmes ..............................................................................407  
1. The Panel's Findings.....................................................................................407  
2. The Interpretation of Specificity under Article 2.1 of the 
SCM Agreement ............................................................................................409  
3. The Panel's Assessment under Article 2.1 of the SCM Agreement ...............411  
B. Infrastructure Measures ............................................................................................414  
1. The Panel's Findings.....................................................................................415  
(a) The Mühlenberger Loch industrial site............................................415  
(b) The Bremen airport runway extension.............................................416  
(c) The Aéroconstellation industrial site ...............................................417  
2. The Panel's Assessment under Article 1.1(a)(1)(iii) of the 
SCM Agreement ............................................................................................418  
3. The Panel's Assessment under Article 1.1(b) of the SCM Agreement ..........421  
4. Completion of the Analysis ..........................................................................428  
C. Equity Infusions .........................................................................................................432  
1. Capital Investments.......................................................................................432  
(a) The Panel's findings.........................................................................433  
(b) 
The Panel's assessment under Article 1.1(b) of the 
SCM Agreement ...............................................................................434  
(c) The Panel's treatment of the Boeing evidence .................................437  
2. Share Transfer...............................................................................................441  
(a) The Panel's findings.........................................................................441  
(b) The Panel's assessment under Article 1.1(b) of the 
SCM Agreement ...............................................................................443  
VIII.  Export Subsidies ............................................................................................................... ......447  
A. Introduction ...............................................................................................................447  
B. The Panel's Findings .................................................................................................448  
C. The Interpretation of Article 3.1(a) and Footnote 4 of the SCM Agreement .............451  
D. Whether the Panel Erred in Its Interpretation of Article 3.1(a) and Footnote 4 .......461  
1. Whether the Panel Erred in Its Interpretation of "Anticipated 
Exportation"..................................................................................................461  
2. Whether the Panel Imposed a Correct Standard for De Facto  Export 
Contingency..................................................................................................462  
3. Conclusion ....................................................................................................464  
E. The Application of the Standard for De Facto Export Contingency to the Facts ......465  
1. The Panel's Finding on "An ticipated Exportation".......................................465  
2. Whether the Granting of the Seven LA/MSF Subsidies was In Fact 
Tied to Anticipated Exportation ...................................................................469  
F. Conclusion .................................................................................................................479   BCI deleted, as indicated [***] WT/DS316/AB/R 
Page vii 
 
 
  IX. Serious Prejudice.............................................................................................................. .......480  
A. General Approach to the Assessment of Serious Prejudice .......................................480  
B. The Subsidized Product and Product Market ............................................................482  
1. Whether the Panel Erred in Assessing Displacement on the Basis of a 
Single Subsidized Product a nd a Single Product Market..............................482  
2. Completing the Analysis...............................................................................495  
C. Displacement and Lost Sales .....................................................................................498  
1. Displacement ................................................................................................498  
(a) The Panel's findings.........................................................................499  
(b) The meaning of "displacement" under Article 6.3(a) and (b) of 
the SCM Agreement .........................................................................502  
(c) The European Union's allegations of error ......................................508  
2. Lost Sales......................................................................................................521  
(a) The Panel's findings.........................................................................521  
(b) Did the Panel err in finding lost sales in relation to the sale of 
A380 LCA to Emirates Airlines?.....................................................524  
D. Causation ...................................................................................................................531  
1. Causation – Displacement ............................................................................531  
(a) Establishing a "causal link" between the subsidy and the 
market situations described in Article 6.3 of the SCM Agreement ...............................................................................531  
(b) The age of a subsidy ........................................................................534  
(c) The Panel's assessment of causation................................................536  
(d) The relevance of the 1992 Agreement.............................................563  
2. Causation – A380 Lost Sales ........................................................................565  
(a) The Panel's findings.........................................................................565
 
(b) Analysis ...........................................................................................568  
(c) Conclusion .......................................................................................585  
3. Causation for non-LA/MSF Subsidies..........................................................586  
(a) The Panel's findings.........................................................................586  
(b) Analysis ...........................................................................................588  
(c) Conclusions......................................................................................605  
X. Findings and Conclusions ....................................................................................................... 606 
 ANNEX I Notification of an Appeal by the European Union.....................................................615  
ANNEX II Notification of an Other Appeal by the United States................................................623  
ANNEX III Procedural Ruling and Additional Procedures to Protect Sensitive  
Information................................................................................................................ 625  
ANNEX IV Procedural Ruling and Additional Procedures on the Conduct of the Oral 
Hearings .................................................................................................................... 63 7 
 
 
   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page viii  
 
  WTO AND GATT CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of 
Footwear , WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515 
Australia – Apples Appellate Body Report, Australia – Measures Affecting the Importation of 
Apples from New Zealand , WT/DS367/AB/R, adopted 17 December 2010 
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, 951 
Australia – Automotive 
Leather II  (Article 21.5 – US) Panel Report, Australia – Subsidies Provided to Producers and Exporters of 
Automotive Leather – Recourse to Article 21.5 of the DSU by the United States , WT/DS126/RW and Corr.1, adopted 11 February 2000, DSR 2000:III, 
1189 
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of 
Salmon , WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327 
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161 
Brazil – Aircraft Panel Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/R, adopted 20 August 1999, as modified by Appellate Body Report 
WT/DS46/AB/R, DSR 1999:III, 1221 
Brazil – Aircraft (Article 21.5 – Canada) Appellate Body Report, Brazil – Export Financing Programme for Aircraft – 
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/AB/RW, adopted 
4 August 2000, DSR 2000:VIII, 4067 
Brazil – Desiccated Coconut Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut , 
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167 
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded 
Tyres , WT/DS332/AB/R, adopted 17 D ecember 2007, DSR 2007:IV, 1527 
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377 
Canada – Aircraft Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft , 
WT/DS70/R, adopted 20 August 1999, as upheld by Appellate Body Report WT/DS70/AB/R, DSR 1999:IV, 1443 
Canada – Aircraft Credits and Guarantees Panel Report, Canada – Export Credits and Loan Guarantees for Regional 
Aircraft , WT/DS222/R and Corr.1, adopted 19 February 2002, DSR 2002:III, 
849 
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, 4299 
Canada – Aircraft 
(Article 21.5 – Brazil) Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft – 
Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/RW, adopted 4 
August 2000, as modified by Appellate Body Report WT/DS70/AB/RW,  DSR 2000:IX, 4315 
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 
2000:VI, 2985  BCI deleted, as indicated [***] WT/DS316/AB/R 
Page ix 
 
 
  Short Title Full Case Title and Citation 
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry , 
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, 
3043 
Canada – Continued Suspension Appellate Body Report, Canada – Continued Suspension of Obligations in the 
EC – Hormones Dispute , WT/DS321/AB/R, adopted 14 November 2008 
Canada – Dairy 
(Article 21.5 – New Zealand and US) Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products – Recourse to Article 21.5 of the DSU by New Zealand and the United States , WT/DS103/AB/RW, 
WT/DS113/AB/RW, adopted 18 Decem ber 2001, DSR 2001:XIII, 6829 
Canada – Patent Term Appellate Body Report, Canada – Term of Patent Protection , 
WT/DS170/AB/R, adopted 12 October 2000, DSR 2000:X, 5093 
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449 
Canada – Wheat Exports and Grain Imports Panel Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/R, adopted 27 September 2004, as 
upheld by Appellate Body Report WT/DS276/AB/R, DSR 2004:VI, 2817 
Canada – Wheat Exports and 
Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of Wheat 
and Treatment of Imported Grain , WT/DS276/AB/R, adopted 27 September 
2004, DSR 2004:VI, 2739 
Chile – Alcoholic Beverages Appellate Body Report, Chile – Taxes on Alcoholic Beverages , 
WT/DS87/AB/R, WT/DS110/AB/R, adopted 12 January 2000, DSR 2000:I, 
281 
Chile – Price Band System Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R, adopted  
23 October 2002, DSR 2002:VIII, 3045 (Corr.1, DSR 2006:XII, 5473) 
Chile – Price Band System 
(Article 21.5 – Argentina) Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products – Recourse to Article 21.5 of the 
DSU by Argentina , WT/DS207/AB/RW, adopted 22 May 2007, DSR 2007:II, 
513 
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 
China – Publications and 
Audiovisual Products Panel Report, China –  Measures Affecting Trading Rights and Distribution 
Services for Certain Publications and Audiovisual Entertainment Products , 
WT/DS363/R and Corr.1, adopted 19 January 2010, as modified by Appellate 
Body Report WT/DS363/AB/R 
China – Publications and 
Audiovisual Products Appellate Body Report, China –  Measures Affecting Trading Rights and 
Distribution Services for Certain Publications and Audiovisual Entertainment Products , WT/DS363/AB/R, adopted 19 January 2010 
Dominican Republic – Import 
and Sale of Cigarettes Appellate Body Report, Dominican Republic – Measures Affecting the 
Importation and Internal Sale of Cigarettes , WT/DS302/AB/R, adopted  
19 May 2005, DSR 2005:XV, 7367 
EC – Approval and Marketing 
of Biotech Products Panel Report, European Communities – Measures Affecting the Approval and 
Marketing of Biotech Products , WT/DS291/R, WT/DS292/R, WT/DS293/R, 
Add.1 to Add.9, and Corr.1, adopted 21 November 2006, DSR 2006:III-VIII, 
847 WT/DS316/AB/R BCI deleted, as indicated [***] 
Page x  
 
  Short Title Full Case Title and Citation 
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting 
Asbestos and Asbestos-Containing Products , WT/DS135/AB/R, adopted  
5 April 2001, DSR 2001:VII, 3243 
EC – Bananas III Appellate Body Report, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas , WT/DS27/AB/R, adopted 
25 September 1997, DSR 1997:II, 591 
EC – Bananas III 
(Article 21.5 – Ecuador II) / EC – Bananas III 
(Article 21.5 – US) Appellate Body Reports, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas – Second Recourse to Article 21.5 of the DSU by Ecuador , WT/DS27/AB/RW2/ECU, adopted 
11 December 2008, and Corr.1 / European Communities – Regime for the 
Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by the United States , WT/DS27/AB/RW/USA and Corr.1, adopted 
22 December 2008 
EC – Bed Linen 
(Article 21.5 – India) Appellate Body Report, European Communities – Anti-Dumping Duties on 
Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU  by India , WT/DS141/AB/RW, adopted 24 April 2003, DSR 
2003:III, 965  
EC – Chicken Cuts Appellate Body Report, European  Communities – Customs Classification of 
Frozen Boneless Chicken Cuts , WT/DS269/AB/R, WT/DS286/AB/R, adopted 
27 September 2005, and Corr.1, DSR 2005:XIX, 9157 
EC – Computer Equipment Appellate Body Report, European Communities – Customs Classification of 
Certain Computer Equipment , WT/DS62/AB/R, WT/DS67/AB/R, 
WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851 
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, 135 
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the 
Importation of Certain Poultry Products , WT/DS69/AB/R, adopted 23 July 
1998, DSR 1998:V, 2031 
EC – Salmon (Norway) Panel Report, European Communities – Anti-Dumping Measure on Farmed 
Salmon from Norway , WT/DS337/R, adopted 15 January 2008, and Corr.1, 
DSR 2008:I, 3 
EC – Sardines Appellate Body Report, European Communities – Trade Description of 
Sardines , WT/DS231/AB/R, adopted 23 October 2002, DSR 2002:VIII, 3359 
EC – Selected Customs 
Matters Appellate Body Report, European Communities – Selected Customs Matters , 
WT/DS315/AB/R, adop ted 11 December 2006, DSR 2006:IX, 3791 
EC – Tube or Pipe Fittings Appellate Body Report, European Communities – Anti-Dumping Duties on 
Malleable Cast Iron Tube or Pipe Fittings from Brazil , WT/DS219/AB/R, 
adopted 18 August 2003, DSR 2003:VI, 2613 
EC and certain member States 
– Large Civil Aircraft 
(2nd complaint) European Communities and Certain Member States – Measures Affecting 
Trade in Large Civil Aircraft (Second Complaint) , WT/DS347 
EEC – Parts and Components  GATT Panel Report, European Economic Community – Regulation on 
Imports of Parts and Components , L/6657, adopted 16 May 1990, BISD 
37S/132 
Egypt – Steel Rebar Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from 
Turkey , WT/DS211/R, adopted 1 October 2002, DSR 2002:VII, 2667  BCI deleted, as indicated [***] WT/DS316/AB/R 
Page xi 
 
 
  Short Title Full Case Title and Citation 
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from Mexico , WT/DS60/AB/R, adopted 25 November 1998, 
DSR 1998:IX, 3767 
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile 
Industry , WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 
and 2, adopted 23 July 1998, and Corr. 3 and 4, DSR 1998:VI, 2201 
Japan – Agricultural  
Products II Appellate Body Report, Japan – Measures Affecting Agricultural Products , 
WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, 277 
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 November 
1996, DSR 1996:I, 97 
Japan – Apples Appellate Body Report, Japan – Measures Affecting the Importation of 
Apples , WT/DS245/AB/R, adopted 10 December 2003, DSR 2003:IX, 4391 
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random 
Access Memories from Korea , WT/DS336/AB/R and Corr.1, adopted  
17 December 2007, DSR 2007:VII, 2703 
Japan – DRAMs (Korea) Panel Report, Japan – Countervailing Dutie s 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, 2805 
Japan – Film Panel Report, Japan – Measures Affecting Consumer Photographic Film and 
Paper , WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, 1179 
Korea – Alcoholic Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages , 
WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3 
Korea – Commercial Vessels Panel Report, Korea – Measures Affecting Trade in Commercial Vessels , 
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749 
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports 
of Certain Dairy Products , WT/DS98/AB/R, adopted 12 January 2000, 
DSR 2000:I, 3 
Korea – Various Measures on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, 
Chilled and Frozen Beef , WT/DS161/AB/R, WT/DS169/AB/R, adopted 
10 January 2001, DSR 2001:I, 5 
Mexico – Anti-Dumping Measures on Rice Appellate Body Report, Mexico – Definitive Anti-Dump ing Measures on Beef 
and Rice, Complaint with Respect to Rice , WT/DS295/AB/R, adopted  
20 December 2005, DSR 2005:XXII, 10853 
Mexico – Corn Syrup 
(Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High 
Fructose Corn Syrup (HFCS) from the United States – Recourse to 
Article 21.5 of the DSU  by the United States , WT/DS132/AB/RW, adopted 
21 November 2001, DSR 2001:XIII, 6675 
Mexico – Olive Oil Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from 
the European Communities , WT/DS341/R, adopted 21 October 2008, DSR 
2008:IX, 3179 
Mexico – Steel Pipes and Tubes Panel Report, Mexico – Anti-Dumping Duties on  Steel Pipes and Tubes from 
Guatemala , WT/DS331/R, adopted 24 July 2007, DSR 2007:IV, 1207 
US – Anti-Dumping and 
Countervailing Duties (China) Appellate Body Report, United States – Definitive Anti-Dumping and 
Countervailing Duties on Certain Products from China , WT/DS379/AB/R, 
adopted 25 March 2011 WT/DS316/AB/R BCI deleted, as indicated [***] 
Page xii  
 
  Short Title Full Case Title and Citation 
US – Anti-Dumping Measures 
on Oil Country Tubular Goods Appellate Body Report, United States – Anti-Dumping Measures on Oil 
Country Tubular Goods (OCTG) from Mexico , WT/DS282/AB/R, adopted  
28 November 2005, DSR 2005:XX, 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, 
3779 
US – Continued Suspension Appellate Body Report, United States – Continued Suspension of Obligations 
in the EC – Hormones Dispute , WT/DS320/AB/R, adopted 14 November 
2008, DSR 2008:X, 3507 
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application 
of Zeroing Methodology , WT/DS350/AB/R, adopted 19 February 2009 
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, 3  
US – Countervailing Duty 
Investigation on DRAMS Appellate Body Report, United States – Countervailing Duty Investigation on 
Dynamic Random Access Memory Semiconductors (DRAMS) from Korea , 
WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, 8131 
US – Countervailing Measures on Certain EC Products Appellate Body Report, United States – Countervailing Measures Concerning 
Certain Products from the European Communities , WT/DS212/AB/R, 
adopted 8 January 2003, DSR 2003:I, 5 
US – Countervailing Measures on Certain EC Products 
(Article 21.5 – EC) Panel Report, United States – Countervailing Measures Concerning Certain 
Products from the European Communities – Recourse to Article 21.5 of the 
DSU by the European Communities , WT/DS212/RW, adopted 27 September 
2005, DSR 2005:XVIII, 8950 
US – Export Restraints Panel Report, United States – Measures Treating Exports Restraints as 
Subsidies , WT/DS194/R and Corr.2, adopted 23 August 2001, DSR 2001:XI, 
5767 
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, 55 
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, 5663 (Corr.1, DSR 2006:XII, 5475) 
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 
3 
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, 4697 
US – Lamb Appellate Body Report, United States – Safeguard Measures on Imports of 
Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia , 
WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, DSR 2001:IX, 
4051  BCI deleted, as indicated [***] WT/DS316/AB/R 
Page xiii 
 
 
  Short Title Full Case Title and Citation 
US – Lead and Bismuth II Appellate Body Report, United States – Imposition of Countervailing Duties 
on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/AB/R, adopted 7 June 2000, DSR 
2000:V, 2595 
US – Line Pipe Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Circular Welded Carbon Quality Line Pipe from Korea , 
WT/DS202/AB/R, adopted 8 March 2002, DSR 2002:IV, 1403 
US – Offset Act (Byrd Amendment) Appellate Body Report, United States – Continued Dumping and Subsidy 
Offset Act of 2000 , WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 
2003, DSR 2003:I, 375 
US – Oil Country Tubular 
Goods Sunset Reviews Appellate Body Report, United States – Sunset Reviews of Anti-Dumping 
Measures on Oil Country Tubular Goods from Argentina , WT/DS268/AB/R, 
adopted 17 December 2004, DSR 2004:VII, 3257 
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, 2755 
US – Shrimp 
(Article 21.5 – Malaysia) Panel Report, United States – Import Prohibition of Certain Shrimp and 
Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia , 
WT/DS58/RW, adopted 21 November 2001, as upheld by Appellate Body 
Report WT/DS58/AB/RW, DSR 2001:XIII, 6529 
US – Softwood Lumber III Panel Report, United States – Preliminary Determinations with Respect to 
Certain Softwood Lumber from Canada , WT/DS236/R, adopted 1 November 
2002, DSR 2002:IX, 3597 
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, 571 
US – Softwood Lumber IV Panel Report, United States – Final Countervailing Duty Determination with 
Respect to Certain Softwood Lumber from Canada , WT/DS257/R and Corr.1, 
adopted 17 February 2004, as modified by Appellate Body Report 
WT/DS257/AB/R, DSR 2004:II, 641  
US – Softwood Lumber V Panel Report, United States – Final Dumping Determination on Softwood 
Lumber from Canada , WT/DS264/R, adopted 31 August 2004, as modified 
by Appellate Body Report WT/DS264/AB/R, DSR 2004:V, 1937 
US – Softwood Lumber VI (Article 21.5 – Canada) Appellate Body Report, United States – Investigation of the International 
Trade Commission in Softwood Lumber from Canada – Recourse to 
Article 21.5 of the DSU by Canada , WT/DS277/AB/RW, adopted 9 May 
2006, and Corr.1, DSR 2006:XI, 4865 
US – Stainless Steel (Mexico) Appellate Body Report, United States – Final Anti-Dumping Measures on 
Stainless Steel from Mexico , WT/DS344/AB/R, adopted 20 May 2008, DSR 
2008:II, 513 
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Certain Steel Products , WT/DS248/AB/R, WT/DS249/AB/R, 
WT/DS251/AB/R, WT/DS252/AB/R, WT /DS253/AB/R, WT/DS254/AB/R, 
WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003, DSR 
2003:VII, 3117  
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, 3 WT/DS316/AB/R BCI deleted, as indicated [***] 
Page xiv  
 
  Short Title Full Case Title and Citation 
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, 
Corr.1, and Add.1 to Add.3, adopted 21 March 2005, as modified by Appellate Body Report WT/DS267/AB/R, DSR 2005:II, 299 
US – Upland Cotton  (Article 21.5 – Brazil) Appellate Body Report, United States – Subsidies on Upland Cotton – 
Recourse to Article 21.5 of the DSU by Brazil , WT/DS267/AB/RW, adopted 
20 June 2008, DSR 2008:III, 809 
US – Upland Cotton  
(Article 21.5 – Brazil) Panel Report, United States – Subsidies on Upland Cotton – Recourse to 
Article 21.5 of the DSU by Brazil , WT/DS267/RW and Corr.1, adopted 20 
June 2008, as modified by Appellate Body Report WT/DS267/AB/RW, DSR 
2008:III, 997 to DSR 2008:VI, 2013 
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Wheat Gluten from the European Communities , WT/DS166/AB/R, 
adopted 19 January 2001, DSR 2001:II, 717 
US – Wheat Gluten Panel Report, United States – Definitive Safeguard Measures on Imports of 
Wheat Gluten from the European Communities , WT/DS166/R, adopted  
19 January 2001, as modified by Appellate Body Report WT/DS166/AB/R, 
DSR 2001:III, 779 
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, 323 
US – Zeroing (EC) Appellate Body Report, United States – Laws, Regulations and Methodology 
for Calculating Dumping Margins ("Zeroing") , WT/DS294/AB/R, adopted  
9 May 2006, and Corr.1, DSR 2006:II, 417 
US – Zeroing (EC) Panel Report, United States – Laws, Regulations and Methodology for 
Calculating Dumping Margins ("Zeroing") , WT/DS294/R, adopted 9 May 
2006, as modified by Appellate Body Report WT/DS294/AB/R, DSR 2006:II, 
521 
US – Zeroing (EC)  (Article 21.5 – EC) Appellate Body Report, United States – Laws, Regulations and Methodology 
for Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of 
the DSU by the European Communities , WT/DS294/AB/RW and Corr.1, 
adopted 11 June 2009 
US – Zeroing (Japan)  (Article 21.5 – Japan) Appellate Body Report, United States – Measures Relating to Zeroing and 
Sunset Reviews – Recourse to Article 21.5 of the DSU by Japan , 
WT/DS322/AB/RW, adopted 31 August 2009 
  BCI deleted, as indicated [***] WT/DS316/AB/R 
Page xv 
 
 
  LIST OF ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation Description 
1969 A300 Agreement Agreement (of 29 May 1969) betw een the Government of the  
Republic of France and the Government of the Federal Republic  of Germany regarding the realization of the Airbus A-300-B  
(Panel Exhibit US-11) 
1970 A300 Agreement Agreement between the Governme nts of the Kingdom of the 
Netherlands, the Federal Republic of Germany, and the French 
Republic concerning the realization of the Airbus A-300 B (1970) 
1971 A300 Agreement  Agreement (of 23 December 1971) betw een the Governments of the 
French Republic, the Federal Republic of Germany, the Kingdom of the Netherlands and the Spanish State regarding the realization of the 
Airbus A-300 B  (Panel Exhibit EC-992 (BCI)) 
1979 Agreement Agreement on Trade in Civil Aircraft , done at Geneva on 12 April 
1979 (BISD 26S/162), as subsequently modified, rectified,  or amended (attached as Annex 4(a) to the WTO Agreement ) 
1981 A310 Agreement Agreement (of 28 September 1981) between the Governments of the 
Federal Republic of Germany, the French Republic, the United 
Kingdom of Great Britain and Northern Ireland, and Spain concerning the Airbus programme  (Panel Exhibit EC-942 (BCI)) 
1991 A320 Agreement Agreement (of 6 February 1991) between the Governments of the 
French Republic, the Federal Republic of Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and the Kingdom of Belgium, concerning the Airbus A320  programme 
(Panel Exhibit US-16) 
1992 Agreement Agreement between the European Economic Community and the 
Government of the United States of America concerning the 
application of the GATT Agreement on Trade in Civil Aircraft on trade in large civil aircraft , done at Brussels on 17 July 1992,  
Official Journal of the European Union , L Series, No. 301 
(17 October 1992) 32 
1994 A330/A340 Agreement Agreement (of 25/26 April 1994) be tween the Governments of the 
French Republic, the Federal Republic of Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain 
and the Kingdom of Belgium concerning the Airbus A330/A340 programme (Panel Exhibit US-28) 
2003 Agreement  Agreement (of 16 June 2003) signed at  Paris-Le Bourget between the 
Ministers of the Four Principal Airbus Countries and Airbus  
(Panel Exhibit US-122 (BCI)) 
9/11 11 September 2001 attacks on the World Trade Center  
Additional Procedures Additional Procedures to Pr otect Sensitive Information, adopted by the 
Appellate Body Division hearing this appeal (part of the Procedural Ruling of 10 August 2010 attached as Annex III to this Report) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page xvi  
 
  Abbreviation Description 
Aérospatiale French aerospace manufactu rer, Aérospatiale Société Nationale 
Industrielle 
Aérospatiale-Matra Aérospatia le and Matra Hautes Technologies  
AFUL Association foncière urbaine libre 
Anti-Dumping Agreement Agreement on Implementati on of Article VI of the General Agreement 
on Tariffs and Trade 1994   
ARP programme Aeronautics Research Programme 
BAE Systems BAE Systems PLC – 1999 merger of British Aerospace and Marconi 
Electronic Systems 
BCI business confidential information 
CARAD programme Civil Aircraft R esearch and Development Program 
CASA Construcciones Aeronáuticas SA  
Commissaires ' report Rapport des Commissaires aux apports sur la rémunération de 
l'apport de titres Dassault Aviation  (6 May 1999)  
(Panel Exhibit EC-892) 
CSG programme Specific Programme for Research, Technological Development and 
Demonstration on Competitive and Sustainable Growth established through Council Decision 1999/169/EC  
Dasa Deutsche Aerospace AG (1992);  subsequently  
Daimler-Benz Aerospace AG (1995);  subsequently  
DaimlerChrysler Aerospace AG (1998) 
DPAC  Direction des programmes aérona utiques et de la coopération  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes 
EADS European Aeronautic Defence and Space Company NV 
EADS' Reference Document EADS, Reference Document – Financial Year 2000  (26 April 2001) 
(Panel Exhibit EC-54) 
EC European Communities 
EC Decisions Decisions of the European Parliament and/or the Council of the 
European Union (previously, the Council of the European Communities) 
ECtHR European Court of Human Rights 
EEC European Economic Community 
EIB European Investment Bank  
EIG  équipement d'intérêt général    BCI deleted, as indicated [***] WT/DS316/AB/R 
Page xvii 
 
 
  Abbreviation Description 
Ellis Report NERA, Economic Assessment of the Benefits of Launch Aid 
(10 November 2006) (Panel Exhibit US-80 (BCI)) 
EU European Union 
Fifth EC Framework 
Programme EC Council Decision 182/1999/EC of 22 December 1998 concerning 
the fifth framework programme of the European Community for 
research, technological development and demonstration activities (1998 to 2002), Official Journal of the European Communities , 
L Series, No. 26 (1 February 1999) 1 (Panel Exhibit EC-203) 
Fourth EC Framework Programme EC Council Decision 1110/94/EC of 26 April 1994 concerning the 
fourth framework programme of the European Community activities in the field of research and technological development and 
demonstration (1994-1998), Official Journal of the European 
Communities , L Series, No. 126 (18 May 1994) 1 (Panel Exhibit 
EC-202) 
French A330-200 contract Agreement (of 28 November 1996) between the signatory authority of 
the agreement acting on behalf and for the account of the State, on the one hand, and Aérospatiale, on the other hand, concerning the 
development of the Airbus A330-200  (Panel Exhibit US-78 (BCI)) 
French A340-500/600 
contract Agreement (of 29 December 1998) between the signatory authority 
of the agreement on behalf and for the account of the State, on the 
one hand, and Aérospatiale, on the other hand, concerning the 
development of the Airbus A340-500 and A340-600   
(Panel Exhibit US-36 (BCI)) 
French A380 contract Agreement (of 20 March 2002) between the aeronautical programme 
service (SPAé) as signatory authority of the agreement acting on behalf and for the account of the State, on the one hand, and the company Airbus France, on the ot her hand, concerning the Airbus 
A380 repayable advance (Panel Exhibit US-116 (BCI)) 
GATT 1994 General Agreement on Tariffs and Trade 1994  
GIE groupement d'intérêt économique  
GMF Global Market Forecasts 
HSBI highly sensitive business information 
ICJ International Court of Justice 
IGG itinéraire à grand gabarit 
ILC International Law Commission WT/DS316/AB/R BCI deleted, as indicated [***] 
Page xviii  
 
  Abbreviation Description 
ILC Articles ILC Articles on Responsibility of States for Internationally Wrongful 
Acts.  Text adopted by the ILC at its fifty-third session, in 2001, and 
submitted to the United Nations General Assembly as part of the ILC's report covering the work of that session.  The General Assembly "{took} note of the Articles on responsibility of States for 
internationally wrongful acts" for the first time in General Assembly 
Resolution 56/83 of 12 December 2001, corrected by document A/56/49(Vol. I)/Corr.4, and subsequently in Resolution 59/35 of 2 December 2004, Resolution 62/61 of 6 December 2007, and Resolution 65/19 of 6 December 2010.  The ILC's report, which also contains commentaries on the draft articles, appears in the Yearbook  
of the International Law Commission, 2001 , Vol. II, Part Two. 
ILC Report on 
Fragmentation  Report on Fragmentation of International Law: Difficulties Arising 
from the Diversification and Ex pansion of International Law , Report 
of the Study Group of the ILC at its fifty-eighth session, finalized by Martii Koskenniemi, UN Document A/CN.4/L.682 (13 April 2006) 
IMT 1991 programme Specific Programme for Research and Technological Development in 
the Field of Industrial and Materials Technologies established through Council Decision 91/506/EEC 
IMT 1994 programme Specific Programme for Research and Technological Development, 
including Demonstration, in the Field of Industrial and Materials Technologies established through Council Decision 94/571/EC  
IRR internal rate of return 
ISERA programme Specific Programme for Integrating and Strengthening the 
European Research Area  
ITR International Trade Resources LLC  
KfW Kreditanstalt für Wiederaufbau  (German Government development 
bank) 
KSS Study Kerins, Smith, and Smith, "Oppor tunity Cost of Capital for Venture 
Capital Investors and Entrep reneurs" (June 2004) 39(2) Journal of 
Financial and Quantitative Analysis  385 (Panel Exhibit US-470)   
LA/MSF launch aid/member State financing  
LA/MSF Programme Alleged programme (by th e United States) of consistent, up-front 
provision by the Airbus governments of a significant portion of the 
capital needed by Airbus to develop each new LCA model through 
loans that are (a) unsecured, (b) repayable on a success-dependent basis (i.e., through per sale levies), (c) with the levy amounts greater 
for later sales than earlier sales (i.e., back-loaded), and (d) with 
interest accruing at rates below what the market would demand for  the assumption of similar risk 
LCA large civil aircraft   BCI deleted, as indicated [***] WT/DS316/AB/R 
Page xix 
 
 
  Abbreviation Description 
LuFo I LuFo programme covering the period 1995-1998 
LuFo II LuFo programme covering the period 1998-2002 
LuFo III LuFo programme c overing the period 2003-2007 
LuFo programme Luftfahrtforschungsprogramm  (Aviation Research Programme) 
MBB Messerschmitt-Bölkow-Blohm GmbH 
member States Governments of Germany, France, Spain, and the United Kingdom 
MHT Matra Hautes Technologies 
NERA National Economics Research Associates 
NPV net present value 
Panel Report Panel Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/R 
ProFi Projektierungsgesellschaft Finkenwerder GmbH & Co. KG  
PROFIT programme Programa de Fomento de la Investigación Técnica   
(Funding Programme for Technological Research) 
PTA I PTA programme covering the period 1993-1998 
PTA II PTA programme covering the period 1999-2003 
PTA programme Plan Tecnológico Aeronáutico  (Technological Plan for Aviation) 
R&D research, development, and demonstration 
R&TD research and technological development 
SAS société par actions simplifiée 
SCM Agreement  Agreement on Subsidies and Countervailing Measures   
Second EC Framework 
Programme EC Council Decision 87/516/Eura tom EEC of 28 September 1987 
concerning the framework programme  for Community activities in the 
field of research and technologi cal development (1987 to 1991), 
Official Journal of the European Communities , L Series, No. 302 
(24 October 1987) 1 (Panel Exhibit EC-200) 
SEPI Sociedad Estatal de Participaciones Industriales 
SETOMIP Société d'équipement Toulouse Midi Pyrénées 
SIDMI Société industrielle aéronautique du Midi 
Sixth EC Framework Programme EC Council Decision 1513/2002/EC of 27 June 2002 concerning the 
sixth framework programme of the European Community for research, 
technological development and dem onstration activities, contributing 
to the creation of the European Research Area and to innovation (2002 to 2006), Official Journal of the European Communities , L Series, 
No. 232 (29 August 2002) 1 (Panel Exhibit EC-204) 
SMEs small and medium enterprises 
SSNIP Small but Significant Non-Transitory Increases in Prices WT/DS316/AB/R BCI deleted, as indicated [***] 
Page xx  
 
  Abbreviation Description 
SOGEADE Société de gestion de l'a éronautique, de la d éfense et de l'espace  
Spanish 1984 A320 contract Agreement (of 28 February 1984) between the Ministry of Industry 
and Energy and Construcciones Aeronáuticas, S.A. for the provision 
of a refundable deposit without interest, intended to finance development costs of the new Airbus A320 
Spanish 1988 A330/A340 contract Cooperation Agreement (of 1 June 1988) between the Ministry of 
Industry and Construcciones Aeronáuticas, S.A. relating to the provision of a repayable, interest-free advance for the financing of development costs for the Airbus A330/A340 
Spanish 1990 A330/A340 contract Agreement (of 30 July 1990) between the Ministry of Industry and 
Energy and Construcciones Aeronáuticas, S.A. for the provision of a 
refundable deposit without interest, intended to finance development 
costs for the Airbus A330/A340 
Spanish 1992 A320 contract Final contract (of 1 September 1992) for the termination and 
liquidation of the cooperation agreem ents between the Ministry of 
Industry, Trade and Tourism and C onstrucciones Aeronáuticas, S.A. 
relating to the provision of repayable funds for the financing of development costs for the Airbus A320 
Spanish A340-500/600 contract Framework Cooperation Agreement (of 28 December 1998) between 
the Ministry of Industry and Energy and the company Construcciones 
Aeronáuticas S.A. on financing the participation of the said company 
in the development of the Airbus A340-500 and A340-600 programme 
(Panel Exhibits EC-87 (BCI) and US-37 (BCI)) 
Spanish A380 contract Cooperation Agreement (of 27 December 2001) between the Ministry 
of Science and Technology (MCYT) and the company EADS Airbus SL on financing the participation of the said company in the development of the Airbus A-380 family programme  
(Panel Exhibits EC-88 (BCI) and US-73 (BCI)) 
Third EC Framework 
Programme EC Council Decision 90/221/Euratom EEC of 23 April 1990 
concerning the framework programme  for Community activities in the 
field of research and technologi cal development (1990 to 1994), 
Official Journal of the European Communities , L Series, No. 117 
(8 May 1990) 28 (Panel Exhibit EC-201) 
Tokyo Round Subsidies Code Tokyo Round Agreement on Interpretation and Application of 
Articles VI, XVI and XXIII of the General Agreement on Tariffs and 
Trade , BISD 26/56, entered into force 1 January 1980 
TPC Technology Partnership Canada  
UK United Kingdom 
US United States 
USDOC US Department of Commerce  
VFW Vereinigte Flugtechnische Werke 
Vienna Convention  Vienna Convention on the Law of Treaties , done at Vienna, 23 May 
1969, 1155 UNTS 331;  8 International Legal Materials 679  BCI deleted, as indicated [***] WT/DS316/AB/R 
Page xxi 
 
 
  Abbreviation Description 
Wachtel Report P. Wachtel, "Critique of 'The Effect of launch Aid on the Economics 
of Commercial Airplane Programs' by Dr. Gary J. Dorman" (31 January 2007) (Panel Exhibit EC-12) and clarification (20 May 2007) (Panel Exhibit EC-659) 
Whitelaw Report Robert Whitelaw, Economic Assessment of Member State Financing 
(3 February 2007) (Panel Exhibit EC-11 (BCI)) 
Working Procedures Working Procedures for Appellate Review , WT/AB/WP/5, 4 January 
2005 (Note: Alt hough this version of the Working Procedures  applied 
to this appeal, it has been replaced by a subsequent version, 
WT/AB/WP/6, 16 August 2010)  
WTO World Trade Organization 
WTO Agreement Marra kesh Agreement Establishing the World Trade Organization   
ZAC zone d'aménagement concertée  
 
  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 1  
 
  W
ORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
European Communities and Certain Member 
States – Measures Affecting Trade in Large Civil Aircraft 
 European Union
1, Appellant/Appellee  
United States, Other Appellant/Appellee 
 
Australia, Third participant  
Brazil, Third participant  
Canada, Third participant  
China, Third participant  
Japan, Third participant  
Korea, Third participant   AB-2010-1 
  Present:  
 Unterhalter, Presiding Member 
 Bautista, Member  Van den Bossche, Member  
  I. Introduction 
1. The European Union and the United States each  appeals certain issues of law and legal 
interpretations develope d in the Panel Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft  (the "Panel Report").
2  The Panel was established, 
on 20 July 2005, to consider a complaint by the Unite d States that a series of measures adopted by the 
                                                      
1This dispute began before the entry into force of the Treaty of Lisbon amending the Treaty on 
European Union  and the  Treaty establishing the European Community  (done at Lisbon, 13 December 2007) on 
1 December 2009.  On 29 November 2009, the World Tr ade Organization received a Verbal Note (WT/L/779) 
from the Council of the European Union and the Commission of the European Communities stating that, by virtue of the Treaty of Lisbon , as of 1 December 2009, the "Europ ean Union" replaces and succeeds the 
"European Community".  On 13 Ju ly 2010, the World Trade Organiza tion received a second Verbal Note 
(WT/Let/679) from the Council of the European Union confirming that, with  effect from 1 December 2009, the 
European Union replaced the European Community and assumed all the rights and obligations of the 
European Community in re spect of all Agreements for which the Director-Gen eral of the World Trade 
Organization is the depositary and to which the European Community is a signatory or a contracting party.  We understand the reference in the Verbal Notes to the "European Community" to  be a reference to the 
"European Communities".  Thus, although the European Communities was a party in the Panel proceedings, and 
the Panel referred to the European Communities in its Report, it is the European Union that filed a Notice of Appeal in this dispute after the entry into force of the Treaty of Lisbon , and we will thus refer to the 
European Union in this Report in its capacity as appellant  (and as appellee).  However,  when referring to events 
that took place during the Panel proceedings, or quoting from the Panel Report, we refer to the European Communities. 
2WT/DS316/R, 30 June 2010. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 2  
 
  European Communities and certain EC member States  constituted subsidies to the Airbus companies
3 
for the development of large civil aircraft ("LCA")4 and were inconsistent with the Agreement on 
Subsidies and Countervailing Measures  (the " SCM Agreement ").  The measures at issue that were the 
subject of the United States' claims before the Panel include5:   
(a) "launch aid" or "member State financing" ("LA/MSF")6:  the provision of financing 
by the Governments of France, Germany, Spain, and the United Kingdom 
(hereinafter, the "member States") to Airbus for the purpose of developing the 
following LCA—the A300, A310, A320, A330/A340 (including the A330-200 and A340-500/600 variants), A350, and A380
7; 
(b) loans from the European Investment Bank (the "EIB") :  12 loans provided by the EIB 
to Airbus companies between 1988 and 20 02 for LCA design, development, and 
other purposes8; 
(c) infrastructure and infrastructure-related grants :  the provision of goods and services, 
as well as grants, to develop and upgrade Airbus manufacturing sites, including the 
provision by German authorities of the Mühlenberger Loch industrial site near 
Hamburg, and of the extended runway at the Bremen airport;  the provision by French 
                                                      
3The United States used the term "Airbus companies" to describe Airbus SAS, its predecessor Airbus 
GIE, and current and predecessor affiliate d companies, including each person or entity that directly, or indirectly 
through one or more intermediaries or relationships, controls or controlled, is or was controlled by, or is or was 
under common control with Airbus SAS or Airbus GIE, such as parent companies, sibling companies, and 
subsidiaries, including Airbus Deutschland GmbH, Airbus España SL, Airbus France SAS, Airbus UK Limited, European Aeronautic Defence and Space Company NV (" EADS"), and BAE Systems.  In this Report, for 
purposes of describing the measures at issue, the Un ited States' claims, and the Panel's findings, we use the 
terminology used by the United States. (Panel Report, footnote 10 to para. 2.5;  Request for the Establishment of 
a Panel by the United States, WT/DS316/2, 3 June 2005)  The evolution of the corporate structure of Airbus 
SAS is described in section IV.B of this Report.   
4The Panel defined "large civil aircraft" ("LCA") as follows: 
{L}arge (weighing over 15,000 kilograms) "tube and wing" aircraft, with 
turbofan engines carried under low-set wings, designed for subsonic flight.  LCA are designed for transporting 100 or more passengers and/or a 
proportionate amount of cargo across a range of distances serviced by 
airlines and air freight carriers.  LC A are covered by tariff classification 
heading 8802.40 of the Harmonized Syst em ("Airplanes and other aircraft, 
of an unladen weight exceeding 15,000 kg").  
(Panel Report, para. 2.1) 
5A detailed description of the measures at issue relevant to these appellate proceedings is contained in 
section IV of this Report. 
6The United States used the term "launch aid";  the European Communities requested the Panel to use 
instead "a more neutral term—'member State Financing' ".  The Panel decided to "refer to the challenged 
measures as 'LA/MSF' or, wh en referring to a specific contract or measure, {to} use the relevant short titles, 
e.g., the 'UK A380 contract' or the 'A380 contract'". (See Panel Report, para. 7.291) 
7Panel Report, para. 2.5(a). 
8Panel Report, paras. 2.5(b) and 7.717.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 3  
 
  authorities of the Aéroconstellation i ndustrial site in Toulouse and road 
improvements related to that site;  and regional grants by German authorities in 
Nordenham, by Spanish authorities in Ill escas, Puerto Real, and Puerto de Santa 
Maria, La Rinconada, and Sevilla, a nd by Welsh authorities in Broughton
9; 
(d) German and French restructuring measures :  the provision to Airbus by Germany10 
and France of equity infusions, debt fo rgiveness, and grants through government-
owned and government-controlled banks, in cluding five equity infusions provided by 
the French Government to Aérospatiale c onsisting of three capital investments made 
by the French Government in 1987, 1988, and 1994, one capital contribution by Crédit Lyonnais in 1992, and the transfer by the French Government in 1998 of its 45.76% equity interest in D assault Aviation to Aérospatiale
11;  and 
(e) research and technological development ("R&TD")12 funding :  the provision of grants 
and loans for R&TD undertaken by Airbus, including grants by the European Communities under the Second, Third, Fourth, Fifth, and Sixth EC Framework Programmes
13;  grants by the French Government between 1986 and 
2005;  and loans by the Spanish Government under the Plan Tecnológico 
Aeronáutico  (Technological Plan for Aviation) ("PTA programme") and the 
Programa de Fomento de la Investigación Técnica (Funding Programme for 
Technological Research) ("PROFIT programme").14 
                                                      
9Panel Report, paras. 2.5(c) and 7.1010. 
10Panel Report, para. 2.5(e).  The United States ch allenged specific transactions arising from the 
German Government's restructuring of Deutsche Airbus in the late 1980s, including the 1989 acquisition by the German Government, through the development bank Kreditanstalt für Wiederaufbau ("KfW"), of a 20% equity 
interest in Deutsche Airbus ( ibid., paras. 2.5(e) and 7.1250), the 1992 sale by KfW of that interest to 
Messerschmitt-Bölkow-Blohm GmbH ("MBB"), the parent company of Deutsche Airbus ( ibid., paras. 2.5(e) 
and 7.1253), and the forgiveness by the German Government, in 1998, of debt owed by Deutsche Airbus in the 
amount of DM 7.7 billion ( ibid., paras. 2.5(d) and 7.1308). 
11Panel Report, paras. 2.5(e), 7.1326, and 7.1380.   
12The United States challenged a series of what it te rmed "research, development, and demonstration" 
or "R&D" measures. (Request for the Establishment of a Panel by the United States, WT/DS316/2, section (6))  
The Panel employed the term "research and technological development" or "R&TD" measures.  We also use the 
latter term in this Report. 
13See infra , footnotes 1475, 1476, 1478, 1479, 1481, 1482, 1484, 1485, 1487, and 1488 in section IV.E 
of this Report. 
14Panel Report, paras. 2.5(f) and 7.1415.  The United St ates also challenged R&TD funding in the form 
of grants by the German Federal Government under the Luftfahrtforschungsprogramm  (Aviation Research 
Programme) ("LuFo programme") and by the regional governments of Bavaria, Bremen, and Hamburg, and grants by the UK Government under the Civil Aircraft Research and Development Program ("CARAD 
programme"), the Aeronautics Res earch Programme ("ARP programme"),  and the Technology Programme. WT/DS316/AB/R BCI deleted, as indicated [***] 
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  A. The United States' Claims before the Panel 
2. Before the Panel, the United States claimed th at the LA/MSF measures by France, Germany, 
Spain, and the United Kingdom for the devel opment of the A300, A310, A320, A330/A340, 
A330-200, A340-500/600, and A380 we re "a form of highly preferentia l financing that amount{ed} to 
a specific subsidy" within the me aning of Articles 1 and 2 of the SCM Agreement .
15  In addition, the 
United States maintained that the "systemati c and coordinated" provision of LA/MSF by these 
member States demonstrated the existence of an  unwritten LA/MSF "Programme", distinct from the 
individual LA/MSF measures, which constituted a speci fic subsidy within the meaning of Articles 1 
and 2 of the SCM Agreement .16  Finally, the United States claimed that the LA/MSF for the 
development of the A330- 200, A340-500/600, and A38017 constitute subsidies contingent, both in law 
and in fact, upon anticipated export performance with in the meaning of Article 3.1(a) and footnote 4 
of the SCM Agreement  and, therefore, pursuant to Article 3.2 of the SCM Agreement , must not be 
granted or maintained.18 
3. The United States further claimed that 12 loans provided by the EIB to Airbus companies 
constituted specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement .19  The 
United States asserted that the loans provided financial contributions in the form of direct or potential 
direct transfers of funds under Article 1.1(a)(1)(i ), conferred a benefit under Article 1.1(b) by 
providing financing on terms more favourable than those available for comparable financing in the 
market, and were specific within the meaning of Article 2.1(a) and (c) of the SCM Agreement .20  
Further, the United States claimed that the provi sion by French, German, Spanish, and UK authorities 
of infrastructure and infrastructure-related gran ts conferred a benefit under Article 1.1(b) and 
constituted specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement .21  I n  
addition, the United States claimed that two sp ecific transactions arising from the German 
Government's restructuring of Deutsche Airbus in the late 1980s, and the five equity infusions 
provided by the French Government to Aérospa tiale, constituted specific subsidies under Articles 1 
                                                      
15Panel Report, para. 7.290.  The United States also  claimed that an alleged commitment to provide 
LA/MSF by the above-mentioned four member States fo r the development of the A350 constituted a specific 
subsidy within the meaning of these provisions. ( Ibid., para. 7.297)  Neither participant has appealed the Panel's 
finding regarding LA/MSF for the A350. 
16Panel Report, para. 7.498 (quoting United States' first written submission to the Panel, para. 85). 
17More specifically, seven LA/MSF measures were th e subject of the United States' claim on export 
contingency, including LA/MSF for:  (i) the A380 by France, Germany, Spain, and the United Kingdom;  (ii) the A340-500/600 by France and Spain;   and (iii) the A330-200 by France. 
18Panel Report, paras. 3.1(a) and 7.582.   
19Panel Report, para. 7.717. 
20Panel Report, paras. 7.729, 7.739, and 7.890.  
21Panel Report, para. 7.1010.  BCI deleted, as indicated [***] WT/DS316/AB/R 
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  and 2 of the SCM Agreement .
22  The United States additionally submitted that the R&TD funding 
provided under the EC Framework Programmes and by certain member State governments constituted 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement .23 
4. Finally, the United States alleged that, through the use of the above-mentioned subsidies, the 
European Communities, France, Germany, Spain, and the United Kingdom caused or threatened to 
cause "injury" to the United States' industry producing LCA and "serious prejudice" to United States' 
interests, within the meani ng of Articles 5 and 6 of the SCM Agreement .  With respect to its claim on 
serious prejudice, the United States submitted that the e ffect of the subsidies was:  (i) to displace or 
impede the imports of US LCA into the EC market  within the meaning of Article  6.3(a) of the 
SCM Agreement ;  (ii) to displace or impede the exports of US LCA from various third country 
markets within the meaning of Article 6.3(b);  a nd (iii) significant price undercutting by EC LCA as 
compared with the price of US LCA in the sam e market, and significant price suppression, price 
depression, and lost sales in the same market, within the meaning of Article 6.3(c).24 
B. The Panel's Findings 
5. The Panel Report was circulated to Members of the World Trade Organization (the "WTO") 
on 30 June 2010.  The Panel declined the Europ ean Communities' request for a preliminary ruling25 
that certain measures be excluded from the scope of the Panel's review.26  Specifically, the Panel 
rejected the European Communities' argument that certain measures fell outside the temporal scope of 
the Panel proceedings because:  (i) they were granted before the SCM Agreement  came into effect on 
1 January 1995;  or (ii) they were "grandfathered"27 under Article 2 of the 1992 Agreement between 
                                                      
22Panel Report, paras. 7.1250-7.1257, 7.1327, 7.1329 , 7.1332, 7.1336, and 7.1385.  The United States 
maintained that each of th e transactions constituted a direct tran sfer of funds with in the meaning of 
Article 1.1(a)(1)(i), and each conferred a benefit under Article 1.1(b) because it was inconsistent with the usual 
investment practice of private investors.  The United States further asserted that the alleged debt forgiveness by the German Government constituted a specific subsidy within the meaning of Articles 1 and 2 of the SCM 
Agreement , because it was a financial contribution within the meaning of Article 1.1(a) (1)(i) and, as a cash 
grant, placed Deutsche Airbus in a better position than  it otherwise would have been in the marketplace. ( Ibid., 
paras. 7.1309-7.1311)   
23Panel Report, para. 7.1415.  According to the Unite d States, this funding constituted direct transfers 
of funds within the meaning of Article 1.1(a)(1)(i), conferred a benefit under Article 1.1(b) by placing the relevant Airbus entity in a better position than it otherw ise would have been in the marketplace, and was specific 
within the meaning of Article 2 b ecause it was provided to Airbus an d/or the aeronautics industry. ( Ibid., 
paras. 7.1489-7.1491 and 7.1504) 
24Panel Report, paras. 3.1(b) and 7.1610. 
25The European Communities submitted a request for preliminary rulings on 25 October 2005 and 
subsequently updated it on 7 November 2006. (Panel Report, paras. 7.12 and 7.14) 
26The Preliminary Ruling of the Panel was communicated to the parties on 11 July 2007. (Panel Report, 
footnote 1766 to heading VII.C, p. 264)  As separa te matters, the Panel declined requests for enhanced 
third-party rights by Brazil, Canada, and Korea ( ibid., para. 7.168) and the request of the 
European Communities to be identified as the "proper respondent" in the dispute ( ibid., paras. 7.174-7.176). 
27Panel Report, para. 7.71. WT/DS316/AB/R BCI deleted, as indicated [***] 
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  the United States and the European Economic Community concerning the application of the GATT 
Agreement on Trade in Civil Aircraft
  (the "1992 Agreement")28, because the 1992 Agreement 
rendered them "compatible with", and therefore not challengeable under, the SCM Agreement .29  In 
addition, the Panel rejected the European Communities' contention th at certain measures fell outside 
the Panel's terms of reference beca use they were not identified by the United States in the request for 
consultations30, or were not properly identified in the re quest for the establishment of a panel in 
accordance with Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement 
of Disputes  (the "DSU").31  
6. The Panel also rejected various arguments  of the European Communities that, as a 
prerequisite to its claims on adverse effects under Articles 5 and 6 of the SCM Agreement , the 
United States was required to demonstrate "c ontinuity" of benefits to Airbus SAS ( société par actions 
simplifiée  under French law), the legal entity responsi ble for the development and manufacture of 
Airbus LCA since 2001.32  Specifically, the Panel rejected th e European Communities' assertion that 
it was necessary for the United States affirmatively to demonstrate the "pass-through" to Airbus SAS 
of benefits conferred by financ ial contributions that had been provided to companies forming the 
Airbus Industrie consortium33 prior to 2001 in order to make out a prima facie  case under Article 5 of 
the SCM Agreement .34  Moreover, the Panel rejected the European Communities' argument that 
certain subsidies at issue in this dispute have be en "extinguished", "extracted", and/or "withdrawn" 
within the meaning of Articles 4.7 and 7.8 of the SCM Agreement  as a result of two transactions 
                                                      
28Agreement between the European Economic Community and the Government of the United States of 
America concerning the application of the GATT Agreement on Trade in Civ il Aircraft on trade in large civil 
aircraft , done at Brussels on 17 July 1992, Official Journal of the European Communities , L Series, No. 301 
(17 October 1992) 32.  Article 2 of the 199 2 Agreement provides, in relevant part: 
Government support to current large civil aircraft programmes, committed 
prior to the date of entry into force of this Agreement, is not subject to the 
provisions of this Agreement except as otherwise provided below.  
29Panel Report, para. 7.71.  
30Panel Report, para. 7.137.  
31Panel Report, para. 7.158.  In its request for preliminary rulings, the European Communities asserted 
that the challenged French R&TD measures were descri bed in the United States' panel request in an "overly 
broad, ambiguous or overly inclusive manner".  Subsequently, in its first written submission to the Panel, the 
European Communities also argued that a set of Spanish loans—known as the PROFIT programme loans—were not adequately identified in the United States' panel request. (See Panel Report, para. 7.1418) 
32Panel Report, paras. 7.286-7.289. 
33The Panel used the term "Airbus Industrie" to re fer to the Airbus consortium as it operated between 
1970 and 2001;  namely each of the four Airbus partners—Aérospatiale (subsequently Aérospatiale Matra), 
Deutsche Airbus, CASA, and British Aerospace (subseq uently BAE Systems), as well as Airbus GIE 
collectively .  Where the Panel referred to Airbus GIE as an entity distinct from the Airbus partners, it used the 
term "Airbus GIE". (Panel Report, para. 7.184)  Airbus GIE was registered under French law as a groupement 
d'intérêt économique  ("GIE"), which is a French legal framewo rk that allows its members to carry out 
collectively certain economic activities while maintaining their separate legal identities, and which does not have as its goal the retaining of profits. ( Ibid., footnote 2053 to para. 7.183)   
34Panel Report, para. 7.286.  BCI deleted, as indicated [***] WT/DS316/AB/R 
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  involving the removal of cash from two Airbus predecessor companies—DaimlerChrysler Aerospace 
AG ("Dasa")
35 and Construcciones Aeronáuticas SA ("CASA")—and/or as a result of a number of 
"arm's-length, fair market value" sales transactions involving Airbus companies.36  
7. Turning to the United States' claims concer ning the LA/MSF measures, the Panel dismissed 
two preliminary arguments made by the European Communities:  first, that LA/MSF contracts for A320 and A330/A340 models cannot be assessed for compliance with Article 5 of the 
SCM Agreement , but must instead be examined in the light of the 1979 T okyo Round  Agreement on 
Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and 
Trade
37 (the " Tokyo Round Subsidies Code ")38;  and, second, that Article 4 of the 1992 Agreement is a 
"relevant rule{} of international law applicable in  the relations between the parties", pursuant to 
Article 31(3)(c) of the Vienna Convention on the Law of Treaties  (the " Vienna Convention ")39, which 
should have been applied by the Panel in assessing whether the relevant post-1992 LA/MSF conferred 
a "benefit" under Article 1.1(b) of the SCM Agreement .40   
8. In considering the LA/MSF measures under the SCM Agreement , the Panel found that the 
United States had established that each of the cha llenged measures:  (i) involved the provision of a 
"financial contribution by a government or any public body" in the form of direct transfer of funds, 
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement 41;  (ii) conferred a "benefit" on 
Airbus, within the meaning of Article 1.1(b) of the SCM Agreement , because each was provided by 
the government on interest rate terms that were mo re advantageous than w ould otherwise have been 
the case if financing on the same or similar term s and conditions had been sought by Airbus from a 
market lender42;  and (iii) was "specific", within the meaning of Article 2.1(a) of the 
SCM Agreement .43  However, the Panel dismissed the Unite d States' complaint against the alleged 
LA/MSF measure for the A350, finding that a clear  and identifiable commitment to provide LA/MSF 
for the A350 on the terms and conditions specified by the United States did not exist on the date of 
establishment of the Panel.44  The Panel also concluded that th e United States failed to demonstrate 
                                                      
35A full description of the entity we refer to in this Report as "Dasa" can be found in section IV.B of 
this Report. 
36Panel Report, paras. 7.288 and 7.289. 
37BISD 26S/56, entered into force 1 January 1980. 
38Panel Report, para. 7.325. 
39Done at Vienna, 23 May 1969, 1155 UNTS 331;  8 International Legal Materials 679. 
40Panel Report, para. 7.389.  
41Panel Report, paras. 7.377 and 7.379.  
42Panel Report, paras. 7.383 and 7.384. 
43Panel Report, para. 7.497.  
44Panel Report, para. 7.314.  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  the existence of an unwritten LA/MSF Programme constituting a "specific" subsidy within the 
meaning of Articles 1 and 2 of the SCM Agreement .
45   
9. With respect to the alleged export subsidi es, the Panel found that the United States had 
demonstrated that the German, Spanish, a nd UK A380 LA/MSF measures constituted subsidies 
contingent in fact upon export performance, within th e meaning of Article 3.1(a) and footnote 4 of the 
SCM Agreement .  However, the Panel found that the United States failed to show that the remaining 
four LA/MSF measures challenged by the United States as export subsidies46 were contingent in fact 
upon anticipated export performance within the meaning of the same provisions.47  Finally, the Panel 
dismissed the United States' claim that the provi sion of LA/MSF for the A380, A340-500/600, and 
A330-200 was contingent in law upon anticipated  export performance, within the meaning of 
Article 3.1(a) and footnote 4 of the SCM Agreement .48 
10. With respect to the EIB loans, the Panel found that each of the challenged loans amounted to 
a subsidy within the meaning of Article 1 of the SCM Agreement , because each consisted of a 
financial contribution that was provided at below-market interest rates.49  However, it found that the 
United States failed to establish that each of the loan s at issue was specific under Article 2.1(a) or (c) 
of the SCM Agreement , and therefore dismissed the United Stat es' claim that the EIB loans constituted 
specific subsidies under the SCM Agreement .50 
11. Concerning the United States' claims regarding infrastructure measures, the Panel concluded 
that the provision by German authorities of the Mü hlenberger Loch industrial site and the extended 
runway at the Bremen airport, and by French au thorities of the Aéroconste llation industrial site, 
constituted specific subsidies to Airbus in the form  of the provision of goods or services "other than 
general infrastructure" within the meaning of Article  1.1(a)(1)(iii), and conferred a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement .51  The Panel further found that the grants by 
German authorities in Nordenham and Spanish author ities in Illescas, Puerto Real, Puerto de Santa 
Maria, La Rinconada, and Sevilla constituted subsidies within the m eaning of Article 1 that were 
                                                      
45Panel Report, para. 7.579.  
46These four measures are the French LA/MSF contr acts for the A380 and A3 30-200, and the French 
and Spanish LA/MSF contracts for the A340-500/600. (See infra , footnotes 1111 and 1112) 
47Panel Report, para. 7.689. 
48Panel Report, para. 7.713.  The Panel found that the United States' claim was "improperly 
constituted", because the United States relied on facts extraneous to the LA/MSF co ntracts.  Moreover, the 
Panel found that, even assuming that the United States was entitled to bring its case relying upon evidence that was extraneous to the LA/MSF contracts, the United St ates failed to demonstrate that the LA/MSF subsidies 
were granted contingent in law upon  anticipated export performance. ( Ibid., para. 7.716) 
49Panel Report, paras. 7.729, 7.738, and 7.885. 
50Panel Report, para. 7.1008. 
51Panel Report, paras. 7.1084, 7.1097, 7.1121, 7.1134, 7.1179, 7.1190, and 7.1191.  BCI deleted, as indicated [***] WT/DS316/AB/R 
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  specific within the meaning of Article 2.2 of the SCM Agreement .
52  However, the Panel dismissed the 
United States' claims with regard to the other infrastructure and infrastructure-related grants.53 
12. In addition, the Panel rejected the United States ' claim that the alleged debt forgiveness by the 
German Government in the amount of DM 7.7 billion constituted a specific subsidy within the 
meaning of Articles 1 and 2 of the SCM Agreement .  Instead, the Panel found that the 
European Communities had demonstr ated that the amount of DM 1.75 billion for which the German 
Government agreed to settle Airbus' outstanding re payment obligation was consistent with the present 
value in 1998 of Deutsche Airbus' outstandi ng indebtedness to the German Government.54  As for the 
other corporate restructuring measures, the Panel fo und that the United States had established that the 
two specific transactions arising out of the German Government's restructuring of Deutsche Airbus, as well as the five equity infusions by the French Government to Aérospatiale, constituted specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement .
55  The Panel found that the 
four capital contributions to Aéro spatiale made by the French G overnment between 1987 and 1994, as 
well as the 1998 transfer by the French Government of its 45.76% equity interest in Dassault Aviation 
to Aérospatiale, conferred a benefit on Aérospa tiale, because the investment decisions were 
inconsistent with the usual investment practice of private investors.   
13. Concerning the R&TD funding challenged by th e United States, the Panel found that the 
following measures were specific subsidies with in the meaning of Articles 1 and 2 of the 
SCM Agreement :  (i) R&TD grants under the Second, Third,  Fourth, Fifth, and Sixth EC Framework 
Programmes;  (ii) French Government R&TD gran ts between 1986 and 2005;  (iii) German Federal 
Government R&TD grants under the Luftfahrtforschungsprogramm  (Aviation Research Programme) 
("LuFo programme");  (iv) grants by Bavarian, Br emen, and Hamburg authorities;  (v) loans under the 
Spanish Government PROFIT and PTA programmes;  and (vi) UK Government grants under the Civil 
                                                      
52Panel Report, paras. 7.1235, 7.1243, and 8.1(b)(iv). 
53The Panel found that the provision of road improvements by French authorities was not a subsidy 
under Article 1.1(a)(1)(iii) of the SCM Agreement , because it constituted the provision by French authorities of 
"general infrastructure" within the meaning of that provision. (Panel Report, para. 7.1196)  The Panel further 
found that grants provided by the regional government of Andalusia in Puerto Santa Maria, and by the 
Government of Wales in Broughton, were not specific to Airbus within the meaning of Article 2.2 of the 
SCM Agreement . (Ibid., paras. 7.1137 and 7.1142) 
54Panel Report, paras. 7.1321 and 7.1322. 
55Panel Report, paras. 7.1302, 7.1380, and 7.1414.  Specifically, the Panel found that all of these 
measures involved a financial contribution, in the form of a direct transfer of funds, pursuant to 
Article 1.1(a)(1)(i).  The Pa nel found that a benefit was conferred within the meaning of Article 1.1(b) on 
Deutsche Airbus through the 1989 acquisition by KfW of a 20% equity interest in Deutsche Airbus and the 1992 
transfer by KfW of that interest to MBB (which, at the time, was the parent company of Deutsche Airbus);  and 
on Aérospatiale through the four capital contributions to Aérospatiale made by the French Government between 
1987 and 1994, as well as the 1998 transfer by the French Government of its 45.76% equity interest in Dassault Aviation to Aérospatiale.  Finally, the Panel found that a ll of these subsidies were sp ecific within the meaning of 
Article 2 of the SCM Agreement .  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 10  
 
  Aircraft Research and Development Program ("CA RAD programme") and the Aeronautics Research 
Programme ("ARP programme").
56  The Panel, however, rejected th e United States' claims regarding 
the other R&TD funding.57 
14. Finally, with regard to the United States' clai ms on adverse effects, the Panel found that the 
subsidies at issue enabled the launch of each model of Airbus LCA at a time and in a manner that 
would not have been possible in the absence of the s ubsidies.  On this basis, the Panel concluded that 
the United States had established that the Europ ean Communities and the Governments of France, 
Germany, Spain, and the United Kingdom have, thr ough the use of specific subsidies, caused serious 
prejudice to the United States' interests over the reference period 2001 to 2006 in the form of:  
(i) displacement of US imports of LCA into the European Communities market  within the meaning of 
Article 6.3(a) of the SCM Agreement ;  (ii) displacement of US exports of LCA from the markets of 
Australia, Brazil, China, Korea, Mexico, Singapor e, and Chinese Taipei within the meaning of 
Article 6.3(b) of the SCM Agreement , and threat of displacement of US exports of LCA from the 
market of India58;  and (iii) lost sales of US LCA in th e same market within the meaning of 
Article 6.3(c) of the SCM Agreement .59  However, the Panel could not reach any conclusions 
regarding significant price undercutting.60 
15. The Panel found that the United States failed to demonstrate that the effect of the subsidies 
was to impede US imports into the European Co mmunities market and to impede US exports from 
third country markets, within the meaning of Article 6.3(a) and (b) of the SCM Agreement .  The Panel 
further found that the United States failed to demo nstrate that the specific subsidies at issue, by 
allowing Airbus to develop and launc h its family of LCA, or by provi ding Airbus with the financial 
flexibility to lower its prices, al so caused the significant price suppression and price depression that 
occurred between 2001 and 2006, within the meaning of Article 6.3(c) of the SCM Agreement .61  In 
addition, the Panel concluded that the United States  failed to establish that the European Communities 
                                                      
56Panel Report, paras. 7.1608 and 7.1609.   
57Panel Report, para. 7.1502.  Specifically, the Panel found that the United States failed to establish that 
a promise to provide funds under part of the LuFo programme conferred a benefit "separate and independent" from the benefit that might have been conferred by a future transfer of the promised funds.  Moreover, the Panel 
found that grants under the UK Technology Programme were not specific within the meaning of Article 2.1(a) 
of the SCM Agreement . (Ibid., para. 7.1591) 
58Panel Report, para. 7.2025.  The Panel also found that, with the exception of likely displacement from 
the Indian market, the United States failed to substantiate its claims of threat  of serious prejudice with respect to 
all forms of serious prejudice alleged in this dispute. ( Ibid., para. 7.2028) 
59Panel Report, para. 7.1845.  These relate to sales campaigns by Air Asia, Air Berlin, Czech Airlines, 
easyJet, Emirates Airlines, Iberia Ai rlines, Qantas Airways, South African Airways, Singapore Airlines, and 
Thai Airways International. 
60Panel Report, para. 7.1840. 
61Panel Report, para. 7.2026.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 11  
 
  and certain member States, through the use of the subsidies, caused injury to the United States' 
domestic industry within the mean ing of Article 5(a) of the SCM Agreement .
62 
C. Appellate Proceedings 
16. On 21 July 2010, the European Union notified the Dispute Settlement Body (the "DSB") of 
its intention to appeal certain issues of la w covered in the Panel Report and certain legal 
interpretations developed by the Panel, pursuant to Articles 16.4 and 17 of the DSU, and filed a 
Notice of Appeal63 pursuant to Rule 20 of the Working Procedures for Appellate Review64 (the 
"Working Procedures ").  On 5 August 2010, the European Union requested, from the Appellate Body 
Division hearing this appeal, authorization to amend its Notice of Appeal pursuant to Rule 23 bis of 
the Working Procedures  in order to correct certain discrepan cies in the references to paragraph 
numbers of the Panel Report.65  The Division provided the United States and the third participants 
with an opportunity to comment in writing on the request.66  No objections to the European Union's 
request were received.  On 11 August 2010, the Divi sion authorized the European Union to amend its 
Notice of Appeal.67 
17. On 21 July 2010, the Division hearing this appeal received a joint letter from the 
European Union and the United States requesting that the Division adopt additional procedures to 
protect business confidential information ("BCI") and highly sensitive business information ("HSBI") 
in these appellate proceedings.  They argued that di sclosure of this information could be "severely 
prejudicial" to the originators of the information, that is, to the LCA manufacturers that are at the 
heart of this dispute, and possibly to the manufacturers' customers and suppliers.  The 
European Union and the United States attached to their request proposed additional working 
procedures for the protection of BCI and HSBI.  On 22 July 2010, the Division invited the third 
participants to comment in writing on the partic ipants' request to adopt additional procedures to 
protect BCI and HSBI, and received written comment s from Australia, Brazil, Canada, and Japan on 
28 July 2010.  These third participants expresse d their general support for the request of the 
                                                      
62Panel Report, para. 7.2186.  
63WT/DS316/12. 
64WT/AB/WP/5, 4 January 2005 (Note:  Although this version of the Working Procedures  applied to this 
appeal, it has been replaced by a subsequent version, WT/AB/WP/6, 16 August 2010). 
65The European Union requested the authorization to amend "two categories of inadvertent errors".  
The first category arose due to a discrepancy between the paragraph numbering in the "business confidential" 
version of the Panel Report issued to the parties on 23 March 2010 and the final version of the Panel Report circulated to WTO Members on 30 June 2010.  The s econd category involved two ty pographical errors in the 
Notice of Appeal. (Letter dated 5 August 2010 from the European Union to the Director of the Appellate Body 
Secretariat) 
66Letter dated 6 August 2010 from the Presiding Member to the United States and the third participants. 
67WT/DS316/12/Rev.1 (attached as Annex I to this Report). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 12  
 
  participants, and suggested certain modifications to  the procedures proposed by the participants in 
order to ensure that the right of third participan ts to participate meaningfully in these appellate 
proceedings would be fully protected.   
18. On 22 July 2010, the Division declined the partic ipants' request that it ask the Panel to delay 
the transmittal to the Appellate Body of any info rmation classified as BCI or HSBI on the Panel 
record until after the Appellate Body had adopted additional measures regarding BCI and HSBI.  The 
Division noted that Rule 25 of the Working Procedures  requires that the panel record be transmitted 
to the Appellate Body upon the filing of a Notice of  Appeal.  The Division, taking into consideration 
the participants' concern with regard to the protec tion of BCI and HSBI contained in the Panel record 
decided, on a provisional basis, to provide additi onal protection to all BCI and HSBI transmitted to 
the Appellate Body during the period leading up to th e definitive ruling on the participants' request for 
additional procedures.  Furthermore, noting that consideration of the participants' joint request 
required modification to the timelines for filing submissions provided in the Working Procedures , the 
Division decided to extend the deadlines fo r filing submissions in this appeal.   
19. The Division held a special oral hearing on 3 August 2010 to explore further the issues raised 
in the participants' joint request to adopt additi onal procedures to protect BCI and HSBI and in the 
third participants' comments concerning the request.  On 10 August 2010, the Division issued a Procedural Ruling in response to the joint requ est, and adopted Additional Procedures to Protect 
Sensitive Information (the "Additional Procedur es").  The Procedural Ruling and Additional 
Procedures are attached as Annex III to this Report. 
20. On 11 and 12 August 2010, pursuant to paragra ph 28(xiv) of the Additional Procedures, the 
participants each provided a list of persons designated as "BCI-Approve d Persons" and persons 
designated as "HSBI-Approved Persons".  Likewise,  in accordance with paragraph 28(xvi) of the 
Additional Procedures, each of the third participants designated up to six individuals as "Third 
Participant BCI-Approved Persons" on 12 August 2010.  On 13 August 2010, the European Union 
objected to the designation by Jap an of an outside advisor as a Third Participant BCI-Approved 
Person, pursuant to paragraph 28(xv i) of the Additional Procedures.
68  Specifically, the 
European Union referred to the provision in paragr aph 28(xvi) that "{t}he participants may object to 
the designation of an outside advisor as a Thir d Participant BCI-Approved Person" and that "{t}he 
Division will only reject the designation of an outside advisor … upon a showing of compelling 
                                                      
68Letter dated 13 August 2010 from the European Union to the Director of the Appellate Body 
Secretariat.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 13  
 
  reasons".
69  On 23 August 2010, the European Union and Japan informed the Appellate Body that 
they had reached a "bilateral resolu tion of the issue".  Consequently, the European Union withdrew its 
objection to Japan's list of BCI-Approved Persons and its request for a ruling by the Division.70  
Subsequently, the European Union71, Canada72, the United States73, and Japan74 each requested to 
make changes to their respective list.  The Division provided the participants and the third participants 
with the opportunity to comment in writing on the requests.75  N o  o b j e c t i o n s  w e r e  m a d e  b y  t h e  
participants or the third participants.  The Di vision authorized all of the changes requested.76 
21. The European Union filed an appellant's submission on 16 August 2010.77  On 19 August 
2010, the United States notified the DSB of its intention to appeal certain issues of law covered in the 
Panel Report and certain legal interp retations developed by the Panel,  pursuant to Articles 16.4 and 17 
of the DSU, and filed a Notice of Other Appeal pursuant to Rule 23 of the Working Procedures .78  On 
23 August 2008, the United States filed an other appellant's submission.79  On 30 September 2010, the 
                                                      
69According to the European Union, the outside advisor designated by Japan was a partner of a law 
firm in which another partner, as a former counsel to Airbus in this dispute, had been privy to confidential 
information concerning certain measur es at issue during the Panel proceedings.  Following a letter from the 
Division to the participants and third participants on 17 August 2010, the European Union submitted supplemental information in support of its objection, and requested the Division to make a ruling on its 
objection. (Letter dated 18 August 2010 from the European Union to the Presiding Member)  Subsequently, 
Japan submitted its response to the European Union's objection, arguing that the European Union failed to show compelling reasons for rejecting the designation of Japan's outside advisor as a Third Participant BCI-Approved 
Person. (Japan's response of 20 August 2010 to the European Union's objection concerning the outside advisor 
in Japan's list of Third Partic ipant BCI-Approved Persons)   
70E-mail communication from the European Union and letter from Japan dated 23 August 2010 to the 
Director of the Appellate Body Secretariat. 
71Letters dated 13 October 2010, 7 March 2011, and 19 April 2011 from the European Union to the 
Director of the Appellate Body Secretariat. 
72Letter dated 13 October 2010 from Canada to the Director of the Appellate Body Secretariat. 
73Letter dated 3 December 2010 from the Unit ed States to the Presiding Member. 
74Letters dated 29 October 2010 and 2 December 2010 from Japan to the Director of the Appellate 
Body Secretariat. 
75Letters dated 14 October 2010, 2 November 2010, 6 December 2010, and 9 March 2011 from the 
Presiding Member to the participants and third participants. 
76By letters dated 27 October 2010, 5 November  2010, 8 December 2010 , 14 March 2011, and 
29 April 2011, the Division auth orized the changes requested by th e European Union, Canada, the 
United States, and Japan. 
77Pursuant to Rule 21 of the Working Procedures .  The European Union appealed the Panel's findings, 
that the EIB loans were within the temporal scope of application of the SCM Agreement  and conferred a benefit 
and that there existed price suppression and price de pression for the Boeing 777, on the condition that the 
United States appealed certain findings of the Pane l. (European Union's Notice of Appeal, para. 11;  
European Union's appellant's submission, paras. 72, 685, 875)  As the conditions on which these appeals were 
premised did not arise, the European Union withdr ew, by letter dated 13 September 2010, these conditional 
appeals pursuant to Rule 30(1) of the Working Procedures . 
78WT/DS316/13 (attached as Annex II to this Report). 
79Pursuant to Rule 23(3) of the Working Procedures . WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 14  
 
  European Union and the United States  each filed an appellee's submission
80, and Australia, Brazil, 
Canada, China, Japan, and Korea each filed a third participant's submission.81  
22. In their joint letter of 21 July 2010, the participan ts also requested that the oral hearing in this 
appeal be opened to public observation to the extent that this would be possible given the existence of 
sensitive information.  On 24 September 2010, the Di vision issued a letter requesting the participants 
to clarify the extent to which they requested the or al hearing in this appeal to be opened to public 
observation, and to propose specific modalities in this respect.  The Division invited the third 
participants to comment thereafter on the participan ts' request and proposed modalities.  On 5 October 
2010, the participants submitted a jo int letter to the Presiding Member confirming their request for a 
public hearing.  The participants suggested that  the Division adopt a further Procedural Ruling 
pursuant to Rule 16(1) of the Working Procedures  to regulate the conduct of the oral hearing in the 
light of the request for public observation and the existence of sensitive information, and proposed 
specific modalities for that purpose.  Australia, Br azil, Canada, and Japan submitted comments on the 
participants' request to open the oral hearing to public observation.82  On 27 October 2010, the 
Division issued a Procedural Ruling authorizing the participants' joint request for opening the hearing 
to public observation, and adopt ed Additional Procedures on the Conduct of the Oral Hearings 
including the protection of certain sensitive inform ation during the oral hearing.  The Procedural 
Ruling is attached as Annex IV to this Report.   
23. On 25 October 2010, the Division received a letter from the United States indicating that it 
understood that this appeal was large and that the participants' requests for special rules to protect 
certain information and for extended periods fo r filing written submissions added time to the 
proceedings.  In the light of Article 17.5 of the DSU, however, the United States considered it 
important to reach "agreement" on a date for circ ulation of the Appellate Body report in these 
proceedings "without further delay", and requested th e Division to propose to both participants a time 
period for completion of this appeal "as soon as po ssible".  On 27 October 2010, the Division received 
a letter from the European Union stating that the United States had both agreed to and acquiesced in 
derogation from the 90-day period for comp letion of these appellate proceedings.  The 
European Union further submitted that the Appe llate Body did not require "agreement" of the 
participants as to the date of circulation of its repo rt.  The European Union noted in this regard that 
the Working Procedures clearly state that the relevant time periods are set and modified by the 
                                                      
80Pursuant to Rules 22 and 23(4) of the Working Procedures .   
81Pursuant to Rule 24(1) of the Working Procedures . 
82Letter dated 8 October 2010 from Australia to the Presiding Member;  letter dated 11 October 2010 
from Brazil to the Presiding Member;  letter dated 8 Octo ber 2010 from Canada to the Presiding Member;  letter 
dated 11 October 2010 from Japan to the Director of the Appellate Body Secretariat.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 15  
 
  Appellate Body and do not require agreement of th e participants.  Furthermore, according to the 
European Union, requiring agreement of the partic ipants "would open the door to potential abuse and 
would not be consistent with the objectives of the dispute settlement system."   The European Union 
considered that the date of final circulation of the Appellate Body report could be fixed after the 
second session of the substantive oral hearing in  this appeal, which was to take place in 
December 2010.  Finally, the European Union cons idered that the Appellate Body should take the 
time it required to prepare its report, and that it w ould not be unreasonable if this would be at least 
commensurate with the relative extensions in the peri ods of time that the participants had required in 
order to prepare their submissions in this appeal.   
24. By letter of 28 October 2010, the United States reiterated the importance of setting a date for 
issuance of the report in this appeal, noting that it understood that, consistent  with Appellate Body 
practice, the participants would need to provide lett ers agreeing that additional time is needed for this 
appeal and that such letters would specify the date  of circulation of the report.  The United States 
further recalled that it recognized from the outset th at the appeal in this case, which raises an 
unprecedented number of issues, would require more th an 90 days to resolve.  The United States also 
submitted that producing a high-quality report was in the interests of all. 
25. In its letter to the participants and third participants of 3 November 2010, the Division 
explained that it had carefully considered the above submissions by the United States and the 
European Union, and indicated that the participants and third participants may wish to raise the matter 
again at the first session of the substantive oral  hearing, scheduled to commence on 11 November 
2010.  The Division further stated that it intended to  provide an estimated date for circulation of the 
Appellate Body report after the oral hearing, on ce it was in a better position to assess the amount of 
time reasonably required to comple te its work in this appeal. 
26. The substantive oral hearing in this appeal took place in two sessions:  the first on 
11-17 November and the second on 9-14 December 2010.  Pursuant to the Procedural Ruling, the 
participants did not refer to any BCI or HSBI in their opening and closing statements, and the third 
participants did not refer to any BCI in their ope ning and closing statements.  The opening and closing 
statements of the participants and the third partic ipants were videotaped, with the exception of China 
(at the second session only) and Korea.  After the participants reviewed the videotapes and confirmed 
that no BCI or HSBI had been inadvertently uttered, the recording of the opening and closing statements were broadcast to the public on 25  November and 17 December 2010 respectively.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 16  
 
  27. At the first session of the hearing, the Division distributed written questions to the participants 
and third participants in order to clarify certain factual aspects of the Panel's findings concerning the 
evolution of the European Aeronautic Defe nce and Space Company NV ("EADS"), and received 
written responses from the participants at the hearing.   In addition, upon the Division's invitation to 
the participants and third participants, the European  Union, the United States, Australia, Brazil, China, 
and Japan submitted additional memoranda on 26 N ovember 2010, pursuant to Rule 28 of the 
Working Procedures , regarding the issues discussed during the first session of the hearing.  On 
1 December 2010, the European Union, the Unite d States, and Brazil submitted comments on the 
additional memoranda. 
28. Pursuant to paragraph 28(xiii) of the Procedural  Ruling of 10 August 2010, we informed the 
participants and the third participants, on 27 April 2011, that we had not found it necessary to include 
in the Appellate Body report intended for circula tion to WTO Members information that was treated 
by the Panel as BCI or HSBI.  Paragraph 28(xiii) of  the Procedural Ruling foresees that an advance 
copy of the Appellate Body report intended for ci rculation to WTO Members will be provided to the 
European Union and the United States in order for them to indicate whether any BCI or HSBI was 
inadvertently included in the report.  The advance copy of the Appellate Body report was provided to 
the European Union and the United States on 2 May 2011.  They were requested to indicate, by 
6 May 2011, whether any BCI or HSBI was inadvertently included in the report.  On 6 May, the United States indicated that it had not found any BCI or HSBI outside of the text encompassed in 
square brackets in the Appellate Body report inte nded for circulation, and the European Union 
indicated that it had identified only one instan ce in which confidential information had been 
inadvertently included.  On 10 May 2011, the Divi sion informed the European Union and the United 
States that it had redacted the confidential inform ation concerned from the Appellate Body report to 
be circulated to Members. 
II. Arguments of the Participants  and the Third Participants 
A. Claims of Error by the European Union – Appellant 
1. The Panel's Terms of Reference
 
(a) The Spanish PROFIT programme 
29. The European Union argues that the Panel's finding that the Spanish PROFIT programme 
loans were within the Panel's terms of refere nce was based on an erroneous interpretation and  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 17  
 
  application of Article 6.2 of the DSU and "defies both the letter and the spirit of Article 6.2".
83  
Referring to recent Appellate Body jurisprudence, the European Union argues that the fact that 
Article 6.2 states that a panel request must "identify the specific  measures at issue" means that not any 
identification of a measure is sufficient but, rather, that the identification of the measure must "point 
to the 'specific' measure".84  For the European Union, the due process objective of Article 6.2 
indicates that the term "specific" must be interpreted narrowly.85 
30. The European Union contends that the Panel di d not pay sufficient regard to the specificity 
requirement of Article 6.2.  In fact, the Panel' s statement that "the focus of the United States' 
complaint is not all Spanish government funding to  Airbus for LCA-related activities;  rather only 
funding provided 'since 1993' 'for civil aeronautics- related R&D projects'" shows that the Panel was 
satisfied with an extremely "un-speci fic" identification of the measures.86  This "very generic 
description ... would potentially comprise a multit ude of programmes and other measures without the 
European Union knowing which ones constitute th e object of the {United States'} complaint".87  The 
European Union states that it does not know why the United States decided not to include the PROFIT 
programme in its panel request, given that the United States was able to identify other specific 
measures in the form of the PTA programme loans,  and could have been expected to know of the 
PROFIT programme loans at the time of its panel request on 31 May 2005.  The European Union also 
notes that the United States must have known about th e PROFIT programme since it was able to pose 
questions about the programme during the Annex V pr ocess, immediately following the panel request.  
Under these circumstances, "the European Union had to believe that {the} PROFIT {programme} 
was not part of the US complaint."88  
31. The European Union claims that the Panel also  erred when it based its assessment of the 
United States' panel request on "attendant circumst ances" that it wrongly considered to be relevant
                                                      
83European Union's appellant's submission, para. 1206.  Section 6(d) of the United States' panel request 
reads as follows: 
Funding from the Spanish government, including regional and local 
authorities, since 1993 for civil aeronautics-related R&D projects in which 
Airbus participated, including loans and other financial support provided under the Plan Tecnológico Aeroná utico I and the Plan Tecnológico 
Aeronáutico II. 
84European Union's appellant's submission, para. 1205 and 1207 (referring to Appellate Body Report, 
US – Zeroing (Japan) (Article 21.5 – Japan) , para. 108;  and quoting Article 6.2 of the DSU). (emphasis added 
by the European Union) 
85European Union's appellant's submission, para. 1207.  In support of its view, the European Union 
refers to Appellate Body Report, EC – Selected Customs Matters , para. 152.  
86European Union's appellant's submission, para. 1208 (quoting Panel Report, para. 7.1420, in turn 
quoting Request for the Establishment of a Panel by the United States, WT/DS316/2).   
87European Union's appellant's submission, para. 1208.  
88European Union's appellant's submission, para. 1209.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 18  
 
  under Article 6.2 of the DSU.  First, the Panel di d not explain how questions by the United States 
during the Annex V process could be relevant for assessing the panel re quest under Article 6.2.  In the 
European Union's view, to the extent they are re levant, they would "at best demonstrate that the 
United States must have had knowledge of {the}  PROFIT {programme} when it decided not to 
include PROFIT in its panel request."
89 
32. Second, the European Union argues that the Pa nel erred when it relied on the fact that the 
European Communities had not challenged in its pr eliminary rulings request the inclusion of the 
PROFIT programme loans within the Panel's terms of  reference.  Such a conclusion is inconsistent 
with the due process objectives of Article 6.2, because it obliges a defendant to raise in a request for a 
preliminary ruling an open-ended number of measur es in order to avoid that any failure to object 
would bring such measures within the scope of the di spute.  In any event, the Panel's conclusion was 
not supported by the preliminary rulings request in this case.  The European Union asserts that it did 
not raise an issue with regard to the PROFIT progr amme in its preliminary rulings request because it 
believed that the United States had decided not to challenge it.90 
33. Finally, the European Union argues that the Pa nel erred when referring to the United States' 
consultation and panel requ ests in dispute WT/DS34791, because the fact that those documents refer to 
the PROFIT programme cannot bring that measur e within the scope of this dispute.  The 
European Union similarly dismisses the relevance of the "other attendant circumstances" identified in 
footnote 4652 of the Panel Report, since they deal  exclusively with the French Government R&TD 
measures.  
(b) The French R&TD grants 
34. The European Union argues that the Panel's findi ng that the French R&TD grants were within 
its terms of reference was based on an erroneous in terpretation and applicatio n of Article 6.2 of the 
DSU.92  Recalling prior Appellate Body jurispruden ce, the European Union argues that the Panel 
                                                      
89European Union's appellant's submission, paras. 1210 and 1211.   
90European Union's appellant's submission, para. 1212.  The European Union maintains that the 
Spanish PROFIT programme measures differ from th e French support that the European Communities 
challenged in its request for prelimin ary rulings.  Whereas the United States  made "a fully unspecific reference 
to French R&TD support", the inadequacy of which the European Communities raised in its preliminary rulings 
request, the United States' panel request identified tw o specific Spanish measures under the PTA programme.   
91European Communities and Certain Member States – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) . 
92European Union's appellant's submission, para. 1216.  Section 6(e) of the United States' panel request 
reads as follows: 
Funding from the French government, including regional and local authorities, since 1986 for civil aeronautics-related R&D projects in which 
Airbus participated.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 19  
 
  "neither examined the precision of the {United St ates'} panel request carefully, nor ensured its 
compliance with the letter or spirit of Article 6.2 of the DSU".
93  In particular, the European Union 
contends that the Panel did not pay sufficient regard to the "specificity" requirement of Article 6.2 of 
the DSU. 
35. First, the European Union argu es that the United States' panel request appears "extremely 
un-specific" on its face.94  A complainant "should, at a minimum, be required to identify the legal 
basis for such a series of actions."95  The Panel failed to do this, a nd instead considered it sufficient 
that "the United States {had} referred to all f unding for civil aeronautics-related R&D projects in 
which Airbus participated provided by France (on a national, regional and local level) over a period 
of 19 years."96  Such a broad reference, the European Uni on maintains, is not compatible with the due 
process objective of Article 6.2. 
36. Second, the European Union argues that the lack  of specificity in the identification of the 
measures is further illustrated by reading section (6) of  the United States' panel request as a whole.  In 
other parts of section (6), the United States identif ied the "legal basis" for the government support it 
was challenging, either by reference to the progr amme through which the funding was provided, or to 
the entity providing the funding.  This allowed read y reference to the underlying measures authorizing 
the programme or the entity's funding activities.  S ection 6(e), by contrast, refers to funding on a 
national, regional, and local level without identifying  the programme or granting entity at issue.  The 
European Union adds that the global reference to f unding provided over a period of 19 years added to 
the difficulty of preparing its defence. 
37. Finally, the European Union considers that th e "attendant circumstances" referred to by the 
Panel did not lead to an identification of "specific measures" within the meaning of Article 6.2 of the 
DSU.  The European Union asserts that the Panel's reference to "a ttendant circumstances" was "not 
based on any proper analysis of those circumst ances", because it did not evaluate any of the 
arguments to which the Panel referred.97  Moreover, the "attendant circumstances" raised by the 
United States did not suffice to identify the specific measures at  issue within the meaning of 
Article 6.2.  The European Union notes, in particul ar, the fact that such issues were raised in 
consultations, which are in any event confidential and cannot be verified, would not remedy a later 
                                                      
93European Union's appellant's submission, paras. 1222 and 1223 (referring to Appellate Body Report, 
US – Zeroing (Japan) (Article 21.5 – Japan) , para. 108;  and Appellate Body Report, EC – Selected Customs 
Matters , para. 152).   
94European Union's appellant's submission, para. 1224.   
95European Union's appellant's submission, para. 1224.   
96European Union's appellant's submission, para. 1224.   
97European Union's appellant's submission, para. 1226.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 20  
 
  panel request that failed to identify specific measures.   The consultation request itself "{did} not shed 
any light on which precise French R&D measures the United States wanted to challenge in its panel 
request."
98  The European Union equally dismisses the re levance of statements by the United States to 
the DSB, which would present a problematic basis for bringing measures within the scope of a 
dispute.99  In any event, the United States made no mention of French R&TD support in those 
statements. 
2. The Temporal Scope of Article 5 of the SCM Agreement  
38. The European Union claims that  the Panel erred in concludi ng that the pre-1995 measures 
challenged by the United States fall within the temporal scope of Article 5 of the SCM Agreement .  In 
particular, the European Union argues that LA/MSF  committed and paid prior to 1 January 1995 is 
outside the temporal scope of Article 5.  Accord ing to the European Union, this includes LA/MSF 
funding for the A300, A310, and A320 and LA /MSF financing by the United Kingdom for the 
A330/A340.  The European Union also argues that the extension of the runway at the Bremen Airport, 
which was completed in 1989, falls outside the temporal  scope of Article 5.  For the European Union, 
certain French capital contributions occurring in 1987, 1988, 1992, and 1994 and certain German 
share transfers occurring in 1989 and 1992 are also outside the temporal scope of Article 5.  In 
relation to research and development funding, the Eu ropean Union similarly argues that grants or 
disbursements made prior to 1 January 1995 unde r the Second and Third EC Framework Programmes 
are outside the temporal scope of Article 5 and should be excluded from these proceedings.100  The 
European Union advances several lines of argument in support of its position. 
39. First, the European Union contends that the Pane l erred in its application of the principle of 
non-retroactivity of treaties reflected in Article 28 of the Vienna Convention101 by wrongly focusing 
on the nature of the obligation contained in Article 5 of the SCM Agreement  rather than on the nature 
of the measures challenged by the United States.  Th e European Union recalls that Article 28 of the 
Vienna Convention  requires that, if a treaty does not provide  for its retroactive application or is 
otherwise silent, its provisions a pply only to "continuing situations" a nd not to completed situations or
                                                      
98European Union's appellant's submission, para. 1230.   
99European Union's appellant's submission, para. 1231 (referring to Panel Report, footnote 1993 to 
para. 7.149).   
100See European Union's appellant's submission, paras. 60-76.  
101Article 28 of the Vienna Convention provides: 
Article 28:  Non-retroactivity of treaties 
Unless a different intention appears from the treaty or is otherwise 
established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of 
the entry into force of the treaty with respect to that party.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 21  
 
  completed "acts" or "facts" that took place before th e treaty entered into force.  The relevant question 
before the Panel was therefore whether the pre-1995 measures challenged by the United States can be 
characterized as "acts" or "facts" that to ok place before the entry into force of the SCM Agreement  or 
"completed situations", "and not, as the Panel assu med, whether the obligation contained in Article 5 
of the SCM Agreement  covers a 'situation' {i.e., causing adver se effects through the use of subsidies} 
which exists as of the effective date of the SCM Agreement , even if that situation arose as a result of 
the granting of a subsidy prior to that date."
102   
40. The European Union further argues that, by conc luding that Article 5 refers to a "situation" 
comprising both the granting of a subsidy and its eff ects, regardless of when the subsidy was granted, 
the Panel effectively negated the principle of non-re troactivity.  Yet, under general international law, 
the question of whether treaty obligations apply to  certain government conduc t depends on the nature 
of the government conduct and its timing.  According to the European Union, "if the government 
conduct takes place in an instant (i.e., when 'the  act is performed'), such a government conduct 
becomes an 'act' (or 'fact')" and, "{i}f the government  conduct consists of repe ated acts in time (i.e., 
'continuing wrongful acts')", that government conduct amounts to a "situation".103  F o r  t h e  
European Union, the fact that cer tain effects may continue as a r esult of the government conduct is 
"irrelevant".104 
41. The European Union finds support for its position in the Commentaries105 of the International 
Law Commission (the "ILC") on Article 28 of the Vienna Convention  and on the ILC  Articles on  
Responsibility of States for Internationally Wrongful Acts  (the "ILC Articles").106  In particular, the 
European Union refers to Article 14 of the ILC Article s to argue that "{a} completed act occurs 'at the 
                                                      
102European Union's appellant's submission, para. 28. 
103European Union's appellant's submission, para. 43. 
104European Union's appellant's submission, para. 43. 
105Draft articles on the Law of Treaties with commentaries .  Text adopted by the ILC at its eighteenth 
session, in 1966, and submitted to the United Nations General Assembly as a part of the Commission's report 
covering the work of that session (at para. 38).  The report, which also contains commentaries on the draft articles, appears in the Yearbook of the International Law Commission, 1966 , Vol. II. 
Draft articles on Responsibility of States for Internationally Wrongful Acts with commentaries .  Text 
adopted by the ILC at its fifty-third session, in 2001,  and submitted to the United Nations General Assembly as 
part of the Commission's report covering the work of that session (A/56/10).  The report, which also contains 
commentaries on the draft articles, appears in the Yearbook of the International Law Commission, 2001 , Vol. II, 
Part Two, as corrected.   
106ILC Articles on Responsibility of States for Internationally Wrongful Acts .  Text adopted by the ILC 
at its fifty-third session, in 2001, and submitted to the United Nations General Assembly as part of the ILC's 
report covering the work of that session.  The Genera l Assembly "{took} note of the Articles on responsibility 
of States for internationally wrongful acts" for the first time in General Assembly Resolution 56/83 of 
12 December 2001, corrected by doc ument A/56/49(Vol. I)/Corr.4, and s ubsequently in Resolution 59/35 of 
2 December 2004, Resolution 62/61 of 6 December 2007 , and Resolution 65/19 of 6 December 2010.  The 
ILC's report, which also contains commentar ies on the draft articles, appears in the Yearbook of the 
International Law Commission, 2001 , Vol. II, Part Two. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 22  
 
  moment when the act is performed', even though its effects or consequences may continue".
107  The 
European Union also refers to several rulings of the European Court of Human Rights (the "ECtHR") 
and the International Court of Justice (the "ICJ") to support its argument.108 
42. Turning to the specifics of the SCM Agreement , the European Union recalls that Article 1 of 
that Agreement defines a subsidy as a financial contri bution by a government that confers a benefit.  
The European Union argues that "{t}he moment thes e two elements are present a subsidy is granted 
or brought into existence and can be maintain ed by means of an active government conduct".109  For 
the European Union, "{a}bsent any further active government conduct, it can be concluded that the 
subsidy was brought into existence and has ended."110  The European Union emphasizes that under the 
SCM Agreement  the only action taken by the government is the granting of the subsidy, and the 
effects of the subsidy are a consequence of that government conduct.  Any effects derived from that 
government conduct are separate and should be distin guished from the "act" or "situation" attributed 
to the government.  Accordingly, single acts are necessarily completed acts that do not turn into 
"situations" "because of their mere economic effect".111  The European Union concludes that, under 
Article 28 of the Vienna Convention , a subsidy is a "completed act" if it has been fully disbursed, and 
a subsidy is a "continuing situation" if it still requires active government conduct.  Similarly, a 
subsidy programme that has ended (in the sense that  no company can benefit from it and all payments 
have been disbursed) amounts to a "completed situ ation", whereas a subsidy programme that is still 
ongoing after 1995 amounts to a "continuing situation"  since it requires active government conduct.  
For the European Union, therefore, because the pre-1995 subsidies challenged by the United States 
were "fully granted, disbursed or brought into existence and ended before 1995", they amount to 
completed "acts" or "situations" and are thus out side the temporal scope of application of the 
SCM Agreement , even if the economic effects of such  subsidies may continue to be felt 
subsequently.112   
                                                      
107European Union's appellant's submission, paras. 41 and 42 (quoting ILC's Commentary on Article 14 
of the ILC Articles, supra , footnote 106, pp. 59-60). 
108European Union's appellant's submission, para. 44 (referring to ECtHR, Grand Chamber, Malhous v. 
The Czech Republic , Application No. 33071/96, p. 16).  The European Union also refers to ECtHR, Mayer, 
Weidlich, Fullbrecht Hasenkamp, Golf, Klausner v. Germany , Application Nos. 19048/91, 19049/91, 19342/92, 
18890/92, Decision and Reports 85-A, p. 5;  ECtHR, Grand Chamber, Von Maltzan and others v. Germany , 
Decision to the Admissibility of Applications Nos. 71916/01, 71917/01, and 10260/02 (2 March 2005) ("land 
reform" 1945-49 in the Soviet sector of Germany), paras. 82 and 83;  and ICJ, Judgment on preliminary 
objections, Case Concerning Certain Property (Liechtenstein v. Germany) , ICJ Reports (2005), para. 52. ( Ibid., 
paras. 44 and 45) 
109European Union's appellant's submission, para. 47. 
110European Union's appellant's submission, para. 47. 
111European Union's appellant's submission, para. 52. 
112European Union's appellant's submission, para. 77.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 23  
 
  43. The European Union further contends that the Panel erred in finding that Article 5 of the 
SCM Agreement  sets out an obligation not to cause certain results through a specific causal pathway, 
rather than an obligation not to engage in certain conduct.  In particular, "the Panel ignored that the 
effects caused by the granting of the subsidy are part of the obligation  contained in Article 5, but not 
the government conduct itself."
113  Instead, for the European Union, the wrongful act is "the 
government conduct of granting or maintaining the subsidy concerned and the obligation imposed is 
the withdrawal of the subsidy concerned or the removal of the adverse effects caused by the 
subsidy."114   
44. The European Union contends, in particular, that "the formulation of the obligation in 
Articles 3 and 5 and the scope of the remedy in dicate that both provisions refer to the same 
government conduct:  granting or maintaining subsidies."115  Regarding actionable subsidies, Article 7 
of the SCM Agreement  also confirms that the relevant government conduct for the purpose of 
Article 5 is "granting or maintaining a subsidy".116  Thus, contrary to the Panel's assumption, the fact 
that Part III of the SCM Agreement  is concerned with a situation that  subsists and continues over time, 
rather than with specific acts performed by WT O Members, "has nothing to do with the question of 
whether Article 5 addresses the granting or maintaining of a subsidy and the effects caused together as 
part of the same government conduct."117  The European Union also  points to the grammatical 
structure of Article 5 itself to illustrate that the phrase "through the use of {a} subsidy" refers to the 
government conduct of granting subsidies.118   
45. The European Union submits that Article 8 of the 1979 Tokyo Round Subsidies Code , the 
predecessor provision of Article 5 of the SCM Agreement , also confirms that the government conduct 
at issue is the granting of subsidies by governme nts, because it separately states that "subsidies are 
used by governments" and that "subsidies may cause adverse effects".119   
46. The European Union considers that the Panel erred in finding that Article 28.1 of the 
SCM Agreement  "was not of contextual assistance in deciding whether subsidies granted prior to 
1 January 1995 may be subject to the obligations of Article 5."120  Specifically, the European Union 
contends that Article 28.1 of the SCM Agreement "addresses subsidy programmes , as opposed to 
                                                      
113European Union's appellant's submission, para. 88. (original emphasis) 
114European Union's appellant's submission, para. 88. 
115European Union's appellant's submission, para. 84. 
116European Union's appellant's submission, paras. 84 and 88. 
117European Union's appellant's submission, para. 89. 
118European Union's appellant's submission, paras. 94 and 95. 
119European Union's appellant's submission, para. 96 (referring to Article 8 of the 1979 Tokyo Round 
Subsidies Code ). (emphasis added by the European Union) 
120European Union's appellant's submission, para. 101. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 24  
 
  individual  subsidies", and that "{t}he fact that the Part  dealing with 'Transitiona l Arrangements' refers 
only to subsidy programmes indicates the intention to  exclude prior individual acts of subsidisation" 
from the temporal scope of Article 5.
121   
47. The European Union further argues that Article 32.3 of the SCM Agreement  supports the 
proposition that "actions taken by Members before  1995, in the sense of bringing a subsidy into 
existence, insofar as they are 'completed', shoul d be examined in view of the contemporaneous 
obligation at that time (i.e., the 1979 Tokyo Rou nd Subsidies Code) and thus do not fall within the 
scope of Article 5 of the SCM Agreement ."122  The European Union further argues that Article 32.5 of 
the SCM Agreement  also applies to "'continuing situations' in the form of 'laws, regulations and 
administrative procedures'" and "does not refer to co mpleted 'acts' or 'situations' such as individual 
subsidies granted before 1995."123 
48. The European Union submits that the Panel also erred in interpreting paragraph 7 of 
Annex IV to the SCM Agreement  as suggesting that the benefit of every pre-1995 subsidy is deemed 
to "continue" after 1995 for Article 5 purposes.  C ontrary to the Panel's findings, that provision 
authorizes the "exceptional inclusion" of a benef it from a pre-1995 subsidy in the calculation of the 
overall amount of subsidization post-1995.124  According to the European Union, if all pre-1995 
subsidies were covered by Article 5 of the SCM Agreement , the requirement to allocate "existing 
benefits" to future production arising from such s ubsidies would already flow from Article 5, and 
therefore paragraph 7 of Annex IV would be rendered redundant. 
49. Finally, the European Union submits that the Panel disregarded the fact that "there were 
dramatic changes between the 1979 Tokyo Round Subsidies Code  and the SCM Agreement ", which 
"called for separate rules and th e need for transitional periods".125  The absence of any transitional 
period with respect to individual subsidies brought in to existence before 1995 in dicates that those past 
government actions should be assessed in the light of the rules that were in force when the subsidies 
were granted, because "a common legislative technique is to provide for an appropriate transitional 
period , in order to give the persons concerned re asonable time to extricate themselves from the 
lawfully created  situation."126  The European Union further subm its that, even if the substantive 
provisions in the 1979 Tokyo Round Subsidies Code  were similar to the substantive provisions of the 
SCM Agreement  insofar as actionable subsidies are concerne d, "the obligation contained in Article 5 
                                                      
121European Union's appellant's submission, para. 102. (original emphasis) 
122European Union's appellant's submission, para. 104. 
123European Union's appellant's submission, para. 105. 
124European Union's appellant's submission, para. 108. 
125European Union's appellant's submission, para. 114. 
126European Union's appellant's submission, para. 117. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 25  
 
  of the SCM Agreement  could not apply to government actions  which took place wholly before the 
SCM Agreement  came into force."
127  According to the European Union, the United States had until 
1997 to bring dispute settlement pr oceedings against such actions, a nd "{a} failure to do so cannot 
lead to expanding the temporal scope of Article 5 of the SCM Agreement  as the Panel did."128  
3. The Life of a Subsidy and Intervening Events  
(a) Whether the Panel erred in its in terpretation and application of 
Articles 1, 5, and 6 of the SCM Agreement   
50. The European Union requests the Appellate B ody to find that the Panel erred in the 
interpretation and application of Articles 1, 5, and 6 of the SCM Agreement .  According to the 
European Union, the Panel ignored the legal principl e reflected in Articles 1, 5, and 6 that, when a 
benefit to a recipient arising from prior subsidies diminishes over time or is removed or taken away, 
this "significant change" must be taken into account in the application of the SCM Agreement  and in 
particular in the examination of the causal link be tween the granting of the subsidy and the alleged 
adverse effects.129   
51. The European Union argues that the text of Articles 1, 5, and 6 of the SCM Agreement  
supports the notion of a "continuing benefit".  First, Article 1 of the SCM Agreement  defines the 
conditions under which a subs idy "shall be deemed to exist".  The use of the word "exist", in the 
present tense, demonstrates that the SCM Agreement  is not concerned with subsidies that no longer 
exist and that are not capable of causing adverse eff ects.  Moreover, once a "financial contribution" is 
given, the element under Article 1 that can "cease to exist" or be discontinued over time if there is a 
significant change, either through the passage of time or any other intervening event or action, is the 
"benefit".130  Second, the European Union recalls that Article 5 of the SCM Agreement  provides that 
WTO Members should not cause, "through the use of any subsidy", adverse effects to the interests of 
other Members.  In the European Union's view, the word "cause", in the present tense, implies that 
subsidies that have been withdrawn, ceased to exist, or whose effects  have diminished with the 
passage of time, cannot currently "cause" present adverse effects.131  The European Union finds 
further support for its interpre tation in the term "through the use of any subsidy"132, which in its view 
could not mean that a Member, through granting or maintaining a subsidy that  is later withdrawn or 
                                                      
127European Union's appellant's submission, para. 116. 
128European Union's appellant's submission, para. 121.  
129European Union's appellant's submission, para. 221;  see also para. 199. 
130European Union's appellant's submission, para. 205.  
131European Union's appellant's submission, para. 207.  
132European Union's appellant's submission, para. 207. (emphasis added by the European Union)  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 26  
 
  otherwise discontinued or diminished to a neg ligible amount, could cause present adverse effects.
133  
Indirect effects of subsidies that have ceased to ex ist are not sufficient;  even if "historic" subsidies 
caused something to happen many years ago, the cont inuing existence of what was caused and the fact 
that it may have "continuing effects" today does not  satisfy the requirements of Article 5 of the 
SCM Agreement .  The European Union considers that such  an interpretation wo uld "overstretch" the 
concept of adverse effects caused by a subsidy and render it meaningless.134  Finally, the 
European Union refers to Article 6.3 of the SCM Agreement , which identifies certain situations in 
which "the effect of the subsidy is to" cause certain phenomena.135  The use of the present tense in that 
phrase confirms that a subsidy that is withdrawn or  has ceased to exist cannot trigger these effects, 
and requires an examination of whether the subsidy,  because of the passage of time, is still capable of 
causing present adverse effects.  The European Un ion notes that such an examination can be done 
through the use of "amortisation" rules that inves tigating authorities, panels , and the Appellate Body 
have recognized as a "practical way" of assessing benefit or effects over time.136   
52. The European Union refers to the "privatization" case law of the Appellate Body—in 
particular US – Lead and Bismuth II  and US – Countervailing Measures on Certain EC Products , in 
which the Appellate Body found that the full priva tization of state-owned companies "extinguished" 
the prior benefits of subsidies enjoyed by those st ate-owned companies.  The European Union submits 
that this "privatization" case law is an "application"  of the "principle" that the removal or diminution 
of subsidies over time has to  be taken into account under the SCM Agreement .  These Appellate Body 
reports also illustrate that the removal of the "subs idized value"—indirectly through "extinction", or 
directly through "extraction"137—has to be considered in the est ablishment of the existence of 
subsidization or the aggrieved Member's right to  a remedy.  The European Union acknowledges that 
this "privatization" case law arose in a counterva iling duty context involving full privatizations.
                                                      
133European Union's appellant's submission, para. 207.  The European Union refers to various 
calculations presented to the Panel that in its view show that any present benefit from the subsidies is 
de minimis . (Ibid., footnote 198 to para. 207 (referring to the European Communities' comments on US – 
Upland Cotton (Article 21.5 – Brazil) submitted to the Panel, paras. 8-34 and 74-98;  European Communities' 
first written submission to the Panel, paras. 1468-1490 and 1569-1634 (detailed description of the methodology 
and further references on which it is based);  Intern ational Trade Resources LLC ("ITR") expert statement on 
subsidy allocation, "Calculating Magnitude of the Subsidies Provided to the Recipient Entities" (5 February 
2007) (Panel Exhibit EC-13 (BCI/HSBI));  ITR rebuttal of the United States' critique of allocation methodology, 
"Response to US Assertions that ITR's Method of Calculating the Magnitude of Subsidies is Flawed" (21 May 2007) (Panel Exhibit EC-660 (BCI/HSBI));  and ITR report, "Updated Subsidy Magnitude and Cash Flow 
Calculations" (12 July 2007) (Panel Exhibit EC-839 (BCI))). 
134European Union's appellant's submission, para. 207.  
135European Union's appellant's submission, para. 208.  
136European Union's appellant's submission, para. 208 (referring to Appellate Body Report,  Japan – 
DRAMs (Korea) , para. 210).   
137These concepts, as used by the European Union, are further explained in section V.C.2 of this 
Report.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 27  
 
  However, in its view, the rationale of the Appellate  Body was based on the definition of "subsidy" in 
Article 1 of the SCM Agreement , and thus is common to the entire SCM Agreement .  The 
European Union therefore rejects the Panel's finding th at the "continued benefit" analysis is relevant 
only in Part V cases because, as explained above , the panels and the Appellate Body in the 
privatizations cases based their decisions on a definition of subsidy in Article 1 of the 
SCM Agreement , which applies equally to Part III of the SCM Agreement . 
53. The European Union also finds support for the c oncept of "continuing benefit" in Articles 4.7 
and 7.8 of the SCM Agreement , which it likens to Articles 21.2 and 21.3 in Part V of the 
SCM Agreement .  The European Union recalls that the Appe llate Body noted in the privatization cases 
that Articles 21.2 and 21.3 require the terminati on of remedial action against subsidies once those 
subsidies have been removed in some way.  Acco rding to the European Union, a "harmonious" or 
contextual interpretation of the provisions of the SCM Agreement  precludes a finding that after a 
subsidy is "withdrawn", within the meaning of Articles 4.7 and 7.8 of the SCM Agreement , it can 
nonetheless "continue to exist" within the meaning of Article 1 of the SCM Agreement  or be capable 
of having "adverse effects" within the meaning of Articles 5 and 6 of the SCM Agreement .
138   
54. Turning to the Panel's findings, the European Union recalls the Panel's statement that the 
word "thereby", as used in Article 1.1(b) of the SCM Agreement , indicates that the financial 
contribution and the benefit come into existence at the same time, which in turn led it to reject the 
notion of a "continuing benefit".139  In the European Union's view , the simultaneous coming into 
existence of the financial contri bution and benefit has no relevance for the question of whether the 
benefit must be continuing in order to cause adve rse effects.  The European Union submits that a 
finding that a subsidy exists or has been gr anted does not preclude the possibility of using 
amortization rules to allocate the amount of benef it over time in order to determine whether a subsidy 
still confers a benefit.140  Moreover, the Panel attempted to repl ace the concept of "continuing benefit" 
with an examination of "how the effect  of a subsidy is to be analyzed over time" within its causation 
analysis.141  As the European Union sees it, the two concep ts are different:  a causation analysis is 
"obsolete" in circumstances where a subsidy does not confer a present benefit due to its withdrawal or 
                                                      
138European Union's appellant's submission, para. 201. 
139European Union's appellant's submission, para. 223 (referring to Panel Report, para. 7.218).  The 
European Union submits that, in Japan – DRAMs (Korea) , the Appellate Body found that the calculation of the 
amount of benefit and the allocation of benefit over time once that amount has been established are two separate 
issues. (See Appellate Body Report, Japan – DRAMs (Korea) , para. 199) 
140The European Union argues that this is particularly  relevant in the causation analysis since a subsidy 
which can be considered to be fully amortized before the reference period cannot be found to cause adverse 
effects. (European Union's appellant's submission, para. 223 and footnote 211 thereto).  
141European Union's appellant's submission, para. 224 (quoting Panel Report, para. 7.218 (original 
emphasis)). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 28  
 
  discontinuation, or where due to amortization it is found to be non-existent or negligible.
142  
Furthermore, the European Union observes that, d espite announcing that it would do so, the Panel 
never addressed the "effects of the subsid y over time" in its causation analysis.143   
(b) Whether the Panel erred in its inte rpretation and application of the 
"privatization" case law  
55. The European Union submits that the Panel e rred by "improper{ly} reading" the panel and 
Appellate Body reports in the privatization cases, and that it thereby "improperly narrowed the scope 
of situations in which subsidies are extinguished".144  In the European Union' s view, the privatization 
cases establish the principle that the sale of a co mpany at arm's length and for fair market value 
removes any benefit of prior subsidies to the buyer.  This principle is equally applicable to full and 
partial privatizations, as well as to "private-to-private sales".145  In this regard, the European Union 
refers to a number of sales transactions that it cont ends involved partial priva tizations and "private-to-
private sales", resulting in changes of ownershi p in Airbus companies and consequently the 
"extinction" of a portion of the subsidies that  had been granted to these companies.  These 
transactions include:  (i) the French Government's sale of shares in Aérospatiale-Matra through a 
public offering in 2000;  (ii) the combination of the LCA-related assets and activities of the Airbus partners to form EADS and the public offering of EADS shares in 2000;  (iii) market sales of EADS 
shares by various EADS shareholders (including the French Government) between 2001 and 2006;  and (iv) the sale by BAE Systems of its interest in Airbus SAS to EADS in 2006.
146   
56. The European Union alleges a number of errors in the Panel's analysis of the Appellate Body 
privatization case law.  First, the European Union submits that the Panel misrepresented the Appellate 
Body's findings in US – Countervailing Measures on Certain EC Products  as to whether a distinction 
is to be made between a firm and its owners in analyzing whet her a benefit is conferred or 
extinguished.  In that dispute, the Appellate Body st ated that both a firm and its owners could be the 
recipient of a subsidy, but that investigating aut horities should not overlook the fact that some of the 
                                                      
142European Union's appellant's submission, para. 224. 
143European Union's appellant's submission, para. 224.  The European Union refers to section VII.F of 
the Panel Report, which deals with adverse effects.  The European Union submits that, since the Panel never 
returned to this issue, the European Union had difficu lty in identifying the precise paragraph containing the 
Panel's error.  Moreover, it notes that, although currently raised in the context of the Panel's benefit analysis, and 
in particular in the Panel's findings at paragraphs 7.218 and 7.222, this error also has consequences for the 
Panel's findings in its assessment of the causal link, including issues relating to the quantification of the amount 
of the subsidy and the ag e of the subsidy.   
144European Union's appellant's submission, para. 227.  
145European Union's appellant's submission, para. 226.   
146Panel Report, para. 7.204.  See European Union's appellant's submission, para. 147 and 226 
(referring to European Communities' response to Panel Ques tion 111, para. 311;  and Panel Report, para. 7.204).  
We describe these transactions in furthe r detail in section V.C of this Report.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 29  
 
  financial contribution provided to the owners ma y not flow to the firm.  The Appellate Body 
supported its conclusion on the basis that treating a firm and its owners as distinct could potentially 
undermine the disciplines of the SCM Agreement  because it would allow governments to circumvent 
the Agreement by bestowing benefits on the firm s' owners rather than on the firms themselves.
147  The 
European Union also notes that the Appellate Body in that case criticized the panel for not restricting 
its finding to the circumstances of that case, which involved a full privatization.  The European Union 
submits, however, that, contrary to the Panel's sugge stion, the Appellate Body did not thereby also 
conclude that the panel's "no distin ction" finding should apply only to full privatizations;  rather, the 
Appellate Body expressed the view that investiga ting authorities should not be entitled to assume that 
a benefit to the owners of a firm equates to a benefit to the firm in the full amount.  The European Union further describes the Appellate Body's finding that a firm and its owners can both be 
treated as the recipients of a subsidy as "rooted in economic common sense".
148  In its view, an 
"identity of interest" between a firm and its ow ners extends beyond a case of full privatization to 
situations involving a smaller percentage of shares so ld, since in either instance "the payment in a fair 
market, arm's length transaction would be made by the firm's new owners, w hose relationship with the 
firm and interest in its success would be the sa me, whatever the amount of their shareholding."149  
57. Second, the European Union rejects the Panel's fi nding that the European Union's approach in 
US – Countervailing Measures on Certain EC Products  "conflated" two different "financial 
contributions"—the financial contribution origina lly provided to the producer and the financial 
contribution involved in the sale of an interest in that firm to the new owner—and the two "relevant 
markets" according to which the benefit conferred by  the respective financial contributions is to be 
assessed under Article 14 of the SCM Agreement .  The European Union recalls that it was on this 
basis that the Panel in this dispute found that, while  a change in ownership at fair market value may 
prevent the creation of a new subsidy, it will have no impact on prior subsidies.150  T h e  
European Union submits that the Panel's conclusion is invalidated by the Appellate Body's finding 
that privatizations at fair market value remove benefits of prior subsidies.  The European Union 
further submits that, although it is "perfectly possi ble" to have two financial contributions, they are 
"not comparable".151  The first financial contribution—which may be, for example, a grant or equity 
infusion—to the extent it confers a benefit, involves a subsidy that increases the value of the firm.
                                                      
147European Union's appellant's submission, paras. 237-239 (referring to Appellate Body Report,  
US – Countervailing Measures on Certain EC Products , paras. 115 and 118). 
148European Union's appellant's submission, para. 241. 
149European Union's appellant's submission, para. 241. 
150European Union's appellant's submission, paras. 242 and 243 (referring to Panel Report, paras. 7.243 
and 7.244). 
151European Union's appellant's submission, para. 245.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 30  
 
  The second financial contribution—the sale by the gove rnment of its interest in the firm—involves 
the transfer of the firm's value (increased by the fi rst financial contribution) to new owners, which, if 
it corresponds to a fair market value, not only fails to create a new subsidy but also, "because it by 
definition includes the market value of the subsidy created by the original  financial contribution, it 
also removes the benefit of this subsidy."
152  Accordingly, rather than being "conflated", the two 
financial contributions are treated appr opriately under Articles 1 and 14 of the SCM Agreement .  
58. Third, the European Union submits that, throug h its use of "selective, out-of-context, quotes" 
from the Appellate Body report in US – Countervailing Measures on Certain EC Products , the Panel 
misrepresented the Appellate Body's treatment of that panel's findings, and thereby supported its 
perception that the Appellate Body had invalidated those findings.153  The European Union observes, 
however, that, with the exception of a situation wh ere government intervention distorts the market and 
renders an arm's-length transaction that is a pparently for fair market value "unreliable"154, the 
Appellate Body agreed with the panel that priva tizations at arm's length for fair market value 
extinguish prior subsidies.155  
59. Fourth, with respect to a situation involving "private-to-private" sales, the European Union 
recalls the Appellate Body's statement in US – Countervailing Measures on Certain EC Products  that 
"{t}he Panel's absolute rule of 'no benefit' may be  defensible in the context of transactions between 
{...} private parties taking place in reasonably competitive markets".156  According to the 
European Union, the extinction of benefits in a situation involving two priv ate entities is "founded on 
economic common sense" since, as distinct from a government-to-private sale where the government 
may have reason to shape the circumstances and cond itions of the transaction, a private seller's only 
objective is to obtain maximum value.157  In support, the European Union refers to the United States' 
                                                      
152European Union's appellant's submission, para. 245. (original emphasis)  
153European Union's appellant's submission, para. 247. 
154European Union's appellant's submission, para. 252 (referring to Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , paras. 121-124).  
155European Union's appellant's submission, paras. 250-252 (referring to Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 126, where the Appellate Body stated in relevant part 
that "{i}n the absence of such  proof, the fact of the arm' s-length, fair market value privatization is sufficient to 
compel a conclusion that th e 'benefit' no longer exists for the priv atized firm";  and para. 158, where the 
Appellate Body expressed its agreement with the panel that "privatization at arm's length and at fair market 
price will usually extinguish the remaining part of a benefit bestowed by a prior, non-recurring financial 
contribution.  However, we disagree with the Panel that this result will necessarily and always follow from 
every privatization at arm's length and for fair market value." (original emphasis;  footnotes omitted)). 
156European Union's appellant's submission, para. 253 (quoting Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 124). 
157European Union's appellant's submission, para. 254 (referring to Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 124).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 31  
 
  countervailing duty presumptions that "now establish a presumption of extinguishment of subsidy in 
... private-to-private transactions".
158   
60. With respect to partial privatizations, or "par tial" sales, the European Union finds support in 
the approach taken by the compliance panel in US – Countervailing Measures on Certain EC 
Products (Article 21.5 – EC) .  The European Union argues that th e Panel should have recognized that 
the compliance panel had "legitimized a 'segmented' appr oach to an analysis of changes in ownership" 
and had approved the conclusions of the investigating authority that a portion (5.16%) of the 
pre-privatization benefit to the state-owned comp any, Usinor, had not been extinguished because it 
had been transferred to employees for less than fair market value.159 
61. Finally, the European Union disagrees with th e Panel that the recognition of a "principle" 
according to which changes in underlying ownershi p automatically or presumptively eliminate the 
benefit would "potentially eviscerate" the disciplines of the SCM Agreement , particularly where the 
producer is a corporation whose shares are publicly traded.160  The European Union highlights that, 
contrary to the Panel's implication, the transactions in this case do not involve the "daily trading" of 
shares but, rather, significant sales by government, i ndustry, or institutional sh areholders.  Moreover, 
they involve transactions in assets of an enterprise by strategic sharehol ders rather than shares held as 
investments, and realize for the seller the underlying enterprise value rather th an the investment value 
of the shares.  Accordingly, the European Union submits, they are analogous to kinds of sales of 
shares already found to extinguish or reduce benefits from past financial contributions.161 
(c) Whether the Panel erred in finding that the transactions did not 
"withdraw" the benefit conferred by the past subsidies, within the 
meaning of Articles 4.7 and 7.8 of the SCM Agreement  
62. The European Union argues that the Panel erred in its interpretation and application of the 
word "withdraw" in Articles 4.7 and 7.8 of the SCM Agreement  by failing to find that two sets of 
transactions involving Airbus companies had the effect of "withdrawing" the value of prior subsidies.  
                                                      
158European Union's appellants' submission, para. 254, and footnote 250 thereto (referring to 
US Department of Commerce (the "USDOC"), Issues and Decision Memorandum for the Final Results of the 
2002 Administrative Review of the Countervailing Duty Order on Certain Pasta from Italy (Case C-475-819), 
p. 2, footnote 1 ( United States Federal Register , Vol. 69, No. 234 (7 D ecember 2004) 70657)).  The 
European Union also refers to a statem ent of the US Court of Appeal for the Federal Circuit that a "private seller 
... seeks the highest market price for its assets". ( Delverde vs. United States , 202 F 3d 1360, 1369 (Fed. Cir. 
2000) (Panel Exhibit EC-591)) 
159European Union's appellant's submission, paras. 258 and 259.   
160European Union's appellant's submission, paras. 261 and 262 (referring to Panel Report, para. 7.246, 
and para. 7.252 (in the context of private-to-private sales)). 
161European Union's appellant's submission, para. 263 (referring to European Communities' response to 
Panel Question 197, para. 225).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 32  
 
  The first set of transactions (referred to by the Euro pean Union as "cash extractions") were aimed at 
aligning the values of two Airbus predecessor comp anies—Dasa and CASA—with the value of the 
percentage share in EADS agreed to be held by  their parent companies, DaimlerChrysler and the 
Spanish Government (through its holding company, So ciedad Estatal de Participaciones Industriales 
("SEPI")) prior to and following the Initial Public Offering of EADS.
162  For purposes of this 
"alignment", €340 million in cash was removed from CASA by the Spanish Go vernment, and €3.133 
billion in cash was removed fro m Dasa by DaimlerChrysler.163  The second set of transactions that the 
European Union argues resulted in the "withdrawal " of subsidies are the same sales transactions 
described at paragraph 55 above.  
63. According to the European Union, both set s of transactions meet the definition of 
"withdrawal" as interpreted by the Appellate Body in Brazil – Aircraft (Article 21.5 – Canada)  to 
mean the "removal" or "taking away" of a subsidy.164  Moreover, the Europ ean Union observes that, 
to the extent that it has already "withdraw{n}" the subsidy within the meaning of Articles 4.7 and 7.8, 
the Panel erred in recommending that it do so.165   
(i) "Cash extractions" involving CASA and Dasa  
64. The European Union argues that the benefit of any prior subsidies to CASA and Dasa existed 
as "enhancements" to their balance sheets, meaning that , "but for" the provision of the subsidies, these 
entities would have been of lesser value.166  The European Union submits that the "cash extractions" 
from CASA and Dasa therefore had the effect of reducing the companies' values and removing any 
"incremental value" created by subsidies167, resulting in the withdrawal, removal, or taking away of 
any value that was enhanced by prior subsidies.  Moreover, according to the European Union, the 
"withdrawn" funds were not likely to return to E ADS for its LCA operations or otherwise since there 
                                                      
162See European Union's appellant's submission, paras. 137-140 and 174.  We describe these 
transactions in more detail in Section V.C of this Report. 
163The European Union submits that, of the €342. 4 million extracted from CASA before the 
contribution of the company to EADS, the Spanish Government deposited €340 million into the Spanish Treasury and provided the remaining €2.4 million to Dasa , which held a 0.71% stake in CASA.  With respect to 
Dasa, the European Union refers to the offering memo randum accompanying the public float of EADS shares 
that states that all Dasa assets and liabilities save €3.133 billion in cash, and certain other assets and liabilities were contributed to EADS. (European Union's appellant's submission, paras. 175 and 176 and footnotes 179 and 
180 thereto (referring to EADS' Final International Offering Memorandum (9 July 2000) (Panel Exhibit EC-24), 
pp. 142-143)) 
164European Union's appellant's submission, para. 170 (quoting Appellate Body Report, Brazil – 
Aircraft (Article 21.5 – Canada) , para. 45). 
165European Union's appellant's submission, para. 171. 
166European Union's appellant's submission, para. 172. 
167European Union's appellant's submission, para. 173.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 33  
 
  was a "serious disincentive" for the Spanish Governme nt or DaimlerChrysler to reinvest the extracted 
funds in EADS and its LCA subsidiaries.
168   
65. The European Union also rejects the two reasons  proffered by the Panel for concluding that 
the "cash extractions" did not c onstitute "withdrawal" of prior subsidies within the meaning of 
Articles 4.7 and 7.8 of the SCM Agreement .  First, the European Union disagrees with the Panel that 
the "cash extraction" by the Spanish Government did not constitute a "withdrawal" since it provided 
"something of ... value"—specifically, a reducti on in CASA's equity or its capital—for the 
€340 million removed from CASA.169  The European Union submits that, although the removal of 
€340 million cash from CASA did reduce CASA's capital,  the removal of this cash was reflected in 
CASA's balance sheet.  Second, the European Union rejects the Panel's finding that the cash extracted 
from CASA and Dasa was not truly "withdr awn", because the Spanish Government and 
DaimlerChrysler, with their othe r partners, the French Government and Lagardère, collectively 
"control{led}" EADS170 and therefore they did not have a disincentive to re-inject the extracted cash 
in EADS and LCA operations.  According to the European Union, the "Contractual Partnership"171 
had no impact on whether cash could be consider ed to be permanently "withdrawn" from CASA, 
Dasa, or their successors, since that partnership affects the exercise of voting rights but does " nothing 
whatsoever " to reduce the economic disincentive for th e Spanish Government and DaimlerChrysler 
against re-injection of the cash given their limited claim to EADS' earnings and net assets.172 
66. Finally, with respect to the "cash extraction"  from CASA, the European Union submits that 
the Panel's finding incorrectly suggests that a gove rnment can never "withdraw", within the meaning 
of Articles 4.7 and 7.8, a subsidy from a company that it owns or in which it has an interest, and that a 
government, having "withdrawn" a subsidy, is pr esumed to be about to grant a new subsidy to 
replace it. 
                                                      
168European Union's appellant's submission, paras. 178 and 180.  The European Union recalls that, 
following the "cash extractions", the Spanish Government and DaimlerChrysler contributed CASA and Dasa, respectively, to EADS in exchange for shares in E ADS, and thereafter shared returns on earnings from 
operations of CASA and Dasa with all other EADS shareholders, who, through EADS, owned 80% of Airbus 
GIE (later Airbus SAS), as well as with BAE Systems, which owned the remaining 20% of Airbus GIE.  As a result, if the Spanish Government or DaimlerChrysler ha d re-injected the "extracted" cash in EADS for use by 
Airbus GIE, the European Union posits, they would have "gifted", respectively, 96% and 76% of the cash and 
any associated returns to their fellow shareholders.  The European Union explains that diluting the Spanish 
Government's 5.5% stake in EADS by EADS' 80% stake in Airbus SAS results in a 4.4% stake in Airbus SAS.  
The European Union explains that diluting DaimlerC hrysler's 30% stake in EADS by EADS' 80% stake in 
Airbus SAS results in a 24% stake in Airbus SAS. ( Ibid., footnotes 182 and 183 to para. 180) 
169European Union's appellant's submission, para. 183.  
170European Union's appellant's submission, para. 185 (referring to Panel Report, paras. 7.283, 7.285, 
and footnote 2218 to para. 7.275).  
171See para. 581 and footnotes 1397 and 1398 thereto of this Report. 
172European Union's appellant's submission, paras. 186 and 189. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 34  
 
  (ii) Sales transactions 
67. The European Union submits that, although it made  relevant arguments be fore the Panel, the 
Panel failed to make any findings that the sales tran sactions resulted in the "withdrawal" of subsidies 
within the meaning of Articles 4.7 and 7.8 of the SCM Agreement
173 thereby committing "legal error" 
under these provisions.  The European Union recalls its  arguments that privatization, whether partial 
or full, of a subsidized company at arm's length and for fair market value results in the seller retaining 
the benefit of the subsidy.174  In such a situation, the buyer must earn a return on an investment made 
at fair market value rather than the subsidized valu e, and does not retain any of the benefit from prior 
subsidies.  With the benefit of a subsidy remaining wi th the seller, that subsidy is "removed" or "taken 
away" from the recipient, and is therefore "withdraw n" within the meaning of Articles 4.7 and 7.8 of 
the SCM Agreement .   
68. Moreover, the European Union alleges that the Panel should have found that the sales 
transactions were conducted at arm's length and for fair market value and therefore "withdrew" prior 
subsidies from the recipient entity.  First, they were at "fair market value" si nce they occurred on the 
stock exchange, which "by definition" constitut es a market, or were based on valuations by 
independent investment banks.175  Second, the transactions were conducted at "arm's length", in the 
sense that the parties were independent, acted in their own interests, were not in control of each other, 
and had roughly equal bargaining power.176  
(d) Whether the Panel violated Article 11 of the DSU 
69. The European Union submits that, in additio n to the aforementioned errors, the Panel 
committed five further errors, under Article 11 of th e DSU, when it made factual findings involving 
the alleged "cash extractions" and sales transactions at issue.  
70. First, the European Union recalls the Panel's finding that the Spanish Government "provided 
something of equal value" for the €340 million extracted from CASA—namely a reduction in the 
equity or capital of CASA.  Given that it is " obvious{}" that the removal of cash from a company will 
                                                      
173European Union's appellant's submission, para. 192 (referring to European Communities' first 
written submission to the Panel, paras. 284-288;  Euro pean Communities' response to Panel Question 123, 
paras. 385, 391, and 392;  European Communities' response to Panel Question 222, paras. 557-559;  
European Communities' comments on the United States' responses to Panel Question 168, para. 318 and Panel 
Question 222, paras. 392-394 and 402).  
174European Union's appellant's submission, para. 194 (referring to Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 126). 
175European Union's appellant's submission, para. 195.  See also paras. 131-146. 
176European Union's appellant's submission, para. 196 (referring to Panel Report, US – Countervailing 
Measures on Certain EC Products (Article 21.5 – EC) , para. 7.134).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 35  
 
  reduce that company's capital, the European Union c onsiders that the Panel acted inconsistently with 
Article 11 by failing to provide a "reasoned and adequate" explanation as to why the extracted cash 
was not considered "withdrawn" from CASA for purposes of Articles 4.7 and 7.8 of the 
SCM Agreement .
177 
71. Second, the European Union considers that the Panel violated Article 11 of the DSU because 
(i) it failed to provide a "reasoned and adequate" explanation and (ii) lacked a sufficient evidentiary 
basis for its finding that an agreement to pool the voting rights among contracting partners augmented 
DaimlerChrysler's and the Spanish Government's cl aims to earnings on any cash re-injected in EADS 
and its LCA operations, such that they had no disin centive to reinvest the ex tracted cash and therefore 
had not "withdrawn" prior subsidies.178  
72. Third, the European Union raises an Article 11 claim regarding the Panel's finding that the 
Spanish Government's "cash extraction" from CA SA did not constitute "withdrawal" of prior 
subsidies because it lacks coherence and is "internally inconsistent"179 with findings elsewhere in its 
Report that the French Government's capital contri butions, including the contribution of its 45.76% 
stake in a company, Dassault, to its wholly ow ned LCA manufacturer, Aéro spatiale, qualifies as a 
"financial contribution".180  According to the European Un ion, the positions are "internally 
inconsistent", since the Panel's logic suggests that the provision of money to a state-owned entity by a government shareholder could qualify as a "financial  contribution", whereas the removal of money 
from a state-owned entity also by a government sh areholder would not qualify as a "withdrawal" of 
those payments.   
73. Fourth, the European Union argues that the Pane l's failure to address its arguments that the 
sales transactions constituted "withdrawals" of subs idies within the meaning of Articles 4.7 and 7.8 
                                                     
 
177European Union's appellant's submission, para. 273.  For its "reasoned and adequate" explanation 
standard, the European Union relies on Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , 
footnote 618 to para. 293. 
178European Union's appellant's submission, para. 275.  For its "reasoned and adequate" explanation 
standard, the European Union relies on Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , 
para. 293 and footnote 618 thereto.  See also Appellate Body Report, EC – Hormones , para. 133. 
179For its contention that two positions adopted by a panel that are "internally inconsistent" constitute 
error under Article 11 of the DSU, the European Union relies on Appellate Body Report, US – Upland Cotton 
(Article 21.5 – Brazil) , para. 292. 
180European Union's appellant's submission, para. 276 (referring to Panel Report, paras. 7.1400-
7.1403). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 36  
 
  constitutes a denial of its claim, and that the Pane l acted inconsistently with Article 11 by failing to 
provide a "reasoned and adequate " explanation of that denial.
181   
74. Finally, the European Union submits that th e Panel's finding that the European Communities 
"did not argue"182 that the sales transactions at issue were at arm's length is inconsistent with 
Article 11 because it is incorrect and ignores the f act that the European Union did make these 
arguments and provided supporting evidence.  Furthe r, the European Union submits that the Panel's 
finding that, other than the stock exchange sales,  none of the transactions were at arm's length183, is 
also inconsistent with Article 11 of the DSU b ecause the Panel provided no "reasoned and adequate" 
explanation for such a finding184, which "enjoys no basis" on the panel record.185  
(e) Whether the Panel erred by finding that there was no requirement to 
conduct a "pass-through" analysis  
75. The European Union argues that the Panel's fi nding that there was no requirement to conduct 
a "pass-through" analysis between past subsidy r ecipients and current Airbus LCA producers was 
premised on an erroneous interpretation and app lication of the requirement to demonstrate a 
"continuing benefit" that is based on Articles 1, 5, and 6 of the SCM Agreement .  In the 
European Union's view, contrary to the Panel's findi ng, a "pass-through" analysis is equally applicable 
to Part V as to Part III of the SCM Agreement  given the common definition of subsidy in Article 1 of 
the SCM Agreement . 
76. The European Union refers to the finding of the Appellate Body in Canada – Aircraft  that a 
benefit arises only if a person (natural or lega l) or a group of persons has in fact received 
something.186  This suggests that the United States had th e burden of proving that alleged subsidies to 
recipients other than the current producer of LCA, Airbus SAS, currently be nefit Airbus SAS, since 
the adverse effects under Articles 5 and 6 of the SCM Agreement  are defined as a particular type of 
competitive harm that is the "effect of the subsid y" and are transmitted through a recipient company's 
                                                      
181European Union's appellant's submission, para. 278 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 338;  and Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , 
paras. 288, 292, footnote 618 to 293, and 294). 
182European Union's appellant's submission, para. 279 (referring to Panel Report, para. 7.249). 
183European Union's appellant's submission, para. 281 (referring to Panel Report, footnote 2175 to 
para. 7.249). 
184European Union's appellant's submission, para. 281 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 338;  and Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , 
paras. 288,  292, footnote 618 to 293, and 294). 
185European Union's appellant's submission, para. 281 (referring to Appellate Body Report, US – 
Softwood Lumber VI (Article 21.5 – Canada) , para. 93;  and Appellate Body Report, EC – Hormones , paras. 132 
and 133). (original emphasis) 
186European Union's appellant's submission, para. 271 (referring to Appellate Body Report, Canada – 
Aircraft , para. 154).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 37  
 
  products.  The European Union recalls that, in US – Upland Cotton , the Appellate Body found that a 
prerequisite to a finding of causation is that the ch allenged subsidy does in fact benefit the subsidized 
product.
187  For these reasons, the European Union argues,  the United States was required to establish 
that the alleged subsidies are provided or "passed through" to Airbus SAS as the entity presently 
developing, producing, and selling LCA.   
(f) Conclusion  
77. In conclusion, the European Union requests the Appellate Body to reverse the findings of the 
Panel relating to "pass-through", "e xtinction", and "extraction" a nd "withdrawal" of subsidies.  
Moreover, as a consequence of the Appellate Body reve rsing the Panel's finding that Article 5 of the 
SCM Agreement  does not require an additional demonstration that all or part of the "benefit" found to 
have been conferred by the provision of a financia l contribution continues to exist or presently exists, 
the European Union requests a reversal of the Pane l's analysis of the causal link between the alleged 
subsidies and present adverse effects.188  In the European Union's vi ew, the Panel s hould have taken 
into account, inter alia , the passage of time in order to examine whether past subsidies were still 
capable of causing present adverse effects by, for instance, applying amortization rules.189  T h e  
European Union also requests reversal of the Panel's recommendation that the European Union 
"withdraw the subsidy" and "remove the advers e effects or ... withdraw the subsidy", under 
Articles 4.7 and 7.8 of the SCM Agreement , to the extent that the European Union has already 
done so.190 
4. The 1992 Agreement  
78. The European Union requests the Appellate Body to reverse the Panel's finding that Article 4 
of the 1992 Agreement is not relevant to an in terpretation of "benefit" within the meaning of 
Article 1.1(b) of the SCM Agreement .  The European Union argues that, contrary to the Panel's 
finding, Article 4 of the 1992 Agreement is a "relev ant rule{} of international law applicable in the 
relations between the parties", within the meaning of Article 31(3)(c) of the Vienna Convention , and 
should be taken into account in determining whethe r a "benefit" was conferred through the provision 
of post-1992 LA/MSF for the development of Ai rbus models A330-200, A340-500/600, and A380.191
                                                      
187European Union's appellant's submission, para. 271 (referring to Appellate Body Report, US – 
Upland Cotton , para. 472).  
188The European Union refers to the Panel's findings on  adverse effects in section F of its Report, and 
in particular in paragraphs 7.1949, 7.1961, 7.1966-7.1968, 7.1973, 7.1976, and 7.1984.   
189European Union's appellant's submission, para. 285 and footnote 283 thereto. 
190European Union's appellant's submission, para. 286. 
191European Union's appellant's submission, para. 701. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 38  
 
  Alternatively, the European Union submits that th e Panel should have taken into account the existence 
and operation of Article 4 of the 1992 Agreement as part of the facts establishing the relevant market 
benchmark at the time LA/MSF was granted. 
79. As a result of the Panel's error, the European  Union requests the Appellate Body to reverse 
the Panel's finding that Article 4 of the 1992 Agr eement does not provide the proper benchmark for 
assessing whether post-1992 LA/MSF confers a benefit under Article 1.1(b) of the 
SCM Agreement
192, to complete the analysis193, and to find that post-1992 LA/MSF did not confer any 
"benefit" within the meaning of Article 1.1(b) of the SCM Agreement .  Moreover, the European Union 
requests the Appellate Body to "declare moot and w ith no legal effect" the pa ragraphs of the Panel 
Report in which the Panel examined any of tho se post-1992 LA/MSF measures in its analysis under 
Articles 1 and 2 of the SCM Agreement194 and to reverse its findings that such measures constitute 
prohibited subsidies and actionable subsidies causing adverse effects.195 
(a) The meaning of Article 31(3)(c) of the Vienna Convention  
80. The European Union submits that an examinati on of the text, context, and object and purpose 
of Article 31(3)(c) of the Vienna Convention , as well as the practice of the WTO dispute settlement 
bodies, confirms its view that the 1992 Agreement is a "relevant rule{} of international law applicable 
in the relations between the parties" with in the meaning of Article 31(3)(c) of the Vienna 
Convention .196  The European Union argues for an interpretation of "the parties" to mean only to "the 
parties to the dispute", and not all of "the parties to the treaty being interpreted".  According to the 
European Union, the text of Article 31(3)(c) of the Vienna Convention  is "neutral" as between these 
two notions, and the definition of "party" in Article 2(1)(g) of the Vienna Convention  ("a State which 
has consented to be bound by a treaty and for which the treaty is in force") could "apply equally" to 
                                                      
192European Union's appellant's submission, para. 734 (referring to Panel Report, para. 7.389).  
193The European Union notes that there are no relevant  factual findings by the Panel as to whether the 
post-1992 LA/MSF provided for the A330-200, the A340-500/600, and the A380 is in compliance with the 
provisions of Article 4 of the 1992 Agreement.  However, the European Union argues that it had demonstrated in the course of the Panel' s proceedings that the LA/MSF in question was provided in conformity with the terms 
and conditions stipulated in Article 4 of the 1992 Agreement. (European Union's appellant's submission, 
para. 734 (referring to European Communities' first wr itten submission to the Panel, paras. 405-441))  The 
European Union claims that  the United States did not contest this.  For these reasons, the European Union 
argues, the Appellate Body may complete the analysis based on the uncontested facts as provided by the 
European Union. ( Ibid., para. 734) 
194European Union's appellant's submission, para. 734 and footnote 911 thereto (referring to Panel 
Report, paras. 7.365-7.497). 
195European Union's appellant's submission, para. 734 and footnote 912 thereto (referring to Panel 
Report, paras. 7.689, 7.1949, 7.1993, 7. 2025, 8.1(a)(i), 8(1)(a)(ii), and 8.2). 
196European Union's appellant's submission, para. 701.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 39  
 
  parties to the SCM Agreement  as well as to the 1992 Agreement.
197  As a result, the European Union 
considers the context and object and purpose of Article 31(3)(c) to be "determinative".198   
81. With respect to "context", the European Union notes that other provisions, including 
Article 31(2) of the Vienna Convention , refer to "all the parties"199, implying that, "{i}f the drafters' 
intention was to require that the relevant rules of international law must be applicable in the relation 
between 'all the parties', they would have said so explicitly".200  Regarding the "object and purpose" of 
Article 31(3)(c), the European Union refers  to the preambular provisions of the Vienna Convention , 
which "highlight the relevance of international tr eaties and their respect in the relationship between 
States, including in international disputes" and th at "{i}f two States have signed an international 
agreement on a particular issue, the respect of that  commitment in the context of an international 
dispute is of fundamental importance."201  The European Union considers Article 31(3)(c) to be a 
principle of "systemic integration"202 of all international agreements a pplicable in the parties' relations 
and notes that it has been applied in this way by other international courts, including the Permanent 
Court of Arbitration.203   
82. Finally, the European Union draws attention to  past panel and Appella te Body reports.  The 
European Union notes the two "contradictory panel re ports" on the interpretation of "the parties":  on 
the one hand, the panel report in US – Shrimp (Article 21.5 – Malaysia)  supports an interpretation of 
"parties to the dispute" and, on the other hand, the panel report in EC – Approval and Marketing of 
Biotech Products  supports an interpretation of "the parties" as all WTO Members.  The 
European Union observes that the panel report in EC – Approval and Marketing of Biotech Products  
has been "severely criticised " by the ILC Study Group for its "limitative" approach204, since it "makes 
it practically impossible ever to find a multilatera l context where reference to other multilateral 
treaties as aids to interpretation unde r Article 31(3)(c) would be allowed."205  Finally, the
                                                      
197European Union's appellant's submission, para. 703. 
198European Union's appellant's submission, para. 703. 
199European Union's appellant's submission, footnote 879 to para. 704 (referring also to Articles 15(c), 
20(2), 30(3) and (4), 40(2), 54(b), 57, and 59(1) of the  Vienna Convention ). 
200European Union's appellant's submission, para. 704. 
201European Union's appellant's submission, para. 707. 
202European Union's appellant's submission, para.  708. 
203European Union's appellant's submission, footnote 880 to para. 709 (referring to Permanent Court of 
Arbitration, Final Award, Dispute concerning Access to Information under Article 9 of the OSPAR Convention 
(Ireland v. the United Kingdom)  (2 July 2003), ILM Vol. 42 (2003), p. 1118, paras. 105-116).  
204European Union's appellant's submission, para. 711 (referring to Fragmentation of International 
Law: Difficulties Arising from the Diversific ation and Expansion of International Law , Report of the Study 
Group of the International Law Commission at its fifty-eighth session, finalized by Martii Koskenniemi, 
UN Document A/CN.4/L.682 (13 April 2006), footnote 578 to para. 422). 
205European Union's appellant's submission, para. 711 (referring to ILC Report on Fragmentation, 
supra , footnote 204, paras. 443-450). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 40  
 
  European Union points to the Appellate Body reports in EC – Poultry , US – Shrimp , US – FSC 
(Article 21.5 – EC) , and EC – Computer Equipment , in which the Appellate Body, through the 
interpretative tools in Article 31 and Article 32, used non-covered agreements  to which not all WTO 
Members are parties to interpret WTO agreements.
206 
(b) Whether Article 4 of the 1992 Agreem ent is relevant to interpreting 
the term "benefit" in Article 1.1(b) of the SCM Agreement  
83. The European Union argues that Article 4 of the 1992 Agreement is relevant to the 
interpretation of "benefit" in two ways.  First, the European Union refers to the concept of  
development "support" as well as to the two "thres holds" provided for—one setting out the ceiling of 
"support" in terms of the amount and the other setting out the minimum price for LA/MSF.207  The 
European Union observes that the term "support" a ppears as part of the definition of subsidy in 
Article 1.1(a)(2) of the SCM Agreement , in Article XVI of the General Agreement on Tariffs and 
Trade 1994  (the "GATT 1994"), and in Article 3.2 of the Agreement on Agriculture .  Like Article 4 of 
the 1992 Agreement, other provisions of the SCM Agreement  were "drafted having in mind the idea of 
a threshold", including footnote 1 and Article 14(d) of the SCM Agreement  and paragraphs (g), (h), 
(i), and (k) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement .208  On this 
basis, the European Union submits that the reference to "support" and the thresholds in Article 4 of 
the 1992 Agreement, as in other provisions of the GATT 1994, the SCM Agreement , and the 
Agreement on Agriculture , "speak to the existence of 'benefit' and thus to the existence of a subsidy 
and the obligation for the government conduct (i.e.,  not to exceed such a ceiling when providing 
development support)."209 
84. Second, the European Union argues that the 1 992 Agreement is the "understood benchmark" 
that serves to inform the benefit analysis under Article 1.1(b) of the SCM Agreement .  The 
European Union notes that a subsidy has to be estab lished on the basis of market conditions existing 
at the time the subsidy was granted.210  The European Union submits th at, as at the time "development 
                                                      
206European Union's appellant's submission, paras. 713-717. 
207In particular, the European Union notes that Article 4 concerns "development support" provided by 
governments.  Such support is subject to two thresholds: one in terms of the amount (government support "shall 
not exceed" 33% of development costs), and the other in terms of price (the amount of royalty payments are set 
at an interest rate "no less than" the cost of borrow ing to government).  The European Union explains that 
Article 4.2(a) covers the part of development support equivalent to 25% of 33% of eligible costs and that, 
pursuant to Article 4.2(b), the remaining 8% has to be repaid at a rate of government borrowing cost plus 1%.  
The European Union notes that this means that, in order to respect the minimum conditions of the 1992 Agreement, European Union me mber States had to charge an interest rate of government borrowing rate plus 
0.2424%. (European Union's appellant's submission, para. 720 and footnote 897 thereto) 
208European Union's appellant's submission, para. 722. 
209European Union's appellant's submission, para. 723. 
210European Union's appellant's submission, para. 725.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 41  
 
  support" was granted with respect to the A330-20 0, A340-500/600 and A380, "the United States had 
agreed that (1) the European Union and its Member States could rely on the 1992 Agreement to define 
the terms and conditions for the {LA/}MSF in question at the time it was granted;  and that (2) the 
terms and conditions mentioned in th e 1992 Agreement were legitimately  'available' to Airbus 'in the 
market'."
211  In the European Union's view, the United States attempts to have "two bites of the 
cherry", since, by signing the 1992 Agreement, it gave the European Union assurances that funding in 
accordance with the 1992 Agreement would allow it to comply with its intern ational obligations, but 
then several years later it withdrew from the 1992 Ag reement and claimed that the market benchmark 
should be something different.   
(c) Whether Article 4 of the 1992 Agreement is a relevant fact to 
establish the market benchmark 
85. The European Union argues, in th e alternative, that "the Pane l should have taken into account 
the existence and operation of Article 4 of the 1992 Agreement  as part of the facts to establish the 
relevant market benchmark at the time {LA/}MSF was granted."212  The European Union asserts that 
benefit does not exist in the abstract:  it requires that the beneficiary be made better off by the 
financial contribution, compared with what it could obtain or what was available on the market.  The 
European Union refers to the pane l and Appellate Body reports in US – Softwood Lumber IV , which 
state that "{t}he text of Article 14(d) {of the} SCM Agreement does not qualify in any way the 'market' conditions which are to be used as the be nchmark ... .  As such, the text does not explicitly 
refer to a 'pure' market, to a market 'undistorted by government intervention', or to a 'fair market 
value'."
213  Accordingly, the European Union submit s, the existence of a benefit requires an 
examination of the specific market conditions existing at the time the financial contribution is granted.  
Since the 1992 Agreement is part of the "specific market conditions existing at the time the financial 
contribution is granted", it should be examined  in determining the existence of benefit.214  
5. LA/MSF Benefit Benchmark  
(a) Whether the Panel erred in finding that the LA/MSF measures confer 
a benefit within the meaning of Article 1.1(b) of the SCM Agreement  
86. The European Union submits that, to the extent  that the Appellate Body disagrees with the 
European Union's appeal based on the 1992 Agreem ent, and in any event with respect to pre-1992 
                                                      
211European Union's appellant's submission, para. 726. 
212European Union's appellant's submission, para. 730. 
213European Union's appellant's submission, para. 731 (referring to Appellate Body Report, US – 
Softwood Lumber IV , para. 87, in turn quoting Panel Report, US – Softwood Lumber IV , paras. 7.50 and 7.51).  
214European Union's appellant's submission, para. 731. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 42  
 
  LA/MSF measures
215, the Appellate Body should reverse the Panel's findings regarding the levels of 
the project-specific risk premium that formed part  of the Panel's benchmark for LA/MSF for each of 
the aircraft projects at issue.216  The European Union does not, howe ver, request a reversal of the 
Panel's finding that the LA/MSF loans at issue confer a benefit within the meaning of Article 1.1(b) of 
the SCM Agreement , with the exception of the French LA/MSF provided for the A330-200.217 
(i) Errors of application of the law to the facts of the case 
87. The European Union recalls that, before the Panel, the United States and the 
European Communities agreed that  the assessment of any subsidy arising from the LA/MSF measures 
should be based on the difference, if any, between th e member State's expected rate of return and the 
expected return a private investor would demand fo r a loan on similar terms (that is, the benchmark 
rate).218  Moreover, it notes that the participants pr oposed benchmark rates against which to assess 
whether the returns expected by the member States reflected market rates.  The benchmark rates 
proposed by both the United States and the European  Communities for each of the projects consisted 
of three elements:  the first was a "risk-free" ra te equal to the yield on 10-year government bonds at 
the time each LA/MSF loan was agreed  to by the respective member St ate;  the second was a "general 
corporate risk" premium at the time of the LA/MSF loan agreement to capture the risk of default by 
the borrower (derived from the yields on 10-year bonds  issued by BAE and Aérospatiale);  and the 
third was a premium to capture project risk.219  The United States and the European Communities 
each proposed a different project-specific risk prem ium.  The project-specific risk premium proposed 
by the United States was derived by Dr. David M. Ellis from a 2004 empirical study of venture capital investments undertaken by Kerins, Sm ith, and Smith (the "KSS Study").
220  T h e  
European Communities contested the project-speci fic risk premium calculated by Dr. Ellis and 
proposed instead a project-specific risk premium de rived by Professor Robert Whitelaw from the rates 
of return of a sample of risk-sharing suppliers that participated in the A380 project.  The 
                                                      
215Including LA/MSF provided for the A300, A310, and A320. (See Panel Report, footnote 2248 to 
para. 7.290) 
216European Union's appellant's submission, para. 735 (referring to Panel Report, paras. 7.469, 7.480, 
7.481, 7.483-7.488, 7.490, and 8.1(a)(i)). 
217European Union's appellant's submission, footnote 915 to para. 735 (referring to Panel Report, 
paras. 7.489, 7.490, and 8.1(a)(i)).  The European Union notes that the alleged errors could inappropriately 
increase its implementation burden. 
218European Union's appellant's submission, para. 739 (referring to Panel Report, para. 7.434). 
219European Union's appellant's submission, para. 739 (referring to Panel Report, paras. 7.432 
and 7.433). 
220Panel Report, para. 7.437 (referring to Kerins, Sm ith, and Smith, "Opportunity Cost of Capital for 
Venture Capital Investors and Entrepreneurs" (June 2004) 39(2) Journal of Financial and Quantitative Analysis  
385 (Panel Exhibit US-470)).  See also European Union's appellant's submission, para. 741.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 43  
 
  European Union describes its disagreement with the United States as limited to the amount of specific 
risk premium.  
88. The European Union acknowledges that it "agreed  with the United States that ... it would be 
appropriate to apply a consta nt project-specific risk premium" to all LA/MSF measures.
221  T h e  
European Union states that it does not appeal the Panel's conclusion that the project-specific risk 
premium should vary from project to project.  The European Union argues, however, that, although 
the Panel found that the project-specific risk prem ium should vary from product to product, "rather 
than examining the nature and circumstances su rrounding each project, the Panel lump{ed} some 
projects together despite releva nt distinctions between them".222  Specifically, the European Union 
asserts that the Panel "considered jointly, and made  findings collectively, for (i) the A300 and the 
A310 projects, and (ii) the A320, A330/A340, A330-200 and A340-500/600 projects".223  
89. The European Union also maintains that the Panel did not take into account some of the 
factors that it found affected the level of project risk, including changes in the "conditions of competition in the aircraft industry" and changes in "the level of risk that the finance industry is 
willing to accept at different moments of its own economic cycle".
224  In spite of having identified 
these factors, the Panel did not actually apply them and could not have done so due to a lack of 
evidence.  The European Union argues that "the absence of evidence from the Panel's record is no 
excuse for the Panel's failure to apply the very factors it had set out itself for determining the 
applicable project-specific risk premium."225  Referring to the Appellate Body report in US – 
Continued Zeroing , the European Union asserts that the Panel could and should have asked the parties 
for evidence necessary to develop and apply the sta ndard the Panel itself had chosen to determine 
project-specific risk premia for each Airbus LCA project.226  
90. The European Union claims that the Panel add itionally erred in the application of the two 
factors that it did consider, because it failed to apply th em to each of the aircraft projects at issue.  
Instead, the Panel only applied the "relative experien ce" factor to the A300 and A310 and the "level of 
technology" factor to the A380.227  The European Union notes that th e Panel's failure is particularly 
glaring given that, in the assessment of the effect of the LA/MSF on launch decisions, "the Panel 
                                                      
221European Union's appellant's submission, para. 740. 
222European Union's appellant's submission, para. 760 (referring to Panel Report, paras. 7.468 
and 7.481). 
223European Union's appellant's submission, para. 760. 
224European Union's appellant's submission, para. 761. 
225European Union's appellant's submission, para. 761. 
226European Union's appellant's submission, para. 761 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 347). 
227European Union's appellant's submission, para. 763. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 44  
 
  relied heavily on findings that each successive launc h built on Airbus' experience gained in previous 
launches".
228   
91. Moreover, the European Union challenges the Pa nel's finding that the United States' project-
specific risk premium would be the " minimum  project-specific risk premium" for both the A300 and 
A310 projects.229  The Panel justified its finding on the b asis that "Airbus was in its early stages of 
existence" when it launched these two projects.230  However, the European Union faults the Panel for 
failing to consider that the associated manufacturers that formed Airbus themselves had a wealth of 
experience in the aerospace industry.  Despite r ecognizing elsewhere in the Panel Report that a 
derivative LCA poses less risk and costs less to deve lop, the Panel failed to take this into account in 
its project-specific risk premium analysis.231  The European Union notes that, in grouping the A300 
and A310 together, the Panel ignored its technologi cal complexity criterion, "as the A310 builds on 
the A300 and, as an essentially deriva tive aircraft, should exhibit much lower  technological risk."232  
92. The European Union notes that the Panel made collective findings regarding a group of 
diverse aircraft projects, namely the A320, A330/A340, A330-200, and A340-500/600.  The 
European Union submits that, in grouping these di verse LCA projects, "the Panel did not apply any of 
the factors composing its standard."233  The European Union contends that the Panel erred by 
considering that the rejection of a constant project-specific risk premium could only result in increasing the benchmark above proposed by the Eu ropean Communities, even where the Panel found 
that a particular LCA project involved lower relative risk than the LCA project that served as a basis 
for the European Communities' proposed benc hmark.  In this regard, the A330-200 and 
A340-500/600 were derivative aircraft, and the Pa nel's reasoning and financial theory support the 
proposition that the project-specific risk premiu m applicable to the A330-200 and A340-500/600 
projects should be lower than the premium applicable to the A380 project.
234  The European Union 
adds that the Panel itself implied that risk-sharing suppliers would demand a lower rate of return and 
project-specific risk premium for their participation in a derivative aircraft project than for their 
                                                      
228European Union's appellant's submission, para. 763 (referring to Panel Report, paras. 7.1932-
7.1949). 
229European Union's appellant's submission, para. 765 (quoting Panel Report, paras. 7.469, 7.481, 
and 7.487 (original emphasis));  see also para. 770. 
230European Union's appellant's submission, para. 765.  
231European Union's appellant's submission, para. 765 (referring to Panel Report, footnote 5657 to 
para. 7.1940 and footnote 5208 to para. 7.1726). 
232European Union's appellant's submission, para. 765 (original emphasis) (referring to Panel Report, 
para. 7.1622). 
233European Union's appellant's submission, para. 766. (original emphasis) 
234European Union's appellant's submission, para. 768 (referring to Panel Report, para. 7.1947).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 45  
 
  participation in the A380 project on which the Eu ropean Communities' proposed  project-specific risk 
premium was based.
235 
93. Regarding the assessment of the A380, the Eu ropean Union challenges the Panel's finding 
that "'the United States' project -specific risk premium could be reasonably accepted to represent the 
outer limit  of the risk premium that a market lender w ould ask Airbus to pay', and that the A380 
project-specific risk premium lies 'in the range above those submitted by the European Communities 
and up to the values advanced by the United States'."236  The Panel justified this finding solely on "the 
acknowledged technological challenges as sociated with the A380 project".237  The European Union 
claims that, even assuming that the Panel was not referring to ex post  realized risks that caused delays 
in A380 deliveries, but was instead referring to some ex ante  increased risk encountered by Airbus238, 
the Panel failed to take account of the significantl y enhanced technological experience that Airbus had 
built up over 30 years of "successful LCA developmen t", which would appear to counterbalance "the 
acknowledged technological challenges" of the A380.239   
94. In addition, the European Union alleges that th e Panel's ultimate reliance on the United States' 
proposed risk premium with respect to th e A300, A310, and A380 constitutes error under 
Article 1.1(b) of the SCM Agreement .  The Panel found that the Unite d States' project-specific risk 
premium constituted the " minimum  project-specific risk premium"240 for the A300 and A310 and the 
"outer limit  of the risk premium"241 for the A380 even though the Pane l had rejected the United States' 
project-specific risk premium on the basis that "venture capital financi ng is inherently more risky than 
LA/MSF, even when considered in the form of a portfolio"242, that it included equity elements in a 
debt benchmark, that it was inappropriately based on  venture capital returns that also cover fees for a 
fund manager, and that it was not supported by any of the United States' "cross-checks".243  In the 
European Union's view, the Panel erred when it relied  on a benchmark that is "inherently more risky" 
than LA/MSF for these LCA projects.244 
                                                      
235European Union's appellant's submission, para. 768 (referring to Panel Report, para. 7.1947). 
236European Union's appellant's submission, para. 770 (original emphasis) (quoting Panel Report, 
paras. 7.469, 7.481, and 7.487).  
237European Union's appellant's submission, para. 770 (quoting Panel Report, para. 7.469). 
238European Union's appellant's submission, para. 770 (referring to Panel Report, para. 7.1927). 
239European Union's appellant's submission, para. 770 (referring to Panel Report, para. 7.463). 
240European Union's appellant's submission, para. 771 (quoting Panel Report, para. 7.469 (original 
emphasis) and referring to paras. 7.481 and 7.483). 
241European Union's appellant's submission, para. 771 (quoting Panel Report, para. 7.469 (original 
emphasis) and referring to para. 7.485). 
242European Union's appellant's submission, para. 771 (quoting Panel Report, para. 7.464). 
243European Union's appellant's submission, para. 771. 
244European Union's appellant's submission, para. 772 (referring to Panel Report, para. 7.464 (original 
emphasis omitted)). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 46  
 
  (ii) Whether the Panel erred under Article 11 of the DSU 
95. The European Union submits that, in its assessment  of benefit, the Panel failed to provide a 
reasoned and adequate explanation for its findings, was incoherent in its reasoning
245, and failed to 
request the information it considered necessary fo r its assessment of the European Communities' 
argument.  Accordingly, the European Union consid ers that these findings constitute reversible legal 
error under Article 11 of the DSU.   
96. The European Union explains that, given the absence of directly applicable arguments and 
evidence from the parties regarding the relative risk of the various aircraft projects at issue, the Panel's 
findings cannot, by definition, constitute an "objective assessment of the facts".246  According to the 
European Union, the Panel's findings lacked the required basis in positive evidence on the record.247 
97. The European Union also points out that, a lthough the Panel found that the project-specific 
risk premium should be determined specifically fo r each product, the Panel disregarded the relevance 
of its own finding and joined together the A300 and A310 projects and the A320, A330/A340, 
A330-200, and A340-500/600 projects for purposes of assessing the relative level of the applicable 
project-specific risk premium.  The European Uni on submits that, in proceeding in this manner, the 
Panel failed to provide a reasoned and adequate e xplanation for grouping these projects together and 
that these failures also resulted in incoherent r easoning, in violation of Article 11 of the DSU. 
98. The European Union asserts that, in making findings for these two project groupings and the 
A380, the Panel ignored most of the factors it iden tified for assessing the appropriate project-specific 
risk premium.  Specifically, the Panel did not assess the impact of changes in two factors that it 
identified, namely "conditions of competition in the ai rcraft industry" and changes in "the level of risk 
that the finance industry is willing to accept at different moments of its own economic cycle".248  
Thus, the Panel failed to provide a reasoned and adeq uate explanation of the impact on the appropriate 
project-specific risk premium of each of the factors it had determined to be relevant.  The European Union also claims that for the one fact or used for the A380—the level of technology—the 
Panel did not explain why it automatically consider ed the A380 a more risky project, highlighting that 
                                                     
 
245European Union's appellant's submission, para. 777. 
246European Union's appellant's submission, para. 778 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 347). 
247European Union's appellant's submission, para. 778 (referring to Appellate Body Report, US – 
Softwood Lumber VI  (Article 21.5 – Canada) , para. 93;  and Appellate Body Report, EC – Hormones , paras. 132 
and 133). 
248European Union's appellant's submission, paras. 783 and 784 (referring to Panel Report, paras. 7.463 
and 7.469).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 47  
 
  the Panel failed to assess the totality of the evidence relating to both the "level of technology" and the 
"relative experience" factors.
249  
99. The European Union submits that the Panel's findi ngs regarding the applicable project risk for 
the A300, A310, and A380 are inconsistent with other findings made by the Panel, resulting in 
incoherent and inconsistent reas oning.  The Panel concluded that the benchmark proffered by the 
United States was the minimum return a market investor would demand fo r the A300 and A310 and 
the maximum return a market investor would dema nd in relation to the A380, but that, "only a few 
paragraphs before, the Panel had accep ted essentially every argument by the 
European {Communities} that the United States' pr oject-specific risk premium, based on venture 
capital returns was overstated".250  For these reasons, the European Union argues that the Panel failed 
to comply with its duties under Article 11 of the DSU. 
(b) The Panel's criticisms of the Eu ropean Communities' benchmark 
100. The European Union appeals the Panel's conclu sion that "the European Communities' project-
specific risk premium for the A380 is unreliable a nd understates the risk premium that a market 
operator would have reasonably demanded Airbus pa y for financing on the same or similar terms as 
LA/MSF for this particular model of LCA."251  As noted above, the European Communities put 
forward a project-specific risk premium derived by Professor Whitelaw from the rates of return of a 
sample of risk-sharing suppliers participating in  the A380 project.  The European Union challenges 
each of the reasons provided by the Panel to support its conclusion, namely the Panel's findings that:  
(i) it had "no way of verifying" Professor Whitelaw's assertion that the contracts used in the sample of 
risk-sharing suppliers amounted to 100% of those for which an inte rnal rate of return could be 
calculated, "because the European Communities has submitted little if any of the underlying data used 
in Professor Whitelaw's calculations" and the size of  the risk-sharing supplier sample was "clearly 
insufficient";  (ii) "the one contract that the Eu ropean Communities has submitt ed shows that there is 
at least one major difference between the repaym ent terms under the contract and LA/MSF which we 
believe reduces its relative level of risk";  (iii) there is "logical me rit to the United States' arguments 
suggesting that risk-sharing suppliers had incentive to lower their expected rates of return";  (iv) the 
Panel "agree{d} with the view expressed by Brazil and the United States" that {LA/MSF} to Airbus 
lowers the risk to risk-sharing suppliers;  and (v) th ere is information that "s uggests that {the} risk-
                                                      
249European Union's appellant's submission, para. 785 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 336;  Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , 
para. 150;  Appellate Body Report, Japan – DRAMs (Korea) , para. 139;  and Appellate Body Report, Korea – 
Dairy , para. 137). 
250European Union's appellant's submission, para. 786 (referring to Panel Report, paras. 7.461-7.467). 
251European Union's appellant's submission, para. 791 (quoting Panel Report, para. 7.481). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 48  
 
  sharing participants' involvement in the A380 project  may not have been on strictly market terms for 
all participants".
252   
101. The European Union asserts that each of these cr iticisms is inconsistent with the Panel's 
obligations under Article 11 of the DSU to make an objective assessment of  the facts because, in 
certain instances, there is no eviden tiary basis for the finding;  the Panel failed to assess the totality of 
the evidence;  the Panel failed to request the inform ation it considered necessary for its assessment of 
the European Communities' argument;  and the Pa nel failed to provide a reasoned and adequate 
explanation for its findings.  The European Union al so claims that some of the Panel's criticisms 
amount to an error in the interpretation a nd application of Article 1.1(b) of the SCM Agreement .253 
102. The European Union challenges, under Article 11 of the DSU, the Panel's findings that it 
could not verify that the contracts used by Pr ofessor Whitelaw amounted to 100% of those for which 
an "internal rate of return" could be calculated a nd that the size of the risk-sharing supplier sample 
was "clearly insufficient".254  The Panel failed to ask for ev idence that it considered necessary255, even 
though the United States had raised the issue of the European Communities providing summary data 
and a sample contract prior to the Panel pos ing three sets of questions to the parties.256  Moreover, the 
Panel did not consider the totality of the evidence before it when finding that the size of the risk-
sharing supplier sample was clearly insufficient.257  The European Union additionally claims that the 
Panel failed to provide a reasoned and adequate explanation for its finding, because the Panel made a 
one-sentence summary finding without any explanati on regarding its reasoning or its criteria for 
determining the adequacy of the sample size, ev en though the parties had submitted hundreds of pages 
of argument with accompanying evidence.258 
103. Regarding the Panel's finding that "the one contract that the European Communities has 
submitted shows that there is at least one major difference between the repayment terms under this 
contract and LA/MSF, which we believe reduces its relative level of risk"259, the European Union 
                                                      
252European Union's appellant's submission, para. 792 (quoting Panel Report, para. 7.480). 
253European Union's appellant's submission, para. 793. 
254European Union's appellant's submission, para. 794 (quoting Panel Report, para. 7.480). 
255European Union's appellant's submission, para. 795 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 347). 
256European Union's appellant's submission, para. 796 (r eferring to United States' oral statement at the 
first Panel meeting (BCI), para. 22). 
257European Union's appellant's submission, para. 798 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 336;  Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , 
para. 150;  Appellate Body Report, Japan – DRAMs (Korea) , para. 139;  and Appellate Body Report, Korea – 
Dairy , para. 137). 
258European Union's appellant's submission, para. 799 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 338). 
259European Union's appellant's submission, para. 801 (quoting Panel Report, para. 7.480).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 49  
 
  asserts that the Panel failed to provide a reasone d and adequate explanation for this finding.
260  The 
European Union observes that the Panel made this one-sentence summary finding without any 
analysis of the parties' arguments regarding the European Communities' benchmark, including 
Professor Whitelaw's expert testimony addressing this specific issue. 
104. The European Union argues that the Panel also erred under Article 11 of the DSU in finding 
that there is "logical merit to the United States ' argument suggesting that the risk-sharing suppliers 
had incentives to lower their expected rates of return".261  The Panel's one-sentence conclusion lacked 
any assessment or analysis of the arguments and contrary evidence submitted by the European Communities and failed to provide a reasone d and adequate explanation in the light of the 
evidence before it.
262  The European Union also claims that the Panel erred in the interpretation and 
application of Article 1.1(b) of the SCM Agreement by reasoning that the actions of a market actor 
that has an existing business relationship with a comp any that is allegedly subsidized cannot serve as 
a benchmark because that market actor would somehow be tainted, contradictin g the Appellate Body's 
guidance in Japan – DRAMs (Korea) .263 
105. Furthermore, the European Union mainta ins that the Panel failed to assess the 
European Communities' arguments and contrary ev idence when it found that it "agree{d} with the 
view expressed by Brazil and the United States" th at LA/MSF to Airbus lowers the risk to risk-
sharing suppliers.264  The European Union contends that the Panel also erred in the interpretation and 
application of Article 1.1(b) of the SCM Agreement  to the extent that the Panel considered that 
LA/MSF for the A380 reduced the level of risk associ ated with risk-sharing supplier financing.  The 
European Union asserts that the Panel failed to take into account Professor Whitelaw's explanation 
that there is no reason why LA/MSF provided to Airbus for the A380 would in any way affect how the risk-sharing suppliers perceive the project's devel opment and market risks, in particular since risk-
sharing suppliers do not know whether or on wh at terms Airbus will receive LA/MSF loans. 
106. The European Union additionally alleges that the Panel erred under Article 11 of the DSU in 
finding that "'there is information contained in the Airbus A380 business case which suggests that the 
risk-sharing participants' involvement in the A380 pr oject may not have been on strictly market terms 
                                                     
 
260European Union's appellant's submission, para. 807 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 338;  and Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , 
paras. 288, 291, 292, footnote 618 to 293, and 294). 
261European Union's appellant's submission, para. 809 (quoting Panel Report, para. 7.480). 
262European Union's appellant's submission, para. 820 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 338). 
263European Union's appellant's submission, para. 811 (referring to Appellate Body Report, Japan – 
DRAMs (Korea) , para. 172). 
264European Union's appellant's submission, para. 822 (quoting Panel Report, para. 7.480). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 50  
 
  for all participants."
265  The European Union argues that th e Panel's one-sentence summary finding 
failed to provide a reasoned and adequate explan ation, because the Panel failed to address or assess 
unrebutted evidence to the contrary offered by the European Communities.266   
107. Hence, the European Union asserts that the Pa nel's criticisms of the European Communities' 
proposed benchmark constitute error under Article  11 of the DSU and demonstrate that the Panel 
erred in the interpretation and app lication of Article 1.1(b) of the SCM Agreement  in making some of 
the criticisms. 
(c) The relevance of sales forecasts 
108. The European Union takes issue with the Pane l's statement that "the number of sales over 
which full repayment is expected says little, if anything,  about the appropriateness of the rate of return 
that will be achieved by the lender."267  To the extent that the Appellate Body treats this as a finding 
made by the Panel268, the European Union requests that it be  reversed because the Panel erred under 
Article 1.1(b) of the SCM Agreement .269  The European Union asserts that the Panel's conclusion 
"flies in the face of economic logic"270 and contradicts the Panel's acceptance that an unreasonable  
repayment forecast may signal that a loan confers a benefit.271  The European Union further argues 
that the Panel's reasoning is contradictory to th e reasoning it employed regarding other arguments 
concerning LA/MSF, including the Pa nel's conclusions that the appropriateness of the risk premium 
and the rate of return should be based on an i ndividual assessment of the supposed commercial and 
technical risk of each model.272  The European Union acknowledges, however, that the Panel's 
consideration of sales forecasts did not affect its benefit finding, because the Panel aimed to compare LA/MSF with loans having the same or similar conditions, including a comparable schedule of 
repayment. 
6. Export Subsidies
 
109. The European Union claims that the Panel erre d in finding that the LA/MSF measures granted 
to Airbus by the Governments of Germany, Sp ain, and the United Kingdom for the A380 constituted 
                                                      
265European Union's appellant's submission, para. 829 (quoting Panel Report, para. 7.480). 
266European Union's appellant's submission, para. 832 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 338). 
267European Union's appellant's submission, para. 839 (quoting Panel Report, para. 7.397). (emphasis 
added by the European Union omitted) 
268At the oral hearing, the European Union confirmed its view that the statement constitutes a finding. 
269European Union's appellant's submission, paras. 841 and 842 (referring to Panel Report, para. 7.397). 
270European Union's appellant's submission, para. 843. 
271European Union's appellant's submission, para. 844 (referring to Panel Report, para. 7.397). 
272European Union's appellant's submission, para. 846 (referring to Panel Report, para. 7.469).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 51  
 
  subsidies contingent in fact upon export performan ce within the meaning of Article 3.1(a) and 
footnote 4 thereto of the  SCM Agreement .  The European Union raises four sets of grounds of appeal. 
(a) The first set of grounds of appeal:  Alleged legal errors in the Panel's 
interpretation of the terms "continge nt", "tied-to", and "actual or 
anticipated"  
110. The European Union's first set of grounds of app eal concerns the alleged errors in the Panel's 
legal interpretation of the terms "c ontingent", "tied to", and "actual or anticipated" in Article 3.1(a) 
and footnote 4 of the SCM Agreement .  The European Union alleges that the Panel erroneously 
interpreted these provisions by replacing the legal standard for de facto  export contingency with a 
"dependent motivation" standard, whereby a subsidy is contingent in fact upon export performance if 
a government grants a subsidy because of  anticipated exportation.
273 
(i) The interpretation of Article 3.1 and footnote 4 
111. The European Union maintains that Article 3.1( a) and footnote 4 constitute a single provision 
containing a single standard and must be interprete d together in a coherent  and harmonious manner, 
taking into account the overall design and architecture of that provision.  Thus, the legal standard for export contingency in law and expor t contingency in fact is the same.  The European Union further 
maintains that "a correct interpretation and appli cation of the provision requires adjudicators to begin 
with a correct understanding of the standa rd and evidentiary requirements in law."
274   
112. The European Union maintains that the term  "contingent … upon export performance" in 
Article 3.1(a) of the SCM Agreement  expresses an "if A, then B" relationship with respect to both 
de jure  and de facto  export-contingent subsidies.  More sp ecifically, A is a condition that must be 
fulfilled in order for B to occur, and, under Article 3.1(a), A is export performance and B is a subsidy.  
Thus, to establish that a subsidy is contingent up on export performance, "the obligation to grant the 
subsidy and the right to receive it would have  to be limited by the condition of export."275  Therefore, 
"{t}his is not a standard  to be equated with motivation "276, and "{a}n unconditional subsidy … does 
not become a subsidy contingent in law upon expor t merely because the granting authority adds 
preambular language stating th at the subsidy is granted because  exports are anticipated."277  T h e  
European Union further submits that a subsidy contingent upon export performance " favours  exports 
                                                      
273European Union's appellant's submission, paras. 1282 and 1336. 
274European Union's appellant's submission, para. 1307. 
275European Union's appellant's submission, para. 1311. 
276European Union's appellant's submission, para. 1312. (original emphasis) 
277European Union's appellant's submission, para. 1312. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 52  
 
  and creates an incentive for a company to prefer exports over domestic sales, because an export sale 
attracts a payment, or the right to reta in funds, which a domestic sale does not."
278 
113. Turning to the phrase "actual or anticipated expor tation" in footnote 4, the European Union 
argues that, as indicated by the dictionary definitions for "actual" and "anticipated"279, the term "actual 
exportation" means an export that exists at the moment when the measure granting a subsidy is 
enacted, while the term "anticipated exportation" m eans an export in the future.  According to the 
European Union, "{t}he use of the term 'or' establis hes that the terms 'actual' and 'anticipated' are 
alternatives, the export being either in the past/pre sent, or in the future, the two alternatives being 
mutually exclusive."280  The European Union submits that, "when considered together, the temporal 
connotations in the ordinary meanings of each of th e two terms 'actual' and 'anticipated' lend mutual 
support to each other and mutually strengthen each ot her, such that the overall temporal connotation 
of the phrase is confirmed."281   
114. The European Union maintains that its interp retation of Article 3.1(a) and footnote 4 "is 
consistent with the object and purpose of the SCM Agreement ".282  In the European Union's view, 
export-contingent subsidies are prohibited "because su ch measures are a particularly effective method 
for partitioning markets, allowing Members to create an incentive  for companies to discriminate in 
favour of exports, whilst avoiding that domestic pr ices are driven down (and avoiding unsustainable 
pressure on the Member's budget), thus frustrating th e basic objective of the WTO {a}greements to 
promote fair international trade in an open global market."283  The European Union submits that its 
interpretation of the term "actual or anticipated" is  "entirely consistent with  this object and purpose, 
because it systematically catches t hose subsidies that create an incentive  for companies to favour  
exports."284   
115. According to the European Union, the difference between in law  and in fact  export 
contingency is the evidence required to meet the legal standard.  For in law  export contingency, the 
direct evidence is the text of the measure.  More over, in the case of an ad hoc subsidy contingent 
in law upon export performance, the measure "constitutes the initial  grant  of the subsidy", and the 
export, once it takes place, "fulfils the condition and thus completes the grant ".285  The 
                                                      
278European Union's appellant's submission, para. 1318. (original emphasis) 
279European Union's appellant's submission, paras. 1326 and 1327 (referring to Shorter Oxford English 
Dictionary , 5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2002), Vol. 1, pp. 23 and 91). 
280European Union's appellant's submission, para. 1328.   
281European Union's appellant's submission, para. 1328.   
282European Union's appellant's submission, para. 1330.   
283European Union's appellant's submission, para. 1330. (original emphasis) 
284European Union's appellant's submission, para. 1330. (original emphasis) 
285European Union's appellant's submission, para. 1314. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 53  
 
  European Union submits that the export "generally occurs after the initial grant" and is thus an 
"anticipated
" export286, although "{i}t is also possible that the export occurs before  the initial grant" 
and is therefore " actual " export.287  As soon as the initial grant exists, the measure could be subject to 
challenge in WTO dispute settlement proceedings rega rdless of whether export occurs or the timing of 
the subsidy payment.  The European Union adds that the above description would be "unchanged in 
the case of subsidy programmes", such as a programme that automatically grants subsidies where the 
condition on export performance expres sed in the programme is fulfilled.288 
116. In contrast, for in fact  export contingency, the European Union submits that "the text of the 
alleged measure does not demonstrate contingency … or is not adduced".289  Rather, "other indirect 
evidence is adduced and a complaining Member e xplains how all the evidenced facts, working 
together, demonstrate the existence and precise content of a subsidy contingent/conditional upon 
export."290  Thus, for an "in fact" claim, "{a} panel 'm ust not lightly assume' the existence and precise 
content of an unwritten or undisclosed measure or pr ovision", because "there is a 'high threshold' for 
such claims;  and a panel must exercise 'particular rigour' when considering them."291  Furthermore, 
footnote 4 confirms that, "where individual subsidies are advanced because of 'actual' (that is, past or 
present) exports, that can also be indirect  evidence  of the existence and operation of a subsidy 
contingent/conditional upon export (particularly if there is a repetitive pattern and an absence of other 
explanation)."292   
117. The European Union further argues that establis hing in fact export contingency is a "much 
more difficult task" than establishing in law export contingency.293  In the European Union's view, the 
task is "particularly formid able (indeed insurmountable)"294 in this dispute for two reasons:  (i) the 
present case does not involve circumvention of th e discipline under Article 3.1;  and (ii) the 
United States' claim that the subsidies at issue were contingent upon export performance "flatly 
contradict{s} " what is provided for in the LA /MSF measures, under which funds are 
"unconditionally" disbursed and "remain with th e company even if no export ever occurs".295 
                                                      
286European Union's appellant's submission, para. 1314. (original underlining and boldface) 
287European Union's appellant's subm ission, para. 1319. (original italic s, underlining, and boldface) 
288European Union's appellant's submission, para. 1320. 
289European Union's appellant's submission, para. 1305. 
290European Union's appellant's submission, para. 1305. 
291European Union's appellant's submission, para. 1308 (quoting Appellate Body Report, US – Zeroing 
(EC) , paras. 196 and 198). 
292European Union's appellant's submission, para. 1332. (original emphasis) 
293European Union's appellant's submission, para. 1308 (quoting Appellate Body Report, Canada – 
Aircraft , paras. 167 and 168). 
294European Union's appellant's submission, para. 1308. 
295European Union's appellant's submission, paras. 1309 and 1310. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 54  
 
  (ii) The alleged double standard of "dependent motivation" 
imposed by the Panel 
118. The European Union alleges that, instead of interpreting Article 3.1(a) and footnote 4 as 
imposing the same standard for in law and in fact  export contingency, the Panel made a "fundamental 
legal error"
296 by interpreting those provisions as containing a double standard of "dependent 
motivation"297 for assessing de facto  export contingency.  Under the "dependent motivation" standard 
imposed by the Panel, a subsidy is contingent in  fact upon export performance when a Member grants 
the subsidy " because " it anticipates export.298   
119. The European Union submits that the Panel's error in imposing a "dependent motivation" 
standard resulted from its erroneous interpretation of the term "actual or anticipated".  According to 
the European Union, "{t}he erroneous interpreta tion that underpins the US submissions and is 
adopted in the Panel Report assumes that the term 'a ctual' refers to an export that takes place  
at whatever time —that is, 'actually' has taken place in the past or 'actually' takes place in the 
future."299  The Panel "fail{ed} to analyse the term ' actual'" but simply used the term "actually" 
"without any analysis, in the sense advocated by the United States".300  Consequently, "the term 
'anticipated export' {was} erroneously understood {by the Panel} to refer to something else, that is, to 
the notional state of mind of the granting authority."301  The European Union argues that, contrary to 
the Panel's finding, the term "anticipated" is an ad jective that "describes an objective characteristic of 
the export;  it is not a verb that describes a granting authority's hypothetical and subjective state of 
mind."302  Thus, "{b}y reasoning that the required conditi on is the 'anticipating of' exports the Panel 
{found} that the requirement of contingency … that is at the heart of the provision can be replaced by mere 'dependent motivation', rather than the imposition by the granting Member of a requirement that the recipient export in order to obtain (or retain) the subsidy".
303  
120. The European Union further argues that, by im posing a "dependent motivation" standard, the 
Panel was forced to enquire into the alleged stat e of mind of natural persons whose motivation was 
imputed to the granting Member in order to determine whether the granting of the subsidy was "dependent" on such motivation.  However, "{t}h e question of whether or not measures are ... 
                                                     
 
296European Union's appellant's submission, para. 1336. 
297European Union's appellant's submission, para. 1336. 
298European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.636, 7.644, 
7.648, 7.680, 7.681, and 7.683 (original emphasis)).  
299European Union's appellant's submission, para. 1325. (original underlining and boldface) 
300European Union's appellant's submission, paras. 1351 and 1352 (referring to Panel Report, 
para. 7.633, first sentence). 
301European Union's appellant's submission, para. 1325. 
302European Union's appellant's submission, para. 1352. 
303European Union's appellant's submission, para. 1331.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 55  
 
  prohibited by the SCM Agreement  does not turn on the supposed state of mind of an unspecified 
number of natural persons associated in some unspecified way with the grant of a subsidy."
304  
Moreover, "{f}aced with {the} impossible task" to determine the alleged state of mind of natural 
persons, the Panel was also forced to  examine the effects of the measure.305  Consequently, the 
European Union maintains, the Panel also erred in introducing an effect-based approach under 
Article 3.1(a) and footnote 4, even though the effects of subsidies are not addressed under these 
provisions but are addressed under Part III of the SCM Agreement .  
(iii) Other alleged legal errors in the Panel's legal interpretation  
121. The European Union further alleges the following "other legal errors"306 of the Panel in its 
interpretation of Article 3.1(a) and footnote 4.  Fi rst, the European Union submits that, although the 
United States made claims on both in law and in f act export contingency, th e Panel wrongly began its 
examination with the "in fact" claim.  The Europ ean Union contends that, although "{p}anels do have 
a margin of discretion when deciding on the order of analysis, ... {such discretion} is not 
unfettered."307  Moreover, for the European Union, "{i }t is really impossible to understand why an 
adjudicator faced with both in law and in fact clai ms referencing substantially the same evidence and 
arguments would not first address the in law claims."308  In the European Union's view, had the Panel 
"begun by properly assessing the standa rd and evidentiary requirements in law", the Panel could have 
avoided imposing a different standard for assessing the "in fact" claim.309   
122. Second, the European Union submits that the double standard used by the Panel led to 
contradictory findings with respect to the United States' "in law" claim and its "in fact" claim.  More specifically, on the basis of repayment provisions in the LA/MSF contracts and relevant market 
forecasts, the Panel found that the granting of  LA/MSF was at least in part conditional upon 
anticipated exportation when examining the "in fact" claims, but found that the same evidence  did not 
demonstrate in law export contingency. 
123. Third, the European Union maintains that, by imposing a "dependent motivation" standard 
when assessing the "in fact" claims, the Panel's finding discriminates against certain types of 
subsidies.  Specifically, "the Panel's thesis necessar ily implies that financial contributions that foresee
                                                     
 
304European Union's appellant's submission, para. 1353. 
305European Union's appellant's submission, para. 1331. 
306European Union's appellant's submission, heading I.D. 3, "Other legal errors that are also constituent 
elements of the Panel's fundamental legal error", p. 529. 
307European Union's appellant's submission, para. 1339.  
308European Union's appellant's submission, para. 1339.  
309European Union's appellant's submission, para. 1339. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 56  
 
  a return (such as loans) are more susceptible to be found to {be c ontingent on export} than financial 
contributions in the form of outright grants."
310  This result is "manifestly absurd and 
unreasonable"311, because the prohibition on export subsidies under Article 3.1(a) applies to all types 
of financial contributions.  The European Uni on also submits that, by imposing a "dependent 
motivation" standard and an "effect-based" test, th e Panel's findings "discriminate{} against small or 
export dependent economies" because "{t}he smaller th e domestic market, the more likely the finding 
of export contingency/conditionality."312 
124. Fourth, the European Union argues that the Pa nel's findings rendered in effective the second 
sentence of footnote 4, which states that "the mere fact that a subsidy is granted to enterprises that 
export shall not for that reason alone be considered to be an export subsidy".313  I n  t h e  
European Union's view, "what the second sentence of footnote 4 does is to require an adjudicator ... to 
further consider whether or not {a finding of export  contingency} could be sustained if the fact that 
the beneficiary exports would be removed from the equation."314  If the finding could not be sustained, 
"then the adjudicator must find no export subsidy, because otherwise it would be the fact of export that would alone be determining a finding of cont ingency/conditionality, which is what the second 
sentence of footnote 4 precludes."
315  By including the second sentence, the negotiators during the 
Uruguay Round "rejected" the United States' attempt to make a recipient's export orientation a decisive criterion in determining e xport contingency.  However, the European Union argues, the Panel 
failed to address properly the second sentence of f ootnote 4, despite the European Communities' 
argument before the Panel that "removing the fact that Airbus exports from the equation would ... be 
fatal to the US claims."
316   
125. Finally, the European Union argues that th e Panel imputed certain arguments to the 
European Communities that it had not made.  Speci fically, contrary to the Panel's finding, the 
European Communities did not argue that the only way to demonstrate de facto  export contingency is 
by pointing to an instrument legally requiring pe rformance of an obligation necessitating exports.  
Rather, it "repeatedly expressed the view that the exis tence of a subsidy contingent in fact upon export 
must be assessed on the basis of all the facts."317  The European Union al so argues that the Panel 
wrongly imputed to the European Communities an  argument it did not make by accepting the 
                                                      
310European Union's appellant's submission, para. 1356. 
311European Union's appellant's submission, para. 1356. 
312European Union's appellant's submission, para. 1359.  
313European Union's appellant's submission, para. 1359. 
314European Union's appellant's submission, para. 1363. 
315European Union's appellant's submission, para. 1363. 
316European Union's appellant's submission, para. 1370. 
317European Union's appellant's submission, para. 1345.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 57  
 
  United States' submission that, based on the European  Communities' interpretation, an inconsistency 
only arose when an export was realized.  Instead , the European Union maintains that the export 
contingency standard does not require export to have  taken place.  However, if an export-contingent 
subsidy "remains hidden and unused  it is quite possible that no one will know about it and there will 
be no evidence to make a case."
318  Thus, "some evidence  that might be relevant to demonstrating the 
existence and operation of the hidden measure ma y not come into existence until export occurs."319 
(b) The second set of grounds of appeal:  Alleged legal errors in the 
Panel's application of the standard set out by the Panel  
126. The European Union's second set of grounds of app eal concerns the Panel's alleged errors in 
its application of the "dependent motivation" standard  to the facts of the case.  This set of grounds of 
appeal "includes an appeal pursuant to Article 11 of the DSU, because … the evidence cannot support 
the findings of export contingency."320  The European Union also submits that "{i}t is possible that 
the Appellate Body may not need to consider {these grounds of appeal}, for example if it reverses all 
of the Panel's findings of export c ontingency/conditionality on the basis of the first set of grounds of 
appeal."321   
(i) The 1992 Agreement 
127. The European Union argues that, in its applicati on of the "dependent motivation" standard to 
the facts of the case, the Panel should have take n the 1992 Agreement into account, because a panel 
must consider all of the facts  constituting and surrounding the granti ng of the alleged subsidy.  The 
European Union argues that "the existence and operation of the 1992 Agreement  are, by definition, 
facts surrounding the adoption of the relevant {LA/MSF} measures, because the 1992 Agreement  was 
concluded between the Parties and refers directly and expressly to the type of measures of which the 
United States now complains;  and because the {L A/MSF} measures themselves refer back to the 
1992 Agreement ."322  Therefore, "the Panel was obliged to take into consideration {the existence and 
operation of the 1992 Agreement} when assessing the credibility  and plausibility  of the 
{United States'} claims".323   
                                                      
318European Union's appellant's submission, para. 1349.  
319European Union's appellant's submission, para. 1349. (original emphasis) 
320European Union's appellant's submission, para. 1372. 
321European Union's appellant's submission, para. 1372. 
322European Union's appellant's submission, para. 1373. 
323European Union's appellant's submission, para. 1377. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 58  
 
  (ii) The alleged internal conflicts within the Panel's findings 
128. Furthermore, the European Union alleges that  "{t}here are fundamental and irreconcilable 
internal conflicts between" the Panel's analysis of  whether the LA/MSF measures conferred a benefit, 
on the one hand, and the Panel's findings on export contingency, on the other hand.
324  When finding 
that the LA/MSF measures constituted export-continge nt subsidies, the Panel relied on contract 
provisions allegedly showing that the govern ments placed contractual reliance on certain 
representations made by Airbus in its LA/MSF a pplications when entering into the LA/MSF 
contracts.325  For the European Union, the Panel's finding s that these contract provisions demonstrate 
a conditional relationship between the granting of th e contracts and export performance contradict the 
Panel's statements in its examination of the al leged benefits conferred by these contracts.  
Specifically, the Panel found that the LA/MSF contr acts were provided "without any guarantee", that 
repayment depended "entirely" on the success of the projects, and that "governments have no 
recourse" in the event of non-payment.326   
129. The European Union alleges that the sales-de pendent repayment provisions, whereby Airbus 
is required to repay the LA/MSF loans upon the airc raft delivery over a specified period, mean that 
risk "remains with the provider of the finance", that is, the governments.  In contrast, "{i}f there 
would be subsidies contingent upon export, then the re levant risk would be carried by Airbus, and not 
the Member State."327  Thus, the European Union argues, "{t}he Panel cannot construe the risk as 
being with Member States for the purposes of its subsidy assessment, but as being with Airbus for the purposes of its export contingency ... assessment."
328 
(iii) Whether the sales-dependent re payment provisions support a 
finding of export contingency 
130. The European Union maintains that the roya lty-based financing mechanism provided under 
the sales-dependent repayment provisions does not s upport the Panel's finding of export contingency.  
The European Union maintains that, as it explained to the Panel, "the motivation for using royalty-
based financing {under the sales-dependent repaym ent terms} has nothing to do with export 
contingency ... but is simply a commercial decisi on reflecting the particular features of LCA 
development."329  The European Union recalls its argumen ts before the Panel that, because "Airbus' 
                                                      
324European Union's appellant's submission, para. 1378. 
325European Union's appellant's submission, para. 1381 (referring to Panel Report, paras. 7.680 
and 7.683). 
326European Union's appellant's submission, para. 1379 (quoting Panel Report, paras. 7.375 and 7.462). 
327European Union's appellant's submission, para. 1383. 
328European Union's appellant's submission, para. 1383. 
329European Union's appellant's submission, para. 1386.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 59  
 
  revenues are generated by and la rge from LCA sales, with between 83% and 85% of the gross price 
paid on delivery{,} ... aircraft deliveries {constitute} the most relia ble indication that sufficient cash-
flow will be on hand to make repayments".
330  In addition, "timing repayment with deliveries allocates 
the risk between Airbus and the EC member State governments in accordance with  the risk each party 
agreed to accept."331   
131. The European Union contends that, contrary to the Panel's finding that the 
European Communities had not provided evidence to substantiate the allege d commercial reasons, "it 
is immediately  apparent" from the "overall design and architecture " and the "context of the LCA 
market " that the royalty-based financing mechan ism in the repayment provisions reflects a 
commercial decision of the LA/MSF governments.332  Yet "the Panel ignore{d} the very evidence on 
the basis of which it makes its benefit and adver se effects findings and which explains the true 
commercial reasons for the decision to use royalty-based financing."333   
132. The European Union alleges that the Panel also erred in finding that the alleged "exchange of 
commitments" under the repayment provisions sup ported a finding of export contingency.  The 
European Union maintains that, contrary to the Un ited States' assertion, there is no "performance 
commitment" by Airbus to export under the repaym ent provisions of the LA/MSF contracts, because 
"{a} commitment to repay when sal es occur is not an export 'performance' 'target'" but "simply 
reflects a decision" to allocate risk and recoup investment.334 
133. The European Union further submits that, alt hough "{t}he Panel appears to have agreed with 
the European {Communities}" that the alleged "exchange of commitments" and the alleged 
"expectations" of the member States in gr anting the LA/MSF did not demonstrate export 
contingency/conditionality335, the Panel nonetheless found that th e evidence regarding alleged 
exchange of commitments and expectations "s upport{ed} the finding of export contingency".336  
However, the Panel failed to explain the conn ection between such evidence and the finding.  
Moreover, the Panel erroneously assumed that "roy alty-based financing in a global market somehow 
move{d} one closer to a finding of contingency"337, and the Panel, in so doing, seemed to reason that 
the measures are "almost" con tingent upon export performance.338  The Panel's finding, in the 
                                                      
330European Union's appellant's submission, para. 1386 (quoting Panel Report, para. 7.671). 
331European Union's appellant's submission, para. 1386 (quoting Panel Report, para. 7.671). 
332European Union's appellant's submission, para. 1389. (original underlining) 
333European Union's appellant's submission, para. 1389. 
334European Union's appellant's submission, para. 1395.  
335European Union's appellant's submission, paras. 1394 and 1396. 
336European Union's appellant's submission, paras. 1394 and 1396. 
337European Union's appellant's submission, para. 1393. 
338European Union's appellant's submission, paras. 1393, 1395, and 1397. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 60  
 
  European Union's view, is "irrational and illogical"
339, because "{a} subsidy is either export 
contingent{} or it is not."340 
134. Finally, the European Union maintains that th e Panel's assessment of the LA/MSF contracts is 
"incomplete and erroneous"341 because the Panel failed to address pr operly the fact that the LA/MSF 
contracts allow Airbus to make accelerated repa yments at any time and provide for guarantees for 
loan repayments by other group companies.  In  the European Union's view, the possibility of 
accelerated payments means there is no obligation to  repay the loans upon delivery, and the existence 
of guarantee for the loan repayments means that repayments need not be achieved through export 
revenue. 
(iv) Whether the "additional evidence" examined by the Panel 
does not support a finding of export contingency 
135. The European Union contends that the "additiona l" or "corroborating" evidence identified by 
the Panel with respect to the LA/MSF measures by Germany, Spain, and the United Kingdom for the 
A380 does not demonstrate export contingency.  With  respect to the "additional" evidence concerning 
the German measures, the European Union alleg es that the Panel acted inconsistently with 
Article 12.7 of the DSU by failing to provide the basic rationale behind its findings.  Instead, the 
Panel "simply listed the four pieces of evidence, a nd declared itself 'satisfi ed'" that the evidence 
demonstrated export contingency.342  According to the European Union, the use of "corroborating 
evidence" involves "explaining precisel y how evidenced facts work together to imply other facts, of 
which there is no direct evidence."343  Yet the Panel simply "jumbl{ed} facts together without 
explanation and {declared itself} satisfied that an ambiguously expressed standard {was} met."344 
136. The European Union further asserts that none of the additional evidence supports the Panel's 
finding that the German LA/MSF measure for the A380 was contingent upon  export performance, and 
that, in making this finding, the Panel acted incons istently with Article 11 of the DSU by failing to 
conduct an objective assessment of the facts before  it.  Noting the Panel's reliance on a document 
referenced in the preamble of the German LA/MSF contract345, the European Union maintains that the 
referenced document is authored by Airbus, not by the German Government, and does not 
                                                      
339European Union's appellant's submission, paras. 1393, 1395, and 1397. 
340European Union's appellant's submission, para. 1393. 
341European Union's appellant's submission, paras. 1458 and 1460. 
342European Union's appellant's submission, para. 1399. 
343European Union's appellant's submission, para. 1429. 
344European Union's appellant's submission, para. 1429. 
345European Union's appellant's submission, para. 1400 (referring to Panel Report, para. 7.680).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 61  
 
  "substantiate the supposed 'motivation' of Germany".
346  Moreover, even assuming that such a 
statement could be imputable to the German G overnment, it does not "lawfully and objectively" 
support a finding that the German Government gran ted the subsidy "dependent" upon its "motivation" 
concerning exportation.347  Regarding the second piece of additio nal evidence, the European Union 
alleges that the Panel did not explain why Ai rbus' obligation under section 2.5 of the German 
LA/MSF contract supported a finding of  export contingency.  As for the Panel's reliance on section 12 
of the German LA/MSF contract in reaching its find ing on export contingenc y, the European Union 
alleges that the Panel "misrepresent{ed} and distor t{ed} irrelevant and gene ral contractual provisions 
in direct conflict with the specific {repayment} provisions of the {contract}".348  In conclusion, the 
European Union emphasizes that "consideration of  sales" by the German Government "in assessing 
whether to provide financial support for the project at  issue was a prudent way to evaluate whether to 
invest taxpayers' money."349  However, in finding that the granting of LA/MSF was contingent on 
export performance simply because sales considered  by the government included export sales, the 
Panel's analysis is, in the European Union's view, contrary to the object and purpose of the SCM Agreement  "to encourage governments to subject industrial policy to the disciplines of the 
marketplace."
350 
137. Turning to the additional evidence concerni ng the Spanish LA/MSF measure for the A380, 
the European Union submits that its arguments w ith regard to the German LA/MSF measure for the 
A380 apply mutatis mutandis .  The European Union contends that the contract provisions relied upon 
by the Panel do not provide additional support for the United States' argument that royalty-based 
financing in a global market demonstrated export contingency, do not indicate any commitment to 
export, and are incapable of supporting a finding of "dependent motivation".351  Therefore, the 
European Union maintains, the Panel also acted in consistently with Article 11 of the DSU by failing 
to conduct an objective assessment of the facts. 
138. With respect to the additional evidence regard ing the UK LA/MSF measure for the A380, the 
European Union maintains that its arguments w ith respect to the German and Spanish LA/MSF 
measures for the A380 apply mutatis mutandis .  The European Union recalls that the Panel noted the 
statement reportedly made by Prime Minister Tony Blair at the public unveiling of the A380 that 
                                                      
346European Union's appellant's submission, para. 1407. 
347European Union's appellant's submission, para. 1407. 
348European Union's appellant's submission, para. 1423. 
349European Union's appellant's submission, para. 1426. 
350European Union's appellant's submission, para. 1428. 
351European Union's appellant's submission, paras. 1436 and 1439. WT/DS316/AB/R BCI deleted, as indicated [***] 
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  "{t}he export gains will run into the billions of pounds".
352  In the European Union's view, such 
evidence "has no probative value at all", because the statement "refers to wings and landing gear (not 
aircraft)" and "was made almost five years after the date of the {LA/}MSF measure."353  The 
European Union further recalls that the Pane l also noted a press release published by the 
UK Department of Trade and Industry in Marc h 2000 announcing that the UK Government had 
agreed to invest £530 million in the A380 project, explaining that "{w}ithin 25 years Airbus has 
grown to take 55% of the civil aircraft produc tion market and contributes {£}1 billion to the UK's 
trade balance."354  The European Union contends that this  statement "has no probative value", because 
it "refers only to wings destined for another part of  the European Union and ... the reference to the UK 
trade balance simply has no bearing on exports from the {European Union}."355  Furthermore, the 
Panel additionally relied on the re presentation and warranty made by BAE Systems in Article 3 of the 
contract.  However, "{t}he obligations assumed by  Airbus" under the contract "do not include any 
obligation to manufacture or sell any aircraft".356  Moreover, the European Union contends that, "with 
respect to the only determinative document on whic h the Panel relies for its finding, the Panel has 
simply misstated the terms of the contract."357 
(c) The third set of grounds of appeal:  Alleged legal errors in the Panel's 
application of the correct legal standard of contingency  
139. With respect to the third set of grounds of a ppeal, the European Union submits that, "{i}f the 
Appellate Body considers that the Panel applied the correct standard of con tingency/conditionality (if-
then), then the European Union a ppeals because the evidence, including the 'additional' 'corroborating' 
evidence, is incapable of supporting a finding of ex port contingency/conditionality on the basis of the 
correct standard."358  Specifically, the Panel acted inconsistently with Article 7.2 of the DSU by 
failing to address relevant provisions of the covere d agreements, acted incons istently with Article 11 
of the DSU by failing to make an objective ass essment of the law and the facts, and acted 
inconsistently with Article 12.7 of the DSU by failin g to provide the basic rationale for its findings.  
The European Union states that it incorporates all the legal errors and arguments it has identified, 
mutatis mutandis , into its third set of grounds of appeal.   
                                                      
352European Union's appellant's submission, para. 1443 (quoting Panel Report, para. 7.682, in turn 
quoting "Blair Says Airbus A380 will repay 530 mln stg UK govt investment", AFX News Limited , 18 January 
2005 (Panel Exhibit US-361)). 
353European Union's appellant's submission, para. 1443. 
354European Union's appellant's submission, para. 1444 (quoting Panel Report, para. 7.682, in turn 
quoting "Byers announces £530 million government investment in Airbus", UK Department of Trade and Industry, Press Release P/2000/173, 13 March 2000 (Panel Exhibit US-360)). 
355European Union's appellant's submission, para. 1444. 
356European Union's appellant's submission, para. 1451. 
357European Union's appellant's submission, para. 1451. 
358European Union's appellant's submission, para. 1461.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 63  
 
  (d) The fourth set of grounds of app eal:  Further alleged legal errors 
140. The European Union's fourth set of grounds of a ppeal relates to certain additional legal errors 
in the Panel Report.
359  First, the European Union argues that the Panel erroneously accepted an 
untimely submission by the United States.  Speci fically, the Panel accepted the United States' 
argument that the LA/MSF contracts involved an "e xchange of commitments" between Airbus and the 
respective governments, even though the United States introduced this argument for the first time in 
its second written submission by referring to sever al new items of evidence, namely various 
provisions in the LA/MSF contracts.  Second, the European Union contends that, although the 
United States never made a claim on the basis of a "dependent motivation" standard, the Panel made 
the case for the United States by applying such a sta ndard to the evidence relating to the governments' 
anticipation on export performance.   
141. Third, the European Union submits that, by accepting the United States' argument that the 
sales envisaged under the repayment provisions of th e contracts at issue necessarily include export 
sales, the Panel wrongly equated performance with  export performance.  The European Union 
contends that the LA/MSF contracts are neutral as to where sales occur and are therefore not prohibited under Article 3.1(a) and footnote 4 of the SCM Agreement .  This is because these 
provisions do not prohibit subsidies contingent u pon performance in a global market, but only prohibit 
subsidies contingent upon export  performance.  The European Union further argues that the 
Illustrative List of Export Subsidies in Annex I to the SCM Agreement  "all refer to exports and/or the 
'favouring' thereof".
360  Moreover, Article XVI:4 of the GATT 1994, which is referenced in Annex I, 
refers to subsidies on the export of a product that result in an export price lower than the domestic 
price.  The European Union further submits that, although the SCM Agreement does not have a 
preamble, its object and purpose can be discerned from the preamble of the GATT 1994, which states 
that the GATT 1994 is directed to "the elimination of discriminatory  treatment in international 
commerce".361  Thus, consistent with the object and purpose of the GATT 1994, subsidies that are 
"neutral"362 as to whether export performance exists are not prohibited, although the adverse effects 
they cause remain subject to Parts III and V of the SCM Agreement .  The European Union further 
                                                      
359The European Union states that "{i}t is possible that the Appellate Body may not need to consider 
this {set of grounds} if it finds in favour of the European Union for other reasons, although it would also be possible for the Appellate Body to reverse based only on this {set of grounds} in whole or in part." 
(European Union's appellant's submission, para. 1464) 
360European Union's appellant's submission, para. 1477. 
361European Union's appellant's submission, para. 1480. (original emphasis) 
362European Union's appellant's submission, para. 1481. WT/DS316/AB/R BCI deleted, as indicated [***] 
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  submits that the preparatory work of the SCM Agreement  confirms that the rationale for prohibiting 
export subsidies was that "they favoured  exports".
363 
142. Fourth, the European Union maintains that the Pa nel equated a "financial contribution" with a 
"subsidy" in applying its "depe ndent motivation" standard to the facts.  Specifically, because a 
subsidy is "a financial contribution" that "confer s a benefit", the Panel should have required the 
United States to demonstrate that both elements —the financial contribut ion and the benefit—are 
contingent upon export performance.   Yet the Panel merely required a demonstration that each of the 
LA/MSF contracts was contingent/conditional upon e xport, and failed to require the United States to 
show that "'the anticipating of exports' was a 'depen dent motivation' for the decision to fix the terms 
of the {LA/}MSF measures at below market rate{s}."364  Finally, the European Union alleges that the 
Panel failed to assess what the United States m eant by the terms "exports" and "Europe".  
Specifically, the United States "failed to explain or  demonstrate what it meant by 'Europe' (as opposed 
to the European Union)", and failed to explain "how what is financed by each of the {LA/}MSF 
measures relates to what might eventually  be 'exported' from the European Union."365 
143. On the basis of the above, the European Uni on requests the Appellate Body to reverse the 
Panel's finding that the LA/MSF measures by Germany, Spain, and the United Kingdom for the A380 
are contingent in fact upon anticipated export performance. 
7. The EC Framework Programmes  
144. The European Union submits that the Panel's finding that "the R&TD subsidies granted to 
Airbus under each of the Framework Programmes are specific within the meaning of Article 2.1(a) of the SCM Agreement" was based on an erroneous in terpretation and applica tion of this provision.
366  
The European Union summarizes the Panel's view as  follows:  "that a subsidy programme aimed at 
advancing R&TD in general is , nevertheless, specific pursuant to Article 2.1(a) of the 
SCM Agreement  if it constitutes a legal regime that allo cates part of the funding exclusively to 
research activities relevant for certain industry sectors."367  The European Union considers that this 
interpretation is flawed for several reasons. 
                                                      
363European Union's appellant's submission, para. 1484. (original emphasis) 
364European Union's appellant's submission, para. 1488. 
365European Union's appellant's submission, para. 1491. 
366European Union's appellant's submission, para. 1173 (quoting Panel Report, para. 7.1566). 
367European Union's appellant's submission, para. 1184.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 65  
 
  145. First, the European Union main tains that, in the case of general subsidy programmes such as 
the Framework Programmes, the reference to "subsi dy" in Article 2.1(a) must mean the subsidy 
programme as a whole.  In the European Union's vi ew, this follows from language in Article 2.1(c) 
that refers to use of a "subsidy programme" by a lim ited number of certain enterprises, and taking into 
account the length of time during which the "subsidy programme" has been in operation.  Since "the subsidy programme as a whole is the benchmark for assessing de facto  specificity, there is no reason 
to choose another benchmark for assessing de jure  specificity within the meaning of Article 2.1(a) of 
the SCM Agreement ."
368  The European Union adds that the Pane l's interpretation also runs the risk of 
rendering the specificity criterion in Article 2 mean ingless, since "{e}xamining benchmarks below the 
level of the subsidy programme as a whole will, at a certain level, inevitably indicate specificity."369 
146. The European Union submits that the Pane l's description of the budget allocations to 
aeronautics-related research as a "closed sy stem" of subsidisation is a "misnomer".370  T h e  
European Union acknowledges that such funding co uld not be accessed by entities seeking support for 
non-aeronautics-related research, but adds that "it is  equally true that entities involved in aeronautics-
related R&TD projects could not access funds under th e remainder (and therefore the great majority) 
of the Framework Programme budgets."371  Because there is no discrimination or special treatment in 
favour of aeronautics-related research within the co ntext of the whole programme, there is therefore 
no "closed system".  Instead, the European Union ma intains, "there is a broad-based allocation that 
ensures equal access to a wide range of sectors and enterprises".372 
147. The European Union also finds contextual support in Article 2.1(c) of the SCM Agreement  for 
its critique of the Panel's interpretation.  Under that provision, two factors indicating de facto  
specificity are the "predominant use of a subsidy pr ogramme by certain enterprises" and "the granting 
of disproportionately large amount s of subsidy to certain enterprises".  If a WTO Member seeks to 
pre-allocate funds in order to distribute them ev enly across sectors, "such measures taken to avoid 
de facto  specificity of the programme should not in turn cause its de jure  specificity".373  R a t h e r ,  
subparagraphs (a) and (c) of Article 2.1 of the SCM Agreement  "must be interpreted harmoniously".374   
                                                      
368European Union's appellant's submission, para. 1187. 
369European Union's appellant's submission, para. 1188.  
370European Union's appellant's submission, para. 1189 (referring to Panel Report, para. 7.1563). 
371European Union's appellant's submission, para. 1189. 
372European Union's appellant's submission, para. 1189. 
373European Union's appellant's submission, para. 1190. 
374European Union's appellant's submission, para. 1190. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 66  
 
  148. Finally, the European Union claims that th e Panel's reasoning penalizes WTO Members that 
administer their R&TD programmes in an open and transparent manner, and instead encourages them 
to allocate funds within a diverse research programme so as "to avoid any clear indication of 
sectors".
375  The European Union submits that a programme in which part of the funding is clearly 
allocated to the research area "aerona utics and space" will be considered de jure  specific, whereas a 
programme allocating funding to apparently gene ric research areas will not, "even if the granting 
government decided (but did not make public) that 100%  of the funding of such an apparent generic 
research would benefit aeronautics and space,  and this turns out to be the case."376 
149. For these reasons, the European Union requests the Appellate Body to reverse the Panel's 
finding that the R&TD subsidies granted to Ai rbus under each of the Framework Programmes are 
specific within the meaning of Article 2.1(a) of the SCM Agreement .377 
8. Infrastructure Measures  
(a) Financial contribution 
150. The European Union claims that the Panel's an alysis of the infrastructure measures at issue 
"was premised on an incorrect interpreta tion of Article 1.1(a)(1)(iii) of the SCM Agreement  and 
accordingly resulted in an erroneou s application of that provision."378  According to the 
European Union, the Panel started its analysis by posing the wrong question:  that is, "when does the 
provision of goods or services in the form of infrastructure constitute the provision of infrastructure which is 'other than general' within the meaning of Article 1.1(a)(1)(iii), such that there is a financial 
contribution by a government."
379  By entering into the analysis of what amounts to "general 
infrastructure" in the context of the provision of goods or services, "the Panel fundamentally ignored the {European Communities'} argument that a distin ction must be made between, on the one hand, the 
creation of infrastructure and, on the other hand, the provision of infrastructure to the recipient."
380 
151. Quoting a passage by the panel in US – Softwood Lumber III , the European Union argues that 
a measure cannot constitute a subsidy unless it qualifi es as one of the enumerated forms of financial 
contributions listed in Article 1.1( a)(1), consisting of "only those me asures that are concerned with a 
direct or indirect act or an omission by the government involving the transfer  of money or an in-kind 
                                                      
375European Union's appellant's submission, para. 1192.  
376European Union's appellant's submission, para. 1192. 
377European Union's appellant's submission, para. 1193;  Panel Report, para. 7.1566. 
378European Union's appellant's submission, para. 1024.  
379European Union's appellant's submission, para. 1025 (quoting Panel Report, para. 7.1014).  
380European Union's appellant's submission, para. 1026.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 67  
 
  transfer  of resources".
381  In contrast, the European Union submits that government actions taken by a 
public authority, and "in particular those invol ving the creation of infrastructure (such as the 
development of agricultural land into urban or i ndustrial land, the creation of natural parks, the 
creation or improvement of infrastructures, such as roads, railways, land, etc.) are not the type of actions which qualify as 'financial contributions'"
382 within the meaning of Article 1.1(a)(i).  Rather, 
until provided to a particular recipient, they ar e government interventions that do not constitute 
measures covered by the SCM Agreement .  
152. The European Union argues that the reason that the creation or improvement of infrastructure 
is carved out from the SCM Agreement  is evident:  the SCM Agreement  does not interfere with 
legitimate government choices to pursue public policies for the benefit of the population as a whole.  
In principle, the creation of infrastructure benef its society as a whole and therefore reflects such 
legitimate economic development policies.  As  the European Union explains, "{o}nly the provision  to 
an economic operator (as opposed to creation) of infr astructures 'other than general infrastructures' is 
captured by the notion of financial contribution sin ce this government action is capable of distorting 
trade."383 
153. In the European Union's view, the Panel ignored  the fact that Article 1.1(a)(1)(iii) requires 
that a government "provide" a good or service to a recipient in order to constitute a financial 
contribution.  In order to conclude whether th e financial contribution amounts to a subsidy, an 
assessment is required to determine whether the pr ovision of that good or service by the government 
occurred on market terms.  However,  "actions taken by the government prior  to the provision of the 
good or service in question are not relevant" for a pa nel's assessment of the existence of a financial 
contribution or benefit.384  Accordingly, Article 1.1(a)(1)(iii) "only applies once infrastructure has 
been created, and establishes that the provision of general infrastructure does not amount to a 
financial contribution, whereas the provision of non-general infrastructure does."385  According to the 
European Union, the Panel ignored the structure of Article 1.1(a)(1) to avoid this conclusion. 
154. The European Union notes the Panel's conclusion that it was not legally required to analyze 
separately the "creation" and "provision" of infrastru cture, and argues that this is wrong as a matter of 
law and upsets the balance of rights and obligations  negotiated by WTO Members.  Pointing to WTO 
jurisprudence on privatization, the European Union argues that "the measure at issue for the financial 
                                                      
381European Union's appellant's submission, paras. 1027 and 1028 (referring to Panel Report, US – 
Softwood Lumber III , para. 7.24). (original emphasis;  footnotes omitted) 
382European Union's appellant's submission, para. 1029. 
383European Union's appellant's submission, para. 1030. (original emphasis) 
384European Union's appellant's submission, para. 1031. (original emphasis)  
385European Union's appellant's submission, para. 1032.   WT/DS316/AB/R BCI deleted, as indicated [***] 
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  contribution analysis would not be the creation of the State-owned company and its provision to the 
buyer, but only the provision of the company."
386  The question of whether a privatized company was 
created through the use of subsidies "is irreleva nt to any subsidy assessment of the relevant 
transaction at issue, i.e., the 'provision' of the privatised company".387  The European Union thus 
draws a comparison with infrastructure measures,  repeating its argument that the creation of 
infrastructure is not covered by the paragraphs of  Article 1.1(a);  rather, only the provision of 
infrastructure at below market value may constitute a subsidy. 
155. The European Union considers the Panel's concern that exclusion of the creation of 
infrastructure would circumvent the fundamental purpose of subsidies disciplines to be "unwarranted".
388  In the European Union's view, "{t}he exclusion of the creation of 
infrastructure ... reflects a conscious choice by Members when they negotiated the 
SCM Agreement ."389  Referring to the statement by the panel in US – Export Restraints  that "not every 
government intervention in the market w ould fall within the coverage of the { SCM Agreement }"390, 
the European Union considers that the creation of infrastructure is one of the measures excluded from 
the SCM Agreement .  
156. The European Union argues that the Panel i gnored the fundamental difference between the 
creation and the provision of infrastructure, and in stead "entered into a pointless analysis as to 
whether something (composed of a set of several measures) amounts to provision  of general or non-
general infrastructure".391  The European Union submits that th e Panel's analysis of what constitutes 
"general infrastructure" was irrelevant, because the question of whether infrastructure is general or 
non-general "is only relevant when it is provided  to someone."392  This is supported by the Panel's 
view that infrastructure may be general at one point  in time and non-general at a different point in 
time.  This indicates that the proper point of refere nce in determining whether a provision of goods or 
services is non-general infrastructure "is the time when the act of provision  that is alleged to constitute 
a subsidy takes place."393  Moreover, even if the circum stances surrounding the creation of 
infrastructure demonstrate that it was created for the particular needs of the entity or group, this is 
relevant only in assessing the provision—not the cr eation—of infrastructure.  The European Union 
                                                      
386European Union's appellant's submission, para. 1034. (original emphasis)   
387European Union's appellant's submission, para. 1035.   
388European Union's appellant's submission, para. 1036.   
389European Union's appellant's submission, para. 1036.   
390European Union's appellant's submission, para. 1036 (referring to Panel Report, US – Export 
Restraints , paras. 8.63 and 8.73).  
391European Union's appellant's submission, para. 1037. (original emphasis)  
392European Union's appellant's submission, footnote 1384 to para. 1037. (original emphasis) 
393European Union's appellant's submission, para. 1038. (original emphasis)    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 69  
 
  therefore requests the Appellate Body to reverse th e Panel's findings regarding whether the challenged 
measures constitute "general or non-general infrastru cture", and to declare them moot and with no 
legal effect.
394  
157. The European Union maintains that it was legal e rror for the Panel to conclude that, in respect 
of the Mühlenberger Loch site, "the entire transac tion of creating and providin g an industrial site to 
Airbus constitutes the alleged subsid y" and that "there is no legal re quirement that we separate the 
various elements of the project for the purposes of our analysis."395  If the Panel had properly 
conducted its analysis by examining which part of  the measures constituted the "provision" of "goods 
and services" in the form of "infrastructure", the Panel "should have examined only the relevant transaction and financial contribution, i.e., the provi sion of the industrial site to Airbus through the 
lease of the land and the special-purpose facilities."
396  According to the European Union, all steps 
taken by the city of Hamburg for the creation of th e Mühlenberger Loch industrial site are irrelevant, 
and the Panel was wrong to conclude that both th e creation of infrastructure and its provision to 
Airbus was a "single measure" that amounted to a financial contribution under Article 1.1(a)(1)(iii) of 
the SCM Agreement . 
158. The European Union faults the Panel for focusi ng on aspects of the project indicating that it 
was tailor-made for Airbus.  Even if true, the releva nt issue in the financial contribution determination 
is the relevant transaction in the form of the provisi on of the goods or services in question.  The fact 
that the city of Hamburg retains ownership of the Mühlenberger Loch industrial site and leases it to 
Airbus Deutschland indicates that only a temporary right to use a particular piece of land in the 
industrial site for a particular period of time is provided to Airbus.  Moreover, the European Union 
considers that the Panel's approach of combining cr eation and provision of infrastructure may lead to 
"absurd" results, since it will be difficult to draw  the line to establish whet her certain measures are 
part of the same project.  In the European Uni on's view, "all steps necessary for the creation of 
infrastructure are actions of public authority (e.g., such as 'moving waters from one side to the other', 
as was the case of the Mühlenberger  Loch) which do not fall under the SCM Agreement ."397   
159. For these reasons, the European Union requests the Appellate Body to reverse the Panel's 
finding that the creation and provision of the Mühle nberger Loch industrial site constituted a financial 
contribution within the meaning of Article 1.1(a)(iii) of the SCM Agreement .  Instead, the 
                                                      
394European Union's appellant's submission, para. 1037;  Panel Report, paras. 7.1034-7.1044. 
395European Union's appellant's submission, para. 1041 (quoting Panel Report, paras. 7.1077 
and 7.1078).   
396European Union's appellant's submission, para. 1041.  
397European Union's appellant's submission, para. 1043. (footnote omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
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  European Union requests the Appellate Body to find  (i) that the creation of the Mühlenberger Loch 
industrial site, including the turning of the wetlands into usable land, the building of flood protection 
measures, and the building of special-purpose facilities on the site, amounted to infrastructure 
measures that do not fall within the scope of the SCM Agreement , and (ii) that only the lease of the 
land and of the special-purpose facilities in the M ühlenberger Loch industrial site constitute a 
financial contribution under Ar ticle 1.1(a)(1)(iii) of the SCM Agreement . 
160. The European Union also maintains that it was le gal error for the Panel to conclude that, in 
respect of the Bremen airport runway extensi on, "the entire project, extending the runway, the 
associated noise reduction measures, and the right of exclusive use, constitute a financial contribution 
to Airbus, within the meaning of Article  1.1(a)(1)(iii) of the SCM Agreement."
398  The 
European Union submits that the extension of th e runway and the associated noise reduction measures 
amounted to improvements of existing infrastructure,  as a government action of public authority.  
Thus, even if the use of the ex tended runway was limited to Airbus, the improvements "benefited all 
users of the Bremen airport since, for security reas ons, the extensions of the runway can be used by 
any airline (e.g. interrupted take-offs, emergenc y landings) and the noise reduction measures had a 
positive impact on the people working, circulating or living close to the airport."399  A s  t h e  
European Union contends, evidence of limitations on the use of the extended runway or that it was 
undertaken for the use of Airbus are not relevant fo r the financial contribution analysis;  rather, it is 
the right to exclusive use of the extended runway  as a provision of services to Airbus Deutschland that 
is the relevant transaction for the purpose of Article 1.1(a)(1)(iii). 
161. For these reasons, the European Union requests the Appellate Body to reverse the Panel's 
finding that the entire project, the runway extens ion, the associated noise reduction measures, and the 
right of exclusive use, constitute a financial contribution to Airbus, within the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement .  Instead, the European Union requests the Appellate 
Body to find:  (i) that extending the runway and building the associated noise reduction measures are 
infrastructure measures that do not fall within the scope of the SCM Agreement ;  and (ii) that the right 
to exclusive use of the extended runway amounts to a financial contribution in the sense of Article 1.1(a)(1)(iii) of the SCM Agreement . 
162. The European Union also maintains that it was le gal error for the Panel to conclude that, in 
respect of the Aéroconstellation site, the équipement d'intérêt général  ("EIG") facilities constituted an 
integral part of the site, and that it therefore did not need to analyze the EIG facilities separate from its 
                                                     
 
398European Union's appellant's submission, para. 1045;  Panel Report, para. 7.1121.  
399European Union's appellant's submission, para. 1045.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 71  
 
  consideration of the provision of th e Aéroconstellation site as a whole.   The lease of the EIG facilities 
amounts to the provision of a service, and the sal e of land in the industrial site amounts to the 
provision of a good.  The European Union also maintains that only the provision of the 
Aéroconstellation site and the EIG facilities, rather than the creation of the site in question, is the 
relevant transaction for the purpose of th e financial contribution determination.  
163. For these reasons, the European Union requests the Appellate Body to reverse the Panel's 
finding that the creation and provision of the Aé roconstellation site and the EIG facilities was not a 
measure of general infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement .  
Instead, the European Union requests the Appellat e Body to find (i) that the creation of the 
Aéroconstellation site and the EIG facilities are infr astructure measures that do not fall within the 
scope of the SCM Agreement , and (ii) that the sale of land and the lease of the EIG facilities in the 
Aéroconstellation site to Airbus France amount to a financial contribution in the sense of 
Article 1.1(a)(1)(iii) of the SCM Agreement . 
(b) Benefit 
164. The European Union claims that the Panel erre d in its interpretation and application of the 
term "benefit", within the meaning of Article 1.1(b) of the SCM Agreement .  In particular, the Panel 
assessed the existence of a benefit not from the pers pective of the recipient, but instead from the 
perspective of the governments, which the Pane l found incurred costs in excess of the returns 
generated by Airbus' purchase and/or lease payments .  In doing so, "the Panel essentially adopted 
what amounts to a 'return-to-government' or 'cost-to -government' standard that was explicitly rejected 
by the Appellate Body in Canada – Aircraft ."
400  The European Union requests the Appellate Body to 
reverse the Panel's findings401 and, consequently, also to reverse the Panel's conclusions that these 
measures constitute actionable subsidies.402 
165. The European Union notes that the Panel recalle d certain findings of th e panel and Appellate 
Body in Canada – Aircraft  that indicate that the existence of a "benefit" must be determined by 
reference to whether the terms of the financial c ontribution enjoyed by the recipient are consistent 
with a market benchmark.  The European Union ar gues that the Panel "ignored that it must assess the 
terms of the financial contribution that the recipient obtained against a market benchmark"403, and 
instead assessed the existence of a benefit from the perspective of the granting governments.  
                                                      
400European Union's appellant's submission, para. 1063 (referring to Appellate Body Report, Canada – 
Aircraft , paras. 149-161). (footnote omitted) 
401Panel Report, paras. 7.1097, 7.1134, and 7.1190. 
402Panel Report, paras. 7.1958, 8.1(b)(i)-(iii), and 8.2. 
403European Union's appellant's submission, para. 1066.   WT/DS316/AB/R BCI deleted, as indicated [***] 
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  According to the European Union, the Panel erre d by asking "whether the returns enjoyed by the 
granting governments were sufficient, relative not to th e market value of the land or facilities sold or 
leased or the exclusive right of use provided, but to the returns a market investor creating that land or 
facilities would have sought."
404  The European Union maintains that this error resulted from the 
Panel's consideration of the government as an invest or, instead of, as required by Article 1.1(a)(1)(iii), 
as a provider of a good or service.  Any benefit must rather "be measured against the market value of 
that good or service provided, not the cost of creating it".405  The return to a government is a relevant 
measure for assessing "benefit" only where a financ ial contribution under Article 1.1(a)(1)(i) is 
involved.  In such a case, the expected return th at a market investor woul d have demanded constitutes 
the relevant benchmark for assessing whether th e government's expected return constitutes the 
conferral of a "benefit" on the recipient.  This is confirmed by Article 14(a) through (c) of the 
SCM Agreement , which provides specific guidance for assessing against a market benchmark the 
government return involved in an equity infusion, a loan, and a loan guarantee.  However, where the 
financial contribution constitutes the provision of a good or a service, the European Union argues that 
Article 14(d) supports assessing any "benefit" based on ma rket value and price, rather than any return 
earned.  
166. The European Union argues that the Panel app lied a legally incorrect "return-to-government" 
standard to the Mühlenberger Loch measures.  The Panel explicitly recognized that Airbus 
Deutschland did not receive land and facilities "wor th" €750 million, but land and facilities of a 
considerably lesser market value.  The Europe an Union notes that the Panel found that the 
Mühlenberger Loch measures conferred a benefit on Airbus Deutschland "in an  amount equivalent to 
the extent of the difference between the actual rent paid by Airbus for the land and the facilities in 
question, and a reasonable rate of return on the inv estment of the Hamburg authorities in creating that 
land and those facilities."406  The European Union contends that, instead of focusing on the 
government as a provider  of the goods or services and on the value of the land and the special-
purpose facilities, the Panel focused on the government as an investor  and on the value of the city of 
Hamburg's investment, finding that the city of Hamburg received an insufficient return on an 
investment "worth" €750 million.407 
                                                      
404European Union's appellant's submission, para. 1067.   
405European Union's appellant's submission, para. 1067.   
406European Union's appellant's submission, para. 1069 (quoting Panel Report, para. 7.1096).  
407European Union's appellant's submission, para. 1070.    BCI deleted, as indicated [***] WT/DS316/AB/R 
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  167. The European Union notes that the Panel ju stified its approach by asserting that the 
investment by the city of Hamburg in bringing the site into existence was "relevant" in its assessment, 
and that its approach was "simply a reflection, in th e particular circumstances of this measure, of the 
basis on which a market actor would determine the am ount of rent to be charged for that particular 
parcel of land, and thus the a ppropriate 'market' benchmark."
408  The European Union argues, 
however, that the Panel's approach departs from established panel and Appe llate Body guidance on 
the approach to the "benefit" determination under Article 1.1(b) of the SCM Agreement .  In Canada – 
Aircraft , the Appellate Body explicitly rejected Ca nada's reliance on a "cost to government" 
perspective, holding that "the word 'benefit', as used in Article 1.1 , is concerned with the 'benefit to 
the recipient ' and not with the 'cost to government '."409  In the European Union's view, the Panel's 
assessment of "benefit" amounts to a reversible erro r.  The European Union repeats its prior argument 
that the cost to the government in creating or im proving infrastructure is irrelevant in the benefit 
analysis because it consists of government actions of public authority outside the scope of the 
SCM Agreement .  Only when something is provided to an  economic operator does the benefit analysis 
require examining whether the recipient obtained that something on better terms than the market 
would provide.  The European Union also submit s that the Panel's approach is "economically 
naïve".410  The European Union argues that no market ac tor can set a price for a good solely on the 
basis of its own investment or cost, because no buyer will pay more than the market value of the good.  
If the market value of the good is less than the inv estment necessary to create it, the seller will fail to 
recuperate its investment. 
168. The European Union maintains that the Panel also attempts to justify its departure from 
established panel and Appellate Body guidance by recourse to unspecified purposes and goals of the 
SCM Agreement .  Noting that the Appellate Body has iden tified the agreement's object and purpose as 
"to strengthen and improve GATT di sciplines relating to the use of both subsidies and countervailing 
measures"411, the European Union submits that the Panel does not explain how this broad statement of 
object and purpose allows it to discard an establis hed interpretation of Article 1.1(b).  The 
European Union also labels as "misplaced" the Pa nel's criticisms of the European Communities' 
approach as leading to a wholesale circum vention of subsidies disciplines in the SCM Agreement .  
The European Union explains that no circumvention exists because the exclusion of the creation of 
infrastructure from the SCM Agreement  was a "conscious choice by Members";  rather, "it is the 
                                                      
408European Union's appellant's submission, para. 1071 (quoting Panel Report, para. 7.1093).  
409European Union's appellant's submission, para. 1073 (quoting Appellate Body Report, Canada – 
Aircraft , paras. 155 and 156 (original emphasis)).   
410European Union's appellant's submission, para. 1074.   
411European Union's appellant's submission, para. 1075 (quoting Appellate Body Report, US – 
Softwood Lumber IV , para. 64, in turn referring to Appellate Body Report, US – Carbon Steel , paras. 73 and 74). WT/DS316/AB/R BCI deleted, as indicated [***] 
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  Panel's approach that upsets the balance of right s and obligations negotiated by Members in the 
SCM Agreement ."
412  Moreover, the European Union consider s that the Panel erred when it found that 
by creating infrastructure that the market might not create, governments distort the market in a 
manner that is disciplined under the SCM Agreement .  The European Union argues that, on the facts at 
issue, the governments were not investors when th ey created the infrastructure and thus were not 
required to cover all of their costs and obtain a retu rn.  Rather, the governments were the providers of 
goods and services, and any benefit conferred to the recipient of those goods and services must be 
assessed on market terms. 
169. The European Union maintains that the Panel's e rror is manifest in its finding that "whether 
the rent paid by Airbus for the land and the speci al purpose facilities is commensurate with a market 
rate for rental of existing industrial land and fac ilities in Hamburg ... is simply not relevant to our 
analysis."413  To the contrary, the European Union argues,  the relevant financial contribution within 
the meaning of Article 1.1(a)(1)(iii) was the lease of the Mühlenberger Lo ch industrial site, and 
therefore "the question whether the rent paid by  Airbus Deutschland for the land and the special-
purpose facilities is commensurate with a market rate is the only relevant question."414  T h e  
European Union also disagrees with the Panel's view  that there was a benefit to Airbus because the 
market would not have developed the land.  Instead , the European Union maintains, had Hamburg not 
invested in the Mühlenberger Loch project, Airbus  would have located the entire A380 final assembly 
line in Toulouse. 
170. The European Union concludes that the Panel' s finding that the Mühlenberger Loch measures 
conferred a benefit on Airbus Deutschland because th e city of Hamburg is not earning a "reasonable 
rate of return on the investment" is in error,  because it did not assess whether Airbus Deutschland 
received the financial contributions at issue on te rms better than those available on the market.415  The 
European Union therefore requests the Appellate Body  to reverse the Panel's finding, and asserts that 
there are no relevant factual findings or uncontest ed facts on the record that would allow the 
Appellate Body to complete the analysis. 
171. The European Union submits that the Panel wrongly relied on the "return on the investment" 
standard when it found that there was "no return to  the City of Bremen on its investment in the 
runway extension and noise reduction measures" and,  thus, that a benefit had been conferred to 
                                                      
412European Union's appellant's submission, para. 1076.   
413European Union's appellant's submission, para. 1077 (quoting Panel Report, para. 7.1096).   
414European Union's appellant's submission, para. 1077. (original italics and boldface)   
415European Union's appellant's submission, para. 1079 (quoting Panel Report, para. 7.1096).    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 75  
 
  Airbus "by the provision of that extension and noise reduction measures".
416  In particular, the Panel 
failed to assess whether Airbus Deutschland received the relevant financial c ontribution—that is, the 
exclusive right to use the extended runway—on terms better than those available at market.  Instead, 
the European Union notes, the Panel observed that Airbus did not pay "additional charges for the use of the runway extension{}" and that "no connecti on has been established suggesting that Airbus pays 
fees relating to the use of the extended runway".
417   
172. The European Union contends that the Panel ignored the European Communities' explanation 
showing that Airbus Deutschland was paying the hi ghest user fee and how that was connected to the 
use of the extended runway.  According to the Europ ean Union, it explained to the Panel that Airbus 
pays higher user fees to the city of Bremen for the use of the extended runway, since aircraft using 
that runway pay the highest weight-related fee, approximately three times higher than the average 
payment.  The fact that Airbus pays the highest u ser fees implies that no benefit is granted by the 
exclusive right to use the extended runway.  Th e Panel ignored this and wrongly focused on the 
"return on the investment" standard when finding that "t here is no return to the City of Bremen on its 
investment in the runway extension and noise reduction measures."418  The European Union requests 
the Appellate Body to reverse the Panel's finding , and asserts that there are no relevant factual 
findings or uncontested facts on the record that would allow the Appellate Body to complete the 
analysis. 
173. The European Union submits that the Panel also  erred when finding that the Aéroconstellation 
measures conferred a benefit on Airbus France.  Re ferring to the Panel's finding that "the investment 
by the French authorities in developing the site to make land suitable for industrial use is the relevant 
basis for assessing whether a benefit was conferred on Airbus"419, the European Union argues that the 
Panel's assessment of "benefit" and its application of that standard to the Aéroconstellation measures 
amount to reversible error, for th e same reasons that the European Union has set out with respect to 
the Mühlenberger Loch measures. 
174. The European Union notes the Panel's finding that the price paid by Airbus for land at the 
Aéroconstellation site and the lease of the EIG faciliti es "does not provide a market rate of return on 
the investment by the French authorities to develop the site, including the EIG facilities."420  Based on 
this finding, the Panel concluded that the provisi on of the Aéroconstellation site, including the EIG 
                                                      
416European Union's appellant's submission, para. 1080 (quoting Panel Report, para. 7.1133).   
417European Union's appellant's submission, para. 1081 (quoting Panel Report, paras. 7.1133 and 
 7.1132 respectively).   
418European Union's appellant's submission, para. 1083 (quoting Panel Report, para. 7.1133).   
419European Union's appellant's submission, para. 1084. 
420European Union's appellant's submission, para. 1085 (quoting Panel Report, para. 7.1190).  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  facilities, constitutes a subsidy within the meaning of Article 1 of the SCM Agreement .
421  These 
findings were based on consideration of the retu rn on the investment by French authorities and 
therefore constitute legal error, because the Pane l did not assess whether Airbus France received the 
financial contributions at issue on terms better  than those available at market.  Moreover, 
Article 14(d) of the SCM Agreement  confirms that the appropriate benchmark for the sale of land to 
Airbus France was its market price.  As the Eur opean Union explains, Article 14(d) establishes that 
any "benefit" under Article 1.1(b) has to be assessed  against "prevailing market conditions" for the 
good or service provided;  it does not require that the au thorities be able to recoup their internal costs.  
The European Union requests the Appellate Body to reverse the Panel's finding, and asserts that there 
are no relevant factual findings or uncontested fact s on the record that would allow the Appellate 
Body to complete the analysis. 
9. Equity Infusions  
(a) Capital investments 
175. The European Union claims that the Panel erred in the interpretation of Article 1.1(b) of the 
SCM Agreement .  The European Union states that the Panel correctly noted that the question posed by 
Article 1.1(b) is whether the terms of the contribu tion are more favourable than those that would have 
been available on the market from a private investor.  The European Union refers to the United States' 
arguments before the Panel that Aérospatiale was not  equity worthy, and that a private investor would 
not have made the capital contribution at all.  In th e European Union's view, "{t}he relevant question, 
therefore, was whether the United States had provid ed contemporaneous evidence demonstrating that 
Aérospatiale was not equity worthy, and therefore that a private investor would not have made the 
capital contributions at all, such that a 'benefit' was conferred."422 
176. The European Union argues, however, that after correctly setting out the standard, "the Panel 
curiously restated the standard, noting that it would ask whether the French State 'could have expected 
to achieve a reasonable rate of return  on its investment'."423  This standard begs the question of what 
a "reasonable rate of return" would have been, a qu estion that, in the European Union's view, "the 
Panel made no attempt to explore , let alone resolve."424  The European Union charges that the Panel 
neither addressed what rate of return a private inv estor would have considered to be "reasonable", nor 
compared any such rate with the rate of return anticipated by the French Government, but concluded 
                                                      
421European Union's appellant's submission, para. 1085 (referring to Panel Report, para. 7.1190).   
422European Union's appellant's submission, para. 1102.  
423European Union's appellant's submission, para. 1104 (quoting Panel Report, paras. 7.1364, 7.1366, 
7.1370, and 7.1374). (emphasis added by the European Union) 
424European Union's appellant's submission, para. 1104. (original emphasis)   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 77  
 
  nevertheless that the French Government anticipated  a rate of return lower than would have been 
required by a private investor.  In other words, th e European Union argues, despite an "initial nod" to 
the correct standard, the Panel erred in applying  the wrong "reasonable rate of return" standard.
425 
177. Moreover, even in applying its "reasonable rate of return" standa rd to the capital contributions 
at issue, the European Union asser ts that the Panel "failed to identify , much less assess , any evidence 
concerning what a private investor would have c onsidered to be a 'reasonable rate of return'."426  In the 
European Union's view, the Panel failed to apply th e legal standard it adopted to the facts of the 
dispute, and therefore erred in the application of Article 1.1(b).  This failure also gives rise to error under Article 11 of the DSU, because the Panel ma de findings "without any basis in the evidence 
before it";  that is, without determ ining what rate of return a privat e investor would have considered 
"reasonable", or how that rate differed from the rate of return anticipated by the French 
Government.
427 
178. The European Union claims, in the alternative,  that, even if the Panel applied the correct 
standard, it still erred in its application of that  standard to determine whether any evidence on 
expected returns for the four capital contributions demonstrates a shortfall compared to a market 
benchmark.  The Panel failed to assess properly what constitutes "usual investment practice", within 
the meaning of Article 14(a) of the SCM Agreement , and therefore failed to assess properly whether a 
"benefit" was conferred by the capita l contributions.  In particular, "t he Panel failed to apply the one 
benchmark that provides the most relevant insight in to contemporaneous private investor behaviour in 
the LCA sector—the behaviour of Boeing's investors."428  The European Union adds that this would 
have enabled the Panel to assess "the actual investment practice  of a private investor similarly 
situated to Aérospatiale's principal investor", thus obviating the need for the Panel "to pose the 
hypothetical question of how a private invest or standing in the French State's shoes would have acted , 
according to 'usual investment practice'."429 
179. The European Union argues that the Panel's fa ilure to address the benchmark established by 
Boeing's investors is a "curious omission" since, in the absence of guidance in the SCM Agreement  
regarding the nature of evidence necessary to est ablish market-based terms, evidence concerning 
Aérospatiale's peer companies "was a priori  relevant to the Panel's enquiry".430  Moreover, the 
European Union notes that the Panel specifically st ated that evidence concerning other firms operating 
                                                      
425European Union's appellant's submission, para. 1105.  
426European Union's appellant's submission, para. 1106. (original emphasis)  
427European Union's appellant's submission, para. 1107.   
428European Union's appellant's submission, para. 1109.   
429European Union's appellant's submission, para. 1109. (original emphasis) 
430European Union's appellant's submission, para. 1111.  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  in the same industries is " particularly probative  of the question whether a private investor would have 
chosen to make the capital investments in Aérospatiale at issue in this dispute."
431  T h e  
European Union agrees with this statement of the Panel, adding that "Boeing was, at the time, 
Aérospatiale's closest  peer."432   
180. The European Union submits that "{t}he behavi our of Boeing's investors demonstrates that 
private investors were willing to sustain and indeed  increase investment in LCA product development, 
even during periods of weak demand and poor fina ncial performance, in light of positive future 
prospects."433  Citing evidence of the poor financial performance of Boeing in the early 1990s, the 
European Union nevertheless notes investments by Boeing's investors that enabled the company to 
achieve, for example, the development and launc h of the Boeing 737 and 777 programmes.  The 
European Union insists that what drove Boeing's investors to continue investing in product 
development despite the company's poor current and past performance were "{c}ontemporaneous 
assessments by Boeing, Airbus an d the US government forecasting extensive passenger traffic growth 
and robust demand for LCA well into the future".434  Such positive forecasts "motivated Boeing's 
investors to support the company's decision to make  massive investments in product development that 
would enable the company to benefit when th e market improved, as was uniformly forecast."435   
181. The European Union argues that the behaviour of Boeing's private investors during this period 
serves as a relevant benchmark against which to measure whether Aérospatiale's government 
investors were acting in accordance with "usual in vestment practice".  The European Union asserts 
that, during this period, both Aérospatiale's and Boeing's investors decided, despite poor past 
performance, to support the comp anies' decisions to fund product development that would boost 
competitiveness when the market improved.  The Eu ropean Union adds that "a future-oriented 
approach to investment decisions is particularly pe rtinent in industries, such as LCA, with long and 
costly development cycles, which require invest ment even during periods of weak performance."436  
Moreover, because Boeing was, prior to its acquis ition of McDonnell Douglas,  even more dependent 
on LCA revenues than Aérospatiale, "Boeing's invest ments in product development were a bellwether 
for others making investment decisions in the LCA market."437  
                                                      
431European Union's appellant's submission, para. 1112 (quoting Panel Report, para. 7.1360). (emphasis 
added by the European Union) 
432European Union's appellant's submission, para. 1113. (original emphasis)  
433European Union's appellant's submission, para. 1114.  
434European Union's appellant's submission, para. 1116.   
435European Union's appellant's submission, para. 1116.  
436European Union's appellant's submission, footnote 1519 to para. 1117.   
437European Union's appellant's submission, para. 1117.    BCI deleted, as indicated [***] WT/DS316/AB/R 
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  182. The European Union submits that, instead of examining the contempor aneous behaviour of 
Boeing's investors, the Panel "effectively concluded th at the French State, as Aérospatiale's principal 
investor, would have found no appeal  in a market with future prospects bright enough to motivate 
Boeing's  investors to maintain their investments."
438  This is tantamount to concluding that a private 
investor in Aérospatiale would have made the "utte rly nonsensical decision" to cede the market to a 
principal competitor.439  The European Union also argues th at the Panel's approach required it 
"to pose and answer the hypothetical question of how a private investor standing in the French State's 
shoes would have acted ".440   
183. Thus, the European Union contends, "{n}ot only did the Panel fail ... to identify, much less 
assess, any evidence concerning how a private investor would have  acted", it also "failed to apply a 
benchmark based on how private investors in Boeing did in fact act , in the face of past performance 
and future prospects similar to that faced by Aérospatiale."441  The European Union finds this 
"surprising", given the Panel's statement that ev idence regarding other firms operating in the same 
industries, presumably subject to similar business ri sks and cycles as Aérospatiale, was "particularly 
probative of the question whether a private inv estor would have chosen to make the capital 
investments in Aérospatiale at issue".442  This evidence was available to the Panel, and the Panel's 
failure to apply that benchmark amounts to an error in the application of Article 1.1(b) of the SCM Agreement . 
184. Moreover, the European Union argues that the Pa nel's failure to apply a benchmark based on 
the actual behaviour of Boeing's investors, without any reasoned explanation for its decision to do so, 
constitutes a failure to make an obj ective assessment of the matter, in violation of Article 11 of the 
DSU.  The European Union contends that the Panel' s failure to apply this benchmark "is particularly 
egregious, as evidence concerning the contemporaneous behaviour of Boeing's investors in the face of 
the company's weak past perform ance formed a central part of  the European {Communities'} 
defence."
443  The European Union claims that the Panel accepted evidence by the United States 
concerning the financial performance of certain of Aérospatiale's peer companies, yet disregarded 
similar evidence regarding Boeing when offered by the European Communities.   The European Union 
                                                      
438European Union's appellant's submission, para. 1119. (original emphasis)   
439European Union's appellant's submission, para. 1119.  
440European Union's appellant's submission, para. 1120. (original emphasis)  
441European Union's appellant's submission, para. 1120. (original emphasis)   
442European Union's appellant's submission, para. 1121.   
443European Union's appellant's submission, para. 1122.  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  maintains that the Panel's "variable treatment of th e same class of evidence is internally incoherent, 
and contrary to its obligation to provide c oherent reasoning, under Article 11 of the DSU."
444   
(b) Share transfer 
185. The European Union argues that the Panel committed legal error by disregarding the relevant 
benchmark establishing that the French Government w as paid fair market value for the transfer of its 
45.76% stake in Dassault Aviation to Aérospatiale.  According to the European Union, the report by 
the French Commissaires aux apports  (the " Commissaires ' report")445 concluded that the exchange 
ratio applied for the transfer of the French Governme nt's shares in Dassault Aviation, in exchange for 
new Aérospatiale shares, was consistent with a ma rket valuation of Aérospatiale and Dassault using 
the discounted cash flow method.  This assessment , together with the confirmation by several 
investment banks (Lazard Frères, Rothschild and Compagnie Financière Edmond de Rothschild), demonstrated that "the French State had been full y compensated for the market value of the Dassault 
shares transferred to Aérospatiale", and that Aéro spatiale had therefore not received Dassault shares 
on terms more favourable than those available on the market.
446  The European Union asserts that 
because this confirms that no benefit was conferred, the Panel's analysis should have ended at that 
point. 
186. The European Union maintains that, instead  of heeding the benchmark assessed in the 
Commissaires ' report, the Panel set out to determine whether the Dassault transfer was "inconsistent 
with the usual investment practice of private investors in France".447  The European Union claims that 
the Panel's statement "shows consider able confusion about the interpreta tion of the 'benefit' standard", 
since it suggests that " different legal standards  apply to the determination of 'benefit', when 
considered under Article 1.1(b) as opposed to under Article 14(a)."448  According to the 
European Union, the guidelines set out in Article 14 " do not replace  Article 1.1(b)";  rather, the 
question posed under both Articles "is the same—did Aé rospatiale receive the French State's Dassault 
stake on terms more favourable than would have be en extended by a private investor at market?"449  
The European Union argues that the Commissaires ' report answers that question, confirming that the 
French Government, in transferring its shares in Dassault, received payment commensurate with the 
                                                      
444European Union's appellant's submission, para. 1125 (referring to Appellate Body Report, US – 
Upland Cotton (Article 21.5 – Brazil) , para. 294). 
445Rapport des Commissaires aux apports sur la rémunération de l'apport de titres Dassault Aviation  
(6 May 1999) (Panel Exhibit EC-892), section 3. 
446European Union's appellant's submission, para. 1140. 
447European Union's appellant's submission, para. 1141 (quoting Panel Report, para. 7.1406).  
448European Union's appellant's submission, para. 1142. (original emphasis) 
449European Union's appellant's submission, para. 1142. (original emphasis)   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 81  
 
  market value of those assets.  The European Union adds that "{w}here a government is paid fair 
market value for a capital contribution, there is no  'benefit', because the government is acting in 
accordance with the usual investment practice of a private investor, who would similarly seek fair 
market value for a capital contribution."
450  In finding that the benchmark used in the Commissaires ' 
report could not serve as a benchmark in assessing "b enefit", the Panel erred in its interpretation of 
Article 1.1(b).  Accordingly, the European Union requests the Appellate Body to reverse the Panel's 
finding that the transfer to Aérospatiale of the French Government's stake in Dassault conferred a 
"benefit" and constituted a subsidy. 
187. As a conditional appeal, the European Union s ubmits that the Panel committed an "additional 
error" in applying the "benefit" standard in Article 1.1(b) of the SCM Agreement to the facts.  The 
European Union recalls that the Panel set out to determine "whether the United States ha{d} 
demonstrated that a private investor would not have  made the equity investment in question based on 
the information available at the time", and conc luded that, without the Dassault shares on its balance 
sheet, Aérospatiale's financial position and future pros pects were insufficient to enable it to attract the 
private capital necessary to privatize.451  In the European Union's vi ew, however, the fact that the 
Dassault transfer increased the ch ances that the Aérospatiale privatization would occur on schedule 
does not demonstrate that a private investor would not have made the transfer.  The European Union 
argues that "{a} private owner would presumably al so take actions designed to increase the chances 
that a planned sale of its wholly-o wned assets would occur as scheduled."452  
188. The European Union notes that the Panel turned to the question posed by the 
European Communities concerning "whether the United States had provided evidence establishing 
that a private owner, standing in the French State' s shoes, would not have consolidated its wholly-
owned aerospace assets in advance of a planned sale of those assets."453  The European Union 
contends that the United States offered no such ev idence.  In contrast, the European Communities 
provided valuations by investment  banks involved in estimating the combined value of Aérospace and 
Matra Haute Technologies, which were combined to create Aérospatiale-Matra.  In providing those 
valuations, the investment banks arrived at an offe ring price for Aérospatiale-Matra's shares only after 
valuing Dassault separately from the other operations of Aérospatiale, thus guaranteeing that the per 
share price paid to the French Government in th e privatization fully captured, and compensated the 
                                                      
450European Union's appellant's submission, para. 1143.   
451European Union's appellant's submission, para. 1146 (referring to Panel Report, paras. 7.1407 
and 7.1409).   
452European Union's appellant's submission, para. 1147.   
453European Union's appellant's submission, para. 1148 (referring to Panel Report, paras. 7.1410 
and 7.1412). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 82  
 
  French Government for, the market value of the 45.76% stake in Dassault.  In other words, "the 
investment banks' valuations furthered the conclusion reached in the Commissaires ' report."
454 
189. The European Union argues that the Panel rejected  this evidence, considering it insufficient to 
demonstrate that the French Government had been pa id fair market value for its stake in Dassault, 
both at the time of the transfer to Aérospatiale, and at the time of the privatization.  Instead, the Panel 
faulted the European Communities for failing to prov ide evidence demonstrating that the anticipated 
returns from the combined sale of Aérospatiale a nd the French Government's Dassault stake exceeded 
the anticipated returns from the sale of Aérospatiale alone, and the retention by the French 
Government of its stake in Dassault.  The Europ ean Union argues that the Panel did not address, nor 
was there any evidence to demonstrate, that such returns from the combined sale were lower than the 
returns from the sale of Aérospatiale alone, coupled with retention by the French Government of its 
stake in Dassault.  In th e absence of such evidence,  the European Union contends, "it is unclear on 
what basis the Panel was able to find the exis tence of a 'benefit', within the meaning of 
Article 1.1(b)."455 
190. The European Union further claims that, by considering it insufficient that the 
European Communities had shown that the French G overnment was paid fair market value for its 
Dassault stake, the Panel in effect was demandi ng that the French Government had to have 
"anticipated earning more  than a market return for its combined aerospace assets".456  T h e  
European Union considers that the Panel's finding "i s tantamount to saying that, to avoid conferring a 
'benefit', a government cannot privatise a state-ow ned company, even in a public offering (and thus, 
by definition, at fair market value), unless  the government can prove that it anticipates earning a better 
rate of return, through the privatisation, than it would have earned had it not privatised, and instead 
retained ownership of the company."457  According to the European Union, the Panel's logic would 
require that a government "must retain  shareholdings, even where those shareholdings can be sold 
and fair market value realised ".458   
191. The European Union submits that the Panel committed additional errors in rejecting the 
investment bank valuations provided by the European  Communities.  The European Union claims that 
the Panel discounted the investment bank valuatio ns because they were done after the Dassault 
transfer, and were provided to parties other than  the French Government, and therefore were not 
                                                      
454European Union's appellant's submission, para. 1150.   
455European Union's appellant's submission, para. 1152.  
456European Union's appellant's submission, para. 1155. (original emphasis) 
457European Union's appellant's submission, para. 1155. (original emphasis)  
458European Union's appellant's submission, para. 1157. (original emphasis)   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 83  
 
  known to the French Government at the time of the transfer of the Dassault shares.  The 
European Union considers that the Panel erred by requiring not only that the financial contribution 
was market consistent, but that the evidence was known and received by the government at the time 
the contribution was made.  As the European Union ar gues, Article 1.1(b) "does not require proof that 
the French State knew of, received or relied on su ch evidence in deciding to make the capital 
contribution ... {but} only that the info rmation recorded in that evidence evaluated financial 
conditions that existed at the time of the capital contribution ".
459  Similarly, the Panel erred in 
disregarding the investment bank valuations, because the reports post-dated the Dassault transfer.  In 
the European Union's view, "as long as the valuations assessed financial facts and conditions in effect 
at the time the capital contribution is made , they can serve as legitimat e evidence of the absence of 
'benefit'."460  The European Union contends that the investment bank valuations satisfied these 
standards, and the Panel's findings are therefore an erroneous application of the "benefit" standard in 
Article 1.1(b). 
10. The Subsidized Product and Product Market  
192. The European Union appeals what  it describes as the Panel's finding that "as a matter of law 
{the Panel} had no discretion to divide a broad singl e 'subsidized product' as alleged in a complaining 
Member's request for establishment {of a panel} and that it need not independently and objectively 
assess the scope of the 'subsidized produ ct', as defined by the United States".461  The European Union 
argues, first, that the Panel acted inconsistently with its duty to make an objective assessment of the 
matter before it, as required under Article 11 of th e DSU, by failing to assess "independently" the 
scope of the "subsidized product" proposed by th e United States.  The European Union emphasizes 
that previous panels have found that, even where the parties agree on an issue, the panel is required to 
make an independent and objective assessment.  The Eu ropean Union adds that, if this is required in 
circumstances where the parties agree, it certainly is required in cases where the parties disagree.   
193. The European Union further claims that the Pa nel erred in concluding that "there is a 
complete absence of any guidance in the text of the SCM Agreement as to the bases on which a 
decision as to the appropriate subsidized product {might (sic)} be made"462, and that nothing in the 
SCM Agreement  required that it "make an independent dete rmination of the 'subsidized product', as 
opposed to relying on the complaining Member's identification of that product".463  Contrary to what 
                                                      
459European Union's appellant's submission, para. 1161. (original emphasis)   
460European Union's appellant's submission, para. 1162. (original emphasis)   
461European Union's appellant's submission, paras. 298, 301, and 304;  see also para. 288. 
462European Union's appellant's submission, para. 305 (quoting Panel Report, para. 7.1656). 
463European Union's appellant's submission, para. 305 (quoting Panel Report, para. 7.1653). WT/DS316/AB/R BCI deleted, as indicated [***] 
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  the Panel assumed, the text and context of Article 6.3 of the SCM Agreement  provide guidance for an 
assessment of the term "subsidized product".  For example, "{e}very one of the subparagraphs of 
Article 6.3 defines serious prejudice with respect to certain effects in 'markets
'."464  The 
European Union adds that the term "mar ket" "covers both geographic and product  markets."465  With 
respect to the "product market dimension", the Euro pean Union argues that "two products would be in 
the same market if they were engaged in actual or potential competition in that market" and where 
there is "homogeneity of the conditions of competition".466  According to the European Union, "{t}his 
means that a panel must objectively assess whether th e product market(s) asserted by the complaining 
Member exist and can serve as a proper basis for an alysing the complaining Member's adverse effects 
claims."467  This analysis, the European Union argu es, "must start with an assessment of the 
complaining Member's definition of the 'subsidized product'".468 
194. Referring to the report of the panel in Korea – Commercial Vessels , the European Union 
argues that "without retaining the flexibility to an alyse critically a complaining Member's proffered 
scope of the subsidised product within the contex t of actual competition and markets, a complaining 
Member may advance an entirely absurd  definition of a 'subsidized product'."469  Turning to the 
specifics of this dispute, the European Union argues that "{s}ubsidized aircraft may be considered to 
be in the same market, and hence a single 'subsidi zed product', only if they are engaged in actual or 
potential competition."470  For the European Union, it follows th at, to the extent the United States has 
identified a group of aircraft that contains products  that do not "generally compete", these aircraft 
cannot be considered to be in the same market , and, therefore, cannot be considered a single 
"subsidized product".471  The European Union further explai ns that a "coherent" adverse effects 
analysis "requires an assessment of the extent and nature of actual or potential competition among 
particular products in the relevant markets".472  That assessment must begin with an objective 
assessment of the "subsidized product" in the light of the subsequent requirement to assess serious 
prejudice on the basis of product markets.   
                                                      
464European Union's appellant's submission, para. 307. (original underlining) 
465European Union's appellant's submission, para. 307 (referring to Appellate Body Report, US – 
Upland Cotton , para. 408). (underlining added by the European Union)  
466European Union's appellant's submission, para. 307 (quoting Appellate Body Report, US – Upland 
Cotton , paras. 405-410). 
467European Union's appellant's submission, para. 307. 
468European Union's appellant's submission, para. 307. 
469European Union's appellant's submission, para. 309 (referring to Panel Report, Korea – Commercial 
Vessels , para. 7.624). 
470European Union's appellant's submission, para. 310. 
471European Union's appellant's submission, para. 310. 
472European Union's appellant's submission, para. 311. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 85  
 
  195. The European Union therefore requests the Appe llate Body to reverse the Panel's "reasoning", 
and find that "a panel must make an independe nt and objective assessment of the scope of the 
'subsidized' product."
473 
(a) Whether the Panel erred in assessing displacement on the basis of a 
single product and a single-product market  
(i) The Panel's interpretative approach 
196. The European Union claims that the Panel erred under Article 6.3(a) and (b) of the SCM  
Agreement  in its interpretation of the term "market" in  the context of the terms "subsidized product" 
and "like product" and, in applying its interpretation to the facts, "finding that there is only a single 
product market in which all Boeing and Airbus LCA compete."474  According to the European Union, 
"{t}he concepts of 'markets' and 'competition'—a s well as 'subsidized' and 'like' products—are 
inseparable concepts that play a crucial role in assessing serious  prejudice under Article 6.3 of the 
SCM  Agreement ."475  The European adds that "both Ar ticles 6.3(a) and (b) discipline the 
'displacement' in a particular 'm arket' of imports or exports of a 'like product' of one Member by 
subsidies benefiting a competing 'subs idized product' of another Member."476 
197. Referring to the report of the Appellate Body in US – Upland  Cotton , the European Union 
argues that the "markets" referred to in Article 6.3( a) and (b) "are defined including by reference to 
their product dimension"477 and that "two products are in the same  market if they are in 'actual or 
potential competition' and there exists 'homogeneity of the conditions of competition' in a market."478  
The "terms 'subsidized product' and 'like product'  provide important context, and their previous 
interpretations provide guidance, for assessing whether two products are in the same product 
'market'."479  The European Union recalls that, in EC – Asbestos , the Appellate Body listed a number 
of criteria that could be assessed for purposes of determining whether two products are in the same 
product market.  Such criteria include "identical or similar characteristics and qualities" based on 
factors that might "rang{e} from physical properti es such as composition, size, shape, texture, and 
                                                      
473European Union's appellant's submission, para. 313. 
474European Union's appellant's submission, para. 340. 
475European Union's appellant's submission, para. 341. 
476European Union's appellant's submission, para. 341. 
477European Union's appellant's submission, para. 342 (referring to Appellate Body Report, US – 
Upland  Cotton , para. 408). 
478European Union's appellant's submission, para. 343 (referring to Appellate Body Report, US – 
Upland  Cotton , para. 408). 
479European Union's appellant's submission, para. 344.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 86  
 
  possibly taste and smell, to the end- uses and applications of the product."
480  The Appellate Body  
also referred to the Border  Tax Adjustment  criteria consisting of:  "(i) the properties, nature and 
quality of the products;  (ii) the end-uses of the products;  (iii) consumers' tastes and habits 
—more comprehensively termed c onsumers' perceptions and behavi our—in respect of the products;  
and (iv) the tariff classification of the products."481   
198. The European Union argues that in the LCA i ndustry "objective evidence of the scope of an 
LCA product market" would consist of "contem poraneous sales campaign evidence and data 
demonstrating 'direct head-to-head competition'  in all LCA sales during the reference period."482 
According to the European Union,  such evidence "reflects airlines ' perceptions of where competition 
exists", and "it is the airlines themselves that determine the competition between products and that 
define the product markets by demanding compe ting offers from Airbus and Boeing for their 
particular LCA needs."483  To the extent that all, or the gr eat majority, of sales campaigns involve 
competition only between certain Boeing and Airbus products , "this would constitute a strong basis to 
find that those products are in a 'product' mark et separate from other Airbus and Boeing LCA."484  
Moreover, "evidence of rare cases of competition or substitutability in 'unusual circumstances' is not a 
proper basis for finding that such products compete in the same product market."485   
199. The European Union claims that the Panel further erroneously set a "no competition" 
threshold for two products not to be in the same product market.486  The European Union underscores 
that "{t}he fact that certain products 'share partic ular characteristics' ... or that they have the 'same 
general uses' does not constitute a basis on which to  find that they compete in the same product 
market."487 
200. The European Union takes the position that the Panel erred when it found "relevant to its 
'market' assessment the possibility of linkages and spill-over effects of the subsidies in question."488  
In particular, the Panel explained that these subsid ies "are not limited to one model of Airbus LCA, 
                                                      
480European Union's appellant's submission, para. 344 (quoting Appellate Body Report, EC – Asbestos , 
paras. 91 and 92). 
481European Union's appellant's submission, para. 344 (quoting Appellate Body Report, EC – Asbestos , 
para. 101). 
482European Union's appellant's submission, para. 345 (quoting Panel Report, para. 7.1668). 
483European Union's appellant's submission, para. 345. 
484European Union's appellant's submission, para. 345. 
485European Union's appellant's submission, para. 345 (referring to Panel Report, footnote 5089 to 
para. 7.1668). 
486European Union's appellant's submission, para. 351 (referring to Panel Report, para. 7.1668 and 
footnote 5089 thereto). 
487European Union's appellant's submission, para. 351 (referring to Panel Report, para. 7.1664). 
488European Union's appellant's submission, para. 353 (referring to Panel Report, para. 7.1655).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 87  
 
  but rather benefit the entire family of Airbus LCA."
489  According to the European Union, "{t}his 
explanation reveals what appears to be the Pane l's major concern in making its finding of a single 
product market—namely that any other finding would prevent it from assessing linkages and 
spill-over effects in separate product markets for purposes of causation."490   
201. The European Union submits that the Panel's conc ern is "unwarranted", and explains that it 
"fully accepts" that any linkages and spill-over effect s—for example, the relevance to Airbus' later 
product launches of the company's technological experience gained from earlier product launches—
could be relevant to an assessment of causation under Article 6.3 of the SCM Agreement .491  T h e  
European Union also accepts that "the relevance of Airbus' ability to offer a full product line to, for 
example, its ability to benefit from commonality e ffects or 'bundled' sales, or to gain sufficient 
technological experience are factors that the Pane l might {have} take{n} into account when assessing 
causation and the effects of subsidies to one  product spilling over to another product."492  In addition, 
the European Union agrees that "such production efficien cies, if they can be traced to subsidies, might 
be important for assessing causation, at least to th e extent they speak to Airbus' ability to launch a 
product or offer lower prices."493   
202. The European Union considers that "{t}he Pa nel's reliance on these causation-related factors 
to support its single subsidised product finding creat es the impression that the Panel, in effect, pre-
judged its own causation findings."494  However, "the steps necessary to assess serious prejudice 
cannot start with causation."495  Rather, "they must first involve a detailed analysis of the 'market' or 
'markets' in which the subsidies at issue can have effects."496  This "involves assessing the nature and 
extent of head-to-head compe tition between different products."497  According to the European Union, 
"{o}nly on that basis can a finding be made on the number of markets and the number of subsidised, 
and like, products that compete therein."498   
                                                      
489European Union's appellant's submission, para. 353 (quoting Panel Report, para. 7.1655). 
490European Union's appellant's submission, para. 353 (referring to Panel Report, paras. 7.1667 
and 7.1669). 
491European Union's appellant's submission, para. 354.  
492European Union's appellant's submission, para. 355.  
493European Union's appellant's submission, para. 356.  
494European Union's appellant's submission, para. 357.  
495European Union's appellant's submission, para. 357. (original emphasis) 
496European Union's appellant's submission, para. 357.  
497European Union's appellant's submission, para. 357.  
498European Union's appellant's submission, para. 357.  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  203. For these reasons, the European Union requests the Appellate Body to reverse the Panel's 
interpretation and application of the te rms "market" and "subsidized product".
499  According to the 
European Union, these interpretative "errors had si gnificant consequences for the Panel's improper 
assessment of the markets to examine displacement and threat of displacement."500 
(ii) Article 11 of the DSU 
204. The European Union submits that, in finding that there is "only one, rather than several, LCA 
product markets" and that it "could assess displaceme nt on the basis of a single LCA product market", 
the Panel acted inconsistently with its obligations under Article 11 of the DSU.501  According to the 
European Union, the Panel's interpretative e rror "allowed" it "to marginalise and disregard 
overwhelming evidence that competition takes place al most exclusively between certain Airbus and 
Boeing products—and not between every Airbus product and every Boeing product."502   
205. In any event, the European Uni on maintains that the "key factor for the Panel's determination 
{of} whether there is a single or multiple product market(s) is the assessment of where competition 
actually takes place—i.e., evidence of actual sales tr ansactions that reflect the market(s) where the 
product(s) are bought and sold, as well as market perceptions by LCA manufacturers, purchasers and operators, as well as market experts."
503  The European Union notes that "{t}he United States 
provided a document with data that listed the sales campaigns Boeing and Airbus each won in the 
period 2000-August 2005, a nd that identified the competing Boeing product for each of the sales that 
Airbus won."504  This evidence showed that "in every  sales campaign Airbus won with its single-aisle 
A320 family LCA" it competed against the Boeing single-aisle family LCA.505  Moreover, "{i}n 
approximately 75 percent of sales campaigns in which Airbus won with its 200-300 seat Airbus A330 
and A350 families, it competed agains t Boeing 767 and 787 family LCA."506  The European Union 
submits that, "{i}n the other 25 percent of the sal es campaigns, Boeing offered the 777 in particular 
because the customer did not want to purchase ol d-technology 767, and th e Boeing 787 was not yet 
available."507  Furthermore, "in every  sales campaign Airbus won with its 300-400 seat A340 family 
                                                      
499European Union's appellant's submission, para. 358 (referring to Panel Report, paras. 7.1638, 7.1650, 
7.1653, 7.1662, 7.1679, 7.1680, 7.1741, 7.1742, an d 7.1777 and footnote 5465 to para. 7.1847). 
500European Union's appellant's submission, para. 358. 
501European Union's appellant's submission, paras. 340 and 359.  
502European Union's appellant's submission, para. 360 (referring to evidence summarized in Annex II 
(Product Markets Annex) (BCI) to its appellant's submission, sections II.A and III.A). 
503European Union's appellant's submission, para. 361.   
504European Union's appellant's submission, para. 362 (referring to Panel Exhibit EC-322 (BCI)).   
505European Union's appellant's submission, para. 363. (original emphasis) 
506European Union's appellant's submission, para. 363.  
507European Union's appellant's submission, para. 363 (referring to European Communities' response to 
Panel Question 114, paras. 320-328).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 89  
 
  LCA, it competed against the 300-400 seat Boeing 777 family LCA."
508  That is, "there were no sales 
campaigns in which Airbus' 300-400 seat A340 competed with Boeing's 767 or 787, further 
supporting the 'unusual circumstance s' that are the basis for the limited 777 v A330 competition."509  
The European Union further argu es that "{t}here were, moreover, no sales campaigns in which the 
Airbus A380 competed against Boeing 737NG, 767, 777 or 787 family LCA."510  In other words, "the 
United States' evidence showed that competition takes place almost exclusively between specific 
Airbus and Boeing products that, therefor e, compete in separate product markets."511 
206. The European Union also notes that the Un ited States had presented pricing evidence " not on 
the basis of a single like product, but separatel y for the 737NG, the 747, the 767, and the 
Boeing 777."512  When assessing that evidence, the Panel f ound that "prices for each aircraft moved in 
quite different directions."513  The European Union argues that  this evidence regarding price 
developments for Boeing aircraft "demonstrates th at the different Boeing products—the 737NG, 767, 
777 and 747 LCA families—are not facing 'hom ogeneity of the conditions of competition' and are, 
therefore, not in the same product market."514 
207. The European Union further submits that "{t}h e existence of more than one product market 
was confirmed by other uncontested evidence."515  That evidence "included evidence on the LCA 
offered by Boeing and Airbus in sales campaigns won by Boeing."516  It also included Boeing and 
Airbus marketing materials together with st atements from both Boeing and Airbus officials517, and 
                                                      
508European Union's appellant's submission, para. 363. (original emphasis) 
509European Union's appellant's submission, para. 363. 
510European Union's appellant's submission, para. 363. (original emphasis) 
511European Union's appellant's submission, para. 363. 
512European Union's appellant's submission, para. 364 (original emphasis) (referring to the 
United States' first written submission to the Panel, charts  at paras. 803-809 and Boeing indexed average aircraft 
price charts (Panel Exhibit US-444 (BCI));  and United States' second written submission to the Panel, para. 734 
and Boeing US market pricing chart, revised with 2006 data (Panel Exhibit US-616 (BCI)).  
513European Union's appellant's submission, para. 364 (referring to Panel Report, Chart 11 at 
para. 7.1848 (Boeing 737NG average indexed order prices), Chart 12 at para. 7.1849 (Boeing 767 average 
indexed order prices), Chart 13 at para. 7.1850 (Boeing 747 average indexed order prices), and Chart 14 at 
para. 7.1851 (Boeing 777 average indexed order prices)).  
514European Union's appellant's submission, para. 364 (quoting Appellate Body Report, US – Upland 
Cotton , para. 408). 
515European Union's appellant's submission, para. 365. 
516European Union's appellant's submission, para. 365 (referring to Panel Exhibit EC-323 (BCI);  and 
Expert statement of Christian Scherer, Head of Fu ture Programmes, Airbus, "Commercial Aspects of the 
Aircraft Business from the Perspective of a Manufacturer" (Panel Exhibit EC-14 (BCI)), Annex I (Airbus orders for January 2000 through Decembe r 2006) and Annex II (Boeing or ders for January 2000 through 
December 2006)). 
517European Union's appellant's submission, para. 365 (referring to Panel Exhibits EC-298, EC-307, 
EC-309, EC-311, EC-312, EC-313, EC-314 (HSBI), EC-315, EC-316, EC-318, EC-317 (BCI), EC-319, 
EC-320, EC-322 (BCI), and EC-323 (BCI). WT/DS316/AB/R BCI deleted, as indicated [***] 
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  statements of market experts
518, including experts testifying before the Panel.519  The European Union 
considers that "{a}ll of this evidence confirmed that  head-to-head competition is limited to particular 
Airbus and particular Boeing LCA."520  This evidence "also confirmed that direct head-to-head 
competition reflected considerable differences be tween LCA in terms of their ranges, seating 
capacities, prices, and performance characteris tics, evidence which is largely undisputed."521  T h e  
European Union asserts, that "{f}or the most part, the Panel did not refer to, or otherwise address in 
any substantive manner, any of this evidence."522  Rather, the Panel focused on some isolated 
occasions in which multiple Airbus and Boeing LC A from different product groupings were offered 
to meet a customer's needs.  In these "rare instance s", the evidence showed that "the airline customer 
simply required for multiple  types of LCA (e.g., for both a single-aisle and a 300-400 seat LCA) at the 
same time and, therefore, requested offers fro m Airbus and Boeing in a single sales campaign."523  
However, according to the European Union, "in these sales campaigns, competition took place 
between Boeing and Airbus LCA in the same pr oduct groupings and markets identified by the 
European Union (e.g., Airbus A320 v. Boeing 737, and Airbus A340 v. Boeing 777)."524 
208. Furthermore, the European Union argues that , in finding a single "subsidized product", the 
Panel also "relied on evidence submitted by the United States, referring to Airbus as creating an 
'entire family of Airbus LCA' to suggest that all LCA compete with one another."525  According to the 
European Union, the evidence before the Panel "shows that the use of a singular 'Airbus family' refers 
to production and technological cross-benefits between various products (economies of scope)."526  
However, "{i}t does not suggest or establish that th ere is competition between the LCA that make up 
the alleged 'Airbus family'."527  Instead, the use of the term "fam ily", as it applies to competition, 
"refers, for example, to the A320 'family' of th e A318, A319, A320, and A321 single-aisle LCA, and 
                                                      
518European Union's appellant's submission, para. 365 (referring to Expert statement of Rod P. Muddle, 
Airline Capital Associates Inc., "The Dynamics of the Large Civil Aircraft Industry" (Panel Exhibit EC-19);  
and Expert statement of Christian Scherer, supra , footnote 516). 
519European Union's appellant's submission, para. 365 (referring to European Communities' oral 
statement at the second Panel meeting, paras. 311-341, and paras. 118-156.  See also Expert statement of 
Christian Scherer, supra , footnote 516). 
520European Union's appellant's submission, para. 365.   
521European Union's appellant's submission, para. 365. 
522European Union's appellant's submission, para. 365. 
523European Union's appellant's submission, para. 366. (original emphasis) 
524European Union's appellant's submission, para. 366 (referring to European Communities' second 
written submission to the Panel, paras. 721-726). 
525European Union's appellant's submission, para. 369 (quoting Panel Report, para. 7.1651). 
526European Union's appellant's submission, para. 369. 
527European Union's appellant's submission, para. 369.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 91  
 
  the corresponding and competing Boeing family of single-aisle LCA, the 737-600, 737-700, 737-800, 
and the 737-900."
528   
209. Finally, the European Union underscores that, under Article 11 of the DSU, the Panel was 
required to make an objective assessment of the facts and determine the number of markets and subsidized products.  The European Union conced es that the Panel "need not have accepted the 
European {Communities'} argument that there were five different LCA markets."
529  But neither was 
it required to adopt the United States' proffered single subsidized product.  According to the 
European Union, the Panel's judgement in this dispute exceeded the bounds of its discretion as the 
trier of fact when it found a single-product mark et and a single subsidized product against the 
considerable bulk of the evidence to the contrary.  The Panel either "disregarded" or "marginalized" 
the European Communiti es' evidence on where actual  competition  takes place, and did not address it 
adequately in its findings.  The Panel also failed to provide a "reasoned a nd adequate explanation" 
based on "coherent reasoning" of how this overwhelm ing evidence did not contradict, and did in fact 
support, its finding that there is only a single LC A product market.  In doing so, the Panel erred under 
Article 11 of the DSU.   
210. Accordingly, the European Union requests the Appellate Body to reverse the Panel's finding 
that there is a single LCA product market and only one subsidized product.  The European Union also requests the Appellate Body to complete the analysis  and find that there is a "separate product market 
for single-aisle LCA".
530  The European Union recognizes that there is "limited conflicting evidence 
that likely prevents the Appellate Body from co mpleting the analysis for the other LCA product 
markets."531  For purposes of this appeal, the European Union considers market share developments 
on the basis of two sets of wide-body aircraft markets, one involving four wide-body LCA markets532 
and one involving two wide-body LCA markets.533  The European Union stresses, however, that "the 
weight of the evidence supports its approach based on four separate wide-body LCA product 
markets."534  Although it considers that the Panel's errors undermine the Panel's displacement 
findings, the European Union explains however th at it "does not request that the Appellate Body 
reverse the displacement findings in their entirety."535   
                                                      
528European Union's appellant's submission, para. 369. 
529European Union's appellant's submission, para. 370. 
530European Union's appellant's submission, para. 375.  
531European Union's appellant's submission, para. 375.  
532These four markets are 200-300 seat, 300-400 seat, 400-500 seat, and 500+ seats.   
533These two markets are twin-aisle aircraft and very large aircraft. 
534European Union's appellant's submission, para. 375.  
535European Union's appellant's submission, para. 376.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 92  
 
  211. The European Union maintains that the Panel's error of assessing displacement on the basis of 
a single-product market resulted in distorted displace ment findings.  In particular, the European Union 
argues that market share informa tion summarized in section 2 of Annex III (Displacement Annex) to 
its appellant's submission "demonstrates that the Pa nel's failure to conduct a 'differentiated analysis' 
that distinguishes LCA product markets based on actual competition resulted in significant distortions and exaggerated the extent of any di splacement observed by the Panel."
536  The European Union 
points out that "the Panel even recognised the risk of  'distorting' its displacement analysis by adopting 
an 'undifferentiated or monolithic'  subsidised product analysis."537  Nonetheless, it "proceeded to 
ignore that recognition and failed—indeed, it refused—t o return to this issue in its displacement 
analysis beyond asserting, without explanation, that its approach would not distort its displacement 
analysis."538 
212. The European Union submits that, by conductin g its "displacement analysis on a cumulative 
(single product market) basis, the Panel found that Boeing was displaced—i.e. that it lost market share—in Brazil, Mexico, Chinese Taipei and Singapore."
539  However, when displacement is 
examined "from a transparent pers pective by using the product markets where actual competition took 
place, the data reveals that Boeing was not displaced in any of these markets."540  Similarly, the 
European Union argues that "a transparent displace ment analysis reveals that, in Australia, Boeing 
only lost market share in the single-aisle LCA market;  in China and Korea it only lost market share in 
the single-aisle and 200-300 seat LCA markets;  whereas in the {European Union}, it lost market 
share in the single-aisle, 200-300 and 300-400 seat LCA markets."541   
213. According to the European Union, "{e}ven if one were to apply a broader categorisation of 
LCA product markets, a similar result emerges."542  In particular, "the results again show that Boeing 
was not displaced in any LCA market in Brazil, Me xico, Chinese Taipei or Singapore";  in Australia, 
"again Boeing was only displaced in the single-aisl e LCA market";  and in China, Korea and the 
European Communities, "Boeing was only displa ced in the single-aisle and twin-aisle LCA 
                                                      
536European Union's appellant's submission, para. 378 (quoting Panel Report, para. 7.1679). 
537European Union's appellant's submission, para. 378 (quoting Panel Report, paras. 7.1742 
and 7.1679). 
538European Union's appellant's submission, para. 378 (referring to Panel Report, paras. 6.305-6.314 
and 7.1742). 
539European Union's appellant's submission, para. 382 (referring to Panel Report, paras. 7.1790 
and 7.1791). 
540European Union's appellant's submission, para. 382. (original emphasis) 
541European Union's appellant's submission, para. 382. 
542European Union's appellant's submission, para. 383.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 93  
 
  markets."
543  Boeing was not displaced in the very large aircraft market in any of the country 
markets.544  
214. The European Union argues that panels do not have "unlimited" discretion in assessing the 
existence of serious prejudice under Article 6.3 of the SCM  Agreement .545  According to the 
European Union, "{t}he use of a methodology to assess displacement that obscures and hides the 
absence of displacement in the ma rkets where competition takes place cannot, under any justification, 
be a legally acceptable methodology for assessing 'displ acement' within the meaning of Article 6.3(a) 
or (b)."546  Nor would it constitute "a methodology that r esults in an objective ass essment of the facts 
under Article 11 of the DSU."547 
215. The European Union further argues that ther e was no overall threat of displacement for 
Boeing's market share, based on cumulative data for a single LCA product market.  Nor "was there a 
threat of displacement in any of the separate produc t markets, whether assessed on the basis of five or 
on the basis of three such separate product markets."548  In any event, the European Union contends 
that the Panel also erred in  finding, "based on 2005 and 2006 order  data, that there was a 'likelihood 
of future displacement of Boeing LCA from the Indian market' in the 'immediate future'."549  
According to the European Union, "the undisputed  evidence before the Pa nel demonstrated that 
Boeing's market share of deliveries in the Indian market actually increased  in the 'immediate future' 
post-2006, and followed an upward trend."550  The European Union adds that, "while Boeing had a 
24 percent market share of deliveries in 2005, its market share almost doubled in 2006, and in 2007 
Boeing had 51 percent market share of LCA deliveries to India."551  As a legal matter, therefore, the 
European Union concludes that there was "no th reat of displacement in the Indian market."552   
216. For all these reasons, the European Union request s the Appellate Body to reverse the Panel's 
single-product market finding, complete the analysis , and find that there is a separate single-aisle 
LCA market.  With respect to the markets for wi de-body LCA, the European Union recognizes that 
"the evidence is less clear and might support the existence of four or two wide-body LCA product 
                                                      
543European Union's appellant's submission, para. 384. 
544European Union's appellant's submission, para. 384. 
545European Union's appellant's submission, para. 385. 
546European Union's appellant's submission, para. 385. 
547European Union's appellant's submission, para. 385. 
548European Union's appellant's submission, para. 386.   
549European Union's appellant's submission, para. 388 (referring to Panel Report, paras. 7.1784 
and 7.1790). (original emphasis) 
550European Union's appellant's submission, para. 389. (original emphasis) 
551European Union's appellant's submission, para. 389.   
552European Union's appellant's submission, para. 390.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 94  
 
  markets."
553  On this basis, the European Union furthe r requests the Appellate Body to reverse the 
Panel's finding that there was displacement in th e LCA markets of Brazil, Mexico, Singapore, and 
Chinese Taipei;  reverse  the Panel's finding that there was a threat of displacement in the LCA 
markets of India;  reverse the Panel's finding that  there was displacement in the LCA markets of 
Australia, with the exception of the single-aisle LC A market;  reverse the Panel's finding that there 
was displacement in the LCA markets of China and Korea, with the exception of the single-aisle and 
200-300 seat LCA (or twin-aisle) markets;  a nd reverse the Panel's finding that there was 
displacement in the LCA markets of the European  Union, with the exception of the single-aisle, 
200-300 seat and 300-400 LCA (or twin-aisle) markets. 
11. Serious Prejudice  
217. The European Union claims that the Panel e rred in finding that the European Communities 
caused, through the use of the subsidies, serious prej udice to the United States' interests, within the 
meaning of Article 5(c) of the SCM Agreement .  The European Union submits that the Panel 
erroneously found that serious prejudice took the fo rm of displacement of imports of Boeing LCA 
into the European Communities ma rket under Article 6.3(a), displ acement (and threat thereof) of 
exports of Boeing LCA from certain third country markets under Article 6.3(b), and significant lost 
sales in the same market under Article 6.3(c) of the SCM Agreement.   The European Union requests 
the Appellate Body to reverse each of these findings  by the Panel for the reasons set out below.  
(a) Displacement of Boeing LCA fro m the European Communities and 
certain third country markets 
218. The European Union submits that the Panel erred in finding that the effect of the subsidies 
was to displace Boeing LCA from the markets of the European Communities, Australia, Brazil, 
China, Korea, Mexico, Singapore, and Chinese Taipei , and likely future displacement from the market 
of India, within the meaning of Article 6.3(a) and (b) of the SCM Agreement.   Consistent with the 
Panel's "bifurcated approach"554 to the analysis of the United States' serious prejudice claims, the 
European Union advances separate claims of error in relation to the Panel's findings concerning the 
existence  of displacement of Boeing LCA from the various markets at issue, and the Panel's findings 
that such displacement was the effect  of the subsidies.  
                                                      
553European Union's appellant's submission, para. 392.  
554European Union's appellant's submission, para. 289.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 95  
 
  (i) Existence of displacement  
219. The European Union maintains that the Panel erred under Articles 5(c) and 6.3(b) of the 
SCM Agreement in finding displacement of Boeing LCA fro m the markets of Brazil, Korea, Mexico, 
Singapore, and Chinese Taipei.  The Panel correc tly determined that it should evaluate the 
United States' displacement claims on the basis of sales and market share data, and correctly 
determined that a decrease in Boei ng's market share would be sufficient to demonstrate the existence 
of displacement.
555  Nevertheless, the European Union submits that the data before the Panel did not 
support a finding of displacement because it did not permit the identification of any "discernible 
trend"556 in those markets.   
220. The European Union cites as an example the ma rket of Brazil, where Boeing's share of LCA 
deliveries decreased from 50% in 2001 to 29% in 2002, increased to 100% in 2004557, and decreased 
to 14% in 2005 before incr easing again to 57% in 2006.558  Similarly, Boeing's share of LCA 
deliveries in Mexico decreased from 71% in 2001 to 60% in 2003559, increased to 69% in 2004, and 
declined to 50% in 2005 before  increasing again to 79% in 2006.560  
221. According to the European Union, the Panel made  its displacement findings on the basis that 
"any market share achieved by Airbus was at the expense of Boeing."561  However, the 
European Union posits that the existence of a duop oly in the LCA industry is an insufficient basis for 
a finding of displacement under Article 6.3(b).  This is because, in a duopoly market, securing "any" 
market in a particular year does not necessarily  involve a decrease in the market share of the 
complaining Member over the reference period examined.562   
222. In this regard, the European Union notes that  the Panel correctly distinguished between the 
concepts of "impedance" and "displacement" under Article 6.3(b).  Impedance involves sales "that 
would have otherwise ... occurred { but} were obstructed or hindered"563, while displacement refers to 
"a situation where sales volume has declined".564  Thus, according to the European Union, while a 
                                                      
555European Union's appellant's submission, para. 319 (referring to Panel Report, para. 7.1739). 
556European Union's appellant's submission, para. 323.  
557There were no deliveries of  either Boeing or Airbus LCA in Brazil in 2003.  
558European Union's appellant's submission, para. 321 and Annex III (Displacement Annex).   
559There were no deliveries of either Boeing or Airbus LC A in Mexico in 2002.   
560European Union's appellant's submission, para. 322 and Annex III (Displacement Annex).  
561European Union's appellant's submission, para. 3 23 (quoting Panel Report, para. 7.1791). (emphasis 
added by the European Union) 
562European Union's appellant's submission, para. 324.  
563European Union's appellant's submission, para. 325 (quoting Panel Report, para. 7.1739).  
564European Union's appellant's submission, para. 325 (quoting Panel Report, para. 7.1738, in turn 
quoting Panel Report, Indonesia – Autos , para. 14.218).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 96  
 
  claim of impedance does not depend on a decrease in market share, a claim of displacement 
necessarily does.  The Panel's statement that "any  market share achieved by Airbus was at the expense 
of Boeing" reflects an impedance rather than a disp lacement standard.  However, the Panel made no 
findings of impedance.  The European Union ma intains further that the Panel's finding of 
displacement is "incongruous"
565 with its subsequent causation analysis, insofar as the Panel 
acknowledged that Airbus would ha ve been able to obtain " some " market share even in the absence of 
the subsidies.566  
223. In addition, or in the alternative, the European  Union claims that the Panel erred in finding 
displacement of Boeing LCA from the markets of Brazil and Mexico, because Boeing's share of such 
markets did not decrease over the reference period.  According to the European Union, the Panel's 
statement that "in no case did Boeing's market share recover to 2001 levels"567 is erroneous.  The 
"undisputed data"568 before the Panel showed that Boeing's market share in Brazil increased from 50% 
in 2001 to 57% in 2006.  Similarly, data before the Panel demonstrated that Boeing's market share in 
Mexico increased from 71% in 2001 to 79% in 2006.  Thus, the European Union claims that the Panel 
erred in applying the displacement standard of Article 6.3(b), which requires a decline of market share 
during the reference period, to the facts of the case.   The European Union maintains further that, in 
making displacement findings without a sufficient fact ual basis, the Panel acte d inconsistently with 
Article 11 of the DSU.  
(ii) Causation – Observed displacement  
224. Turning to the second prong of the Panel's bifur cated analysis of the United States' serious 
prejudice claims, the European Union argues that the Panel erred in finding that the effect of the 
subsidies was to cause displacement of Boeing LC A from the markets of th e European Communities, 
Australia, Brazil, China, Korea, Mexico, Singapore, and Chinese Taipei, and threat of displacement of 
                                                      
565European Union's appellant's submission, para. 329.  
566European Union's appellant's submission, para. 329. (original emphasis) 
567European Union's appellant's submission, para. 332 (quoting Panel Report, para. 7.1785, in turn 
quoting United States' second written submission to the Panel, para. 703).  
568European Union's appellant's submission, para. 332.  The European Union explains that the delivery 
data used by the Panel was extracted from the Airclaim s CASE database contained in Panel Exhibit EC-21, the 
accuracy of which has never been contested by the pa rties. (See European Union' s appellant's submission, 
footnote 339 to para. 332)    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 97  
 
  Boeing LCA from the market of India, within th e meaning of Article 6.3(a) and (b) of the 
SCM Agreement.
569   
225. As an initial matter, the European Union notes that the Appellate Body has established that 
the causation standard to be a pplied under Article 6.3 of the SCM Agreement is the "genuine and 
substantial relationship of cause a nd effect" standard, similar to that applicable under other WTO 
agreements.570  Although panels have a "certain degree of discretion in selecting an appropriate 
methodology"571 for establishing causation, the Appellate Body has held that a "but for" methodology 
is an appropriate methodology to examine serious prejudice that is "'counterfactual' in nature".572  
However, recourse to a counterfactual does not absolv e panels from ensuring that "the effects of other 
factors on prices {do} not dilute th e 'genuine and substantial' link"573 between the subsidies and the 
adverse effects, including displacement under Article 6.3(a) and (b).   
226. Referring to the panel report in Indonesia – Autos , the European Union stresses the 
requirement to analyze serious prejudice based on the market segments where competition is alleged 
to have been distorted by the subsidies.574  Article 6.3(a) and (b) both discipline "displacement" in a 
"market" where imports or exports of a like pr oduct of a Member competes with the subsidized 
product of another Member.  According to the European Union, an analysis of causation of 
displacement under Article 6.3(a) and (b) involv es both geographic and product competition elements.  
The Appellate Body has explained that two products  would be in the same market "if they were 
engaged in actual or potential competition in that  market", depending on several factors such as "the 
nature of the product, the homogeneity of the c onditions of competition, and transport costs".575  This, 
                                                      
569The European Union explains that its appeal of th e Panel's displacement causation findings is limited 
to sales of the A320 and A330 during the reference period.  For this reason, the European Union does not appeal 
the Panel's causation finding as applied to any sales of th e A340 during the reference period.  Consequently, the 
European Union appeals the entirety of  the Panel's causation findings with respect to the displacement observed 
in the markets of Australia, Brazil, Ko rea, and Mexico, and the threat of di splacement in the market of India, 
because these markets involved only sales of the A320 an d A330 during the reference period.  However, the 
European Union only partially  appeals the Panel's causation findings in  relation to the markets of China, the 
European Communities, Singapore, and Chinese Taipei, to the extent they involve A320 and A330 sales. (See 
European Union's appellant's submission, footnote 623 to para. 527)   
570European Union's appellant's submission, para. 426 (quoting Appellate Body Report, US – Upland 
Cotton , para. 438). 
571European Union's appellant's submission, para. 428 (quoting Appellate Body Report, US – Upland 
Cotton , para. 436).  
572European Union's appellant's submission, para. 428 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 370).  
573European Union's appellant's submission, para. 430 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 375).  
574European Union's appellant's submission, paras. 433-435 (referring to Panel Report, Indonesia – 
Autos , paras. 14.215 and 14.236).  
575European Union's appellant's submission, para. 436 (quoting Appellate Body Report, US – Upland 
Cotton , para. 408).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 98  
 
  in the European Union's view, logically implies th at there could be multiple product markets within a 
single geographic area.   
227. The European Union underscores further that th e requirement to examine causation based on 
the market segments where competition occurs pr ecludes panels from "slavishly adher{ing}" to a 
particular product grouping by the complaining Member that may distort the causation analysis.
576  
For this reason, the panels in Indonesia – Autos , Korea – Commercial Vessels , and US – Upland 
Cotton  properly examined the effects of the subsid ies in the particular product markets where 
competition took place.577  The European Union adds that Articles 5(c) and 6.3, read in the context of 
Articles 7.8 to 7.10 of the SCM Agreement and Articles 3.4 and 3.7 of DSU, require panels to identify 
a causal link to the precise portion of the displacement that it found to exist in a given geographic market.  
228. Turning to its specific claims of error, the European Union argues that the Panel improperly 
presumed rather than established causation in finding th at the "presence" of subsidized Airbus LCA in 
all relevant market segments sufficiently establis hed that the subsidies caused the entirety of the 
displacement observed in each of the country market s at issue.  In the light of the Panel's earlier 
finding that, in the absence of the subsidies, Ai rbus could have launche d "fewer LCA 'products' 
(models) at a later time than {it} actually did"
578, the Panel was required to determine further that a 
non-subsidized Airbus could not have secured the sa me market share that it did in every country 
market at issue.  Instead, the Panel implicitly pr esumed that a non-subsidized Airbus would not cover 
all market segments, would offer technologically infe rior aircraft at non-competitive prices, and that 
no other non-attribution factors would have caused Bo eing's market share to fall.  According to the 
European Union, the Panel's presumption of causatio n is contradicted by evidence on the record, and 
by the Panel's own findings, which suggest that a non-subsidized Airbus:  could have existed as a 
viable LCA manufacturer;  could have launched LCA in the single-aisle and 200-300 seats market 
segments before 2000;  could have competed aggress ively for market share and deliveries in several 
of the market segments in each of the country market s at issue;  could have offered LCA that would 
                                                      
576European Union's appellant's submission, para. 437.  
577European Union's appellant's submission, para. 438 (referring to Panel Report, Indonesia – Autos , 
para. 14.222;  Panel Report, Korea – Commercial Vessels , para. 7.622;  and Panel Report, US – Upland Cotton , 
paras. 7.1245, 7.1312, and 7.1313).  
578European Union's appellant's submission, para. 532 (referring to Panel Report, para. 7.1985, 7.1986, 
7.1993, and 7.2024).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 99  
 
  be technologically at the same level or superior to  LCA launched earlier;  and could have priced its 
LCA aggressively in each country market.
579   
229. The European Union maintains further that the Panel failed to establish a "genuine and 
substantial relationship of cause and effect"580 on the basis of a "chain of causation"581 between the 
subsidies and the observed displacement.  The Panel incorrectly articulated its causation standard as 
"an effect" standard, suggesting that displacement  need merely be "an effect" of the subsidies.582  The 
European Union concedes that the causal step s necessary to establish a "causal chain" under 
Article 6.3 will vary on a case-by-case basis.583  However, the Panel's acknowledgement that a 
non-subsidized Airbus coul d have "a more limited offering of LCA models"584 during the 2001-2006 
reference period required it to complete the necessar y causal steps by determining whether Boeing's 
market share in each of the country markets at issue would not have fallen "in a counterfactual 
competition with a non-subsidised Airbus".585  In order to make this de termination, the Panel had to 
examine evidence relating to:  Airbus' ability to launch a particular LCA in the absence of the 
subsidies;  technological advances available to a non-subsidized Airbus;  levels of demand in 
particular LCA market segments;  competitive de velopments such as new Boeing launches or its 
ageing product offering;  and the availability of fi nancing for launching a LCA.  According to the 
European Union, "considerable evidence" on the re cord demonstrated that a non-subsidized Airbus 
could have launched a single-aisle LCA and a tw in-aisle 200-300 seat LCA and could have made 
deliveries in these market segments during the reference period.586  
230. In addition, the European Union posits that  the Panel erred in failing to apply such 
counterfactual analysis for each of the market segme nts at issue.  The Panel's failure to conduct a 
market segment analysis in each country at issu e prevented it from determining whether the "more 
limited market presence" that Airbus would have had in the absence of the subsidies would have 
prevented Boeing LCA from losing market share in the relevant country markets.587  In failing to 
                                                      
579European Union's appellant's submission, paras. 535-538, 540, and 542 (referring to Panel Report, 
paras. 7.1725, 7.1726, 7.1893, 7.1906, 7.1911, 7.1934, 7. 1978, 7.1979, 7.1984, 7.1993, and 7.1995) and Annex I 
(Counterfactual Annex) (BCI). 
580European Union's appellant's submission, para. 544 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 374).  
581European Union's appellant's submission, para. 544 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 372).   
582European Union's appellant's submission, para. 545 (quoting Panel Report, para. 7.1993).   
583European Union's appellant's submission, para. 547 (referring to Panel Report, Korea – Commercial 
Vessels , para. 7.619).  
584European Union's appellant's submission, para. 551 (quoting Panel Report, para. 7.1993).  
585European Union's appellant's submission, para. 549.  
586European Union's appellant's submission, para. 552.  
587European Union's appellant's submission, para. 557. WT/DS316/AB/R BCI deleted, as indicated [***] 
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  determine whether a non-subsidized Airbus would ha ve secured the same market share that Airbus 
actually obtained in each of the relevant country ma rkets, the Panel further neglected to evaluate 
"non-attribution" factors that would arise in those circumstances.  In particular, the Panel failed to 
examine whether the particular LCA that a non-su bsidized Airbus would have offered would be 
technologically inferior, whether it would fail to  satisfy a customer's preference for fleet 
"commonality", or whether other non-attribution fact ors would have influenced customers' decisions 
to purchase Airbus LCA.  In this regard, the Panel also erred in failing to consider country-specific 
non-attribution factors that suggested that the decr ease in Boeing's market sh are in Australia, Brazil, 
China, Korea, Mexico, Singapore, and Chinese Taipei was caused by factors other than the subsidies, 
such as fleet strategy and the requirements of Boeing's main customers in those countries.  The 
European Union submits that the Panel also erred in  failing to identify the extent of the displacement 
that was caused by the subsidies. 
231. Finally, and in the alternative, the Eur opean Union maintains that the Panel acted 
inconsistently with Article 11 of the DSU in finding that the effect of the subsidies was the displacement (or threat thereof) of Boeing LCA from the markets of Australia, Brazil, China, 
European Union, India, Korea, Mexico, Singapore, and Chinese Taipei within the meaning of 
Article 6.3(a) and (b) of the SCM Agreement .  The European Union argues that these findings are 
based on "inconsistent a nd incoherent reasoning"
588, insofar as the Panel's presumption that a non-
subsidized Airbus could not have increased its market share is contradicted by its findings that a non-
subsidized Airbus could exist as a competitor, albeit one with a "more limited offering of LCA 
models".589  Moreover, the Panel failed to provide a reas oned and adequate explan ation for its finding 
that the subsidies caused the obser ved displacement by failing to determine whether the particular 
aircraft that Airbus could have produced in the absence of the subsidies could not have obtained 
similar market share in each third country market at  issue.  The European Union adds that the Panel 
failed to analyze non-attribution factors that prev ented Boeing from securing market share in those 
countries, such as political considerations in China,  and Boeing's own decision not to participate in 
sales campaigns in India. 
(b) Lost sales in the same market  
232. The European Union claims that the Panel erred in  finding that the effect of the subsidies was 
lost sales in the same market within the meaning of Article 6.3(c) of the SCM Agreement.   Consistent 
                                                      
588European Union's appellant's submission, para. 574 (referring to Appellate Body Report, US – 
Upland Cotton (Article 21.5 – Brazil) , para. 294 and footnote 618 to para. 293).  
589European Union's appellant's submission, para. 574 (quoting Panel Report, para. 7.1993).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 101  
 
  with the Panel's "'bifurcated' approach"
590 to the assessment of the United States' claims of serious 
prejudice, the European Union advances separate clai ms of error in relation to the Panel's findings 
concerning the existence of a certain lost sale, and in relation to the Panel's findings that Boeing lost 
significant sales as a result of the subsidies.  
(i) Existence of a lost sale  
233. The European Union claims that the Panel erre d in finding that the Emirates Airlines' order 
for the A380 in 2000 constituted a significant sale that  was "lost" by Boeing within the meaning of 
Article 6.3(c) of the SCM Agreement.   The European Union requests the Appellate Body to reverse 
this finding, and exclude that sale from the Panel's causation assessment and from its ultimate 
conclusion that the effect of the subsidies was to cause serious prejudice to the United States' 
interests, in the form of significant lost sales, with in the meaning of Articles 5(c) and 6.3(c) of the 
SCM Agreement .   
234. First, the European Union argues that the Panel e rred in its application of Articles 5 and 6.3(c) 
by not addressing, or otherwise requiring proof, that Emirates Airlines would have purchased Boeing aircraft had it not decided to buy Airbus aircraft .  For the European Union, the Panel improperly 
characterized the duopoly competition betw een Boeing and Airbus as a "zero sum"
591 game, because 
there are instances, such as the Emirates Airlines ' purchase of the A380, where a sale won by a 
duopoly competitor is not "lost" by the rival firm.592   
235. The European Union submits further that, si milarly to the concept of "impedance" under 
Article 6.3(a) and (b), a finding of lost sales unde r Article 6.3(c) requires evidence demonstrating that, 
if Airbus had not secured the order, Boeing woul d have actually secured it.  According to the 
European Union, instead of requiri ng the evidence that was necessary to  make a finding of lost sales 
under Article 6.3(c), the Panel improperly presumed a lost sale.   
236. Second, the European Union maintains that th e Panel failed to make an objective assessment 
of the matter, as required by Article 11 of the DSU, by failing to address or adequately explain 
evidence that contradicted its finding that the Emirat es Airlines' sale was one that was lost by Boeing.  
In particular, the European Union argues that th e Panel failed to address or adequately explain 
evidence demonstrating that Emirates Airlines could not have purchased competing Boeing aircraft, because Boeing only started marketing its 747-X after Emirates Airlines had announced its decision to 
                                                     
 
590European Union's appellant's submission, para. 414.   
591European Union's appellant's submission, para. 585 (quoting Panel Report, para. 7.1979).  
592European Union's appellant's submission, para. 585. (footnote omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 102  
 
  order the A380.
593  In addition, the Panel failed to address or adequately explain evidence indicating 
that Boeing had "no serious intention" of launchi ng a competitor to the A380 at the time of the 
Emirates Airlines' sales campaign.594  The European Union refers in pa rticular to public statements by 
Boeing officials, Airbus officials, customers, and industry analysts indicating that Boeing never intended to launch a 747 derivative to compete direc tly with the A380 at the time of the Emirates 
Airlines sale. 
(ii) Causation – Single-aisle lost sales  
237. The European Union argues that the Panel erred in  finding, with respect to sales by Airbus of 
single-aisle aircraft to Air Asia, Air Berlin, Czech Ai rlines, and easyJet, that the effect of the subsidies 
was significant "lost sales in the same market" w ithin the meaning of Article 6.3(c) of the 
SCM Agreement .  The European Union requests the Appellate Body to reverse the Panel's finding that 
the effect of the subsidies was lost sales in the sa me market within the meaning of Article 6.3(c), to 
the extent it covers the lost sales in these campaigns, for the following reasons. 
238. First, the European Union maintains that the Panel erred in presuming, rather than 
establishing, causation in the single-aisle Airbus A320 family sales to Air Asia, Air Berlin, Czech Airlines, and easyJet.  The Panel incorrectly assumed that the "presence" of the Airbus A320 in 
each of the four sales at issue was a "fundamental cause" of Boeing losing those sales.
595  According 
to the European Union, the Panel' s conclusion that "but for" the subsidies Airbus could not have 
offered the "particular" LCA that it actually offered did not conclusively establish that the subsidies 
caused Boeing to lose all the A320 sales at issue.  Given the Panel's recognition that Airbus would 
exist and would offer different LCA in the absence of the subsidies, the Panel should have compared 
the actual A320 sales during the reference period with  Airbus' ability to secure such sales in the 
absence of the subsidies.  Instead, the Panel erroneously "fill{ed} the gaps"596 in its causation 
analysis, by implicitly presuming that a non-subsidized Airbus would have lost the four sales at issue, 
because it could not have launched (or would have launched technologically inferior) single-aisle 
LCA, would not have been able to meet any t echnical specifications or "commonality" requirements 
of the four airlines, or would have offe red A320s at non-competitive prices.   
                                                      
593European Union's appellant's submission, paras. 589 and 590 (referring to, inter alia , "We need more 
A380s – Emirates" (September-November 2006) Orient Aviation/A380 Quarterly Update  (Panel Exhibit 
EC-365);  and "Boeing and Emirates correspond about 747X/400X", Reuters , 2 July 2000 (Panel Exhibit 
EC-368).   
594European Union's appellant's submission, para. 591.  
595European Union's appellant's submission, para. 447 (quoting Panel Report, paras. 7.1937, 7.1938, 
7.1984, 7.1986, 7.1993, and 7.2025).  
596European Union's appellant's submission, para. 472.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 103  
 
  239. In the European Union's view, these presumptions  are contradicted by the Panel's findings 
that a non-subsidized Airbus would have offered a "more limited" range of LCA at a later point in 
time, which implies that Airbus would have had "some" market presence during the reference 
period.
597  The Panel's presumptions are further contradicted by the fact that Air Asia, Air Berlin, 
Czech Airlines, and easyJet only purchased single-ai sle aircraft during the reference period, which 
suggests that fleet commonality did not play a role  in any of those sales.  Moreover, the Panel's 
presumption that a non-subsidized Airbus would not have been able to offer competitive prices is 
contradicted by its finding that conditions of competition in the LCA market would have provided 
entrants with an incentive to offer prices that were lower than  Boeing's.  In addition, the 
European Union submits that more recently launc hed LCA would likely have been technologically 
superior to both the original A320 family and the competing Boeing 737.  Thus, instead of relying on 
the conclusion that Airbus' LCA would have been "different" in the absence of the subsidies, the 
Panel should have determined further what kind  of LCA a non-subsidized Airbus could have 
launched, when it could have done so, and how comp etitive such LCA could have been in the context 
of the Air Asia, Air Berlin, Czech Airlines, and easyJet sales.598   
240. For the European Union, the fact that su ch counterfactual is "inherently speculative"599 did 
not excuse the Panel from procuring a proper evidenti ary basis for its causation findings, taking into 
account fully the counterfactual scenar ios in which, in the absence of  the subsidies, Airbus would 
exist and would have sold different aircraft.  In  recognizing that the United States "proceed{ed} too 
hastily"600 to the conclusion that Boeing would have sold more aircraft in the absence of the subsidies, 
the Panel seemed to have been aware of the need to further examine what Airbus sales would have 
been in that counterfactual scenario.  Similarly, the Panel's rejection of the United States' price effects 
arguments on the basis that a new market entrant co uld have offered lower pr ice levels implies that 
the Panel required the United States to provide fu rther evidence on the conditions of competition in 
the absence of the subsidies.  
241. Second, the European Union argues that the Pa nel failed to establish properly a "chain of 
causation" linking the subsidies provided to Airbus to  the four "significant lost sales" at issue, as 
required by Articles 5(c) and 6.3(c) of the SCM Agreement .  The Panel inappropriately articulated an 
                                                      
597European Union's appellant's submission, paras. 457-459.  
598European Union's appellant's submission, paras. 480 and 481.  The European Union further stresses 
that a counterfactual dating back 40 years does not excuse  the Panel from having properly established causation, 
and that the Panel correctly required additional counterfa ctual demonstration in its analysis of causation for 
price effects. (See ibid., paras. 473-480) 
599European Union's appellant's submission, para. 473 (quoting Panel Report, para. 7.1980).  
600European Union's appellant's submission, para. 477 (quoting Panel Report, para. 7.1979).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 104  
 
  "an effect"
601 standard, when it should have applied "a 'ge nuine and substantial relationship' of cause 
and effect" standard in its causa tion analysis under Article 6.3(c).602  Having accepted that Airbus 
would exist in the absence of the subsidies, th e Panel should have comple ted "the counterfactual 
scenarios to a point where they would enable it to  assess whether each of the specific sales at issue 
was lost by Boeing due to the subsidies."603  This involved making findings on what kind of LCA a 
non-subsidized Airbus could have la unched, in what market segments, and at what prices.  The Panel 
further failed to address non-attribution factors su ch as Boeing's mismanagement of customer and 
government relationships, which partially explain why Airbus secured the sales at issue.  The 
European Union insists that the ev idence before the Panel on (i) the prior technological experience of 
the Airbus companies in the regional aircraft sect or, (ii) the growing demand in the single-aisle and 
200-300 seat market segments, and (iii) Boeing's ag eing product offerings, w ould have enabled the 
Panel to complete its counterfactua ls and determine that a non-subsid ized Airbus could have launched 
a single-aisle LCA in or about 1987.  
242. Third, and in the alternative, the European Un ion argues that the Panel acted inconsistently 
with Article 11 of the DSU in finding that the effect  of the subsidies was to cause "significant lost 
sales" in A320 purchases by Air Asia, Air Berlin, C zech Airlines, and easyJet.  The European Union 
suggests that this finding was based on "inconsistent and incoherent" reasoning, insofar as it cannot be 
reconciled with the Panel's findings that a non-subs idized Airbus with a "more limited offering of 
LCA models" could have won sales in the single-aisle market.604  The European Union further 
submits that the Panel failed to provide a "reasone d and adequate explanati on" for its finding that a 
different LCA that a non-subsidized Airbus could have produced would not be competitive and would 
not have won the four sales at issue.  In particul ar, the Panel failed to explain adequately why a non-
subsidized Airbus would not have won the four sales at issue, in the light of its other findings that 
price played a significant role in those sales, and th at a non-subsidized Airbus would be an aggressive 
competitor that would offer low prices in the more limited market segments where it could compete.  
(iii) Causation – A380 lost sales 
243. The European Union argues that the Panel e rred in its interpretation of Articles 5(c) 
and 6.3(c) of the SCM Agreement , and acted inconsistently with Artic le 11 of the DSU, in finding that 
the effect of the subsidies was to cause Boeing to  lose the A380 sales to Emirates Airlines, Qantas 
                                                      
601European Union's appellant's submission, para. 484 (quoting Panel Report, para. 7.1993).  
602European Union's appellant's submission, para. 484 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 374). (emphasis added by the European Union omitted) 
603European Union's appellant's submission, para. 489.  
604European Union's appellant's submission, paras. 507 and 508.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 105  
 
  Airways, and Singapore Airlines.  The European Un ion requests the Appellate Body to reverse this 
finding, and  exclude the Emirates Airlines, Qantas Airways, and Singapore Airlines sales from the 
scope of its finding that the effect of the subs idies was significant "lost sales in the same market" 
within the meaning of Article 6.3(c), for the reasons set out below. 
244. First, the European Union argues that the Pane l erred in its assessment of the Airbus A380 
business case.  In particular, the Panel erred in fi nding that Airbus had an "economic incentive" to 
base the A380 business case on an overly "optimistic" delivery forecast.
605  This finding is based on 
the ex post  consideration that the deliveries of the A380 were delayed many years after its launch in 
2000.  However, Article 6.3(c) required the Panel to evaluate the A380 business case on the basis of 
the information available ex ante , at the time of the launch of the A380.  Moreover, the Panel acted 
inconsistently with Article 11 of the DSU in faili ng to address considerable evidence suggesting that 
"sophisticated and well-informed" private investors w ho financed two thirds of the A380 development 
costs based their own investment decisions on Airbus' delivery forecasts.606  According to the 
European Union, the Panel's speculation concerni ng Airbus' "economic incentives" to base the A380 
business case on overly optimistic delivery forecasts imp lies that Airbus would have acted against its 
own economic interest by launching a non-viable project , and that its directors acted in breach of their 
fiduciary duty to shareholders.  
245. Second, the European Union submits that the Panel erred in finding that, without access to 
LA/MSF, Airbus could not have financed the devel opment of the A380.  The Panel incorrectly relied 
on Aérospatiale's financial conditio n in 1997 to draw the conclusion that Airbus SAS could not have 
financed its part of the A380 project in 2000 without access to LA/MSF.607  The Panel also acted 
inconsistently with Article 11 of the DSU in faili ng to examine evidence indicating that Airbus SAS' 
parent companies, EADS and BAE Systems, could have funded the developm ent of the A380 without 
access to LA/MSF.  In particular, the Panel failed to take into account evidence that demonstrated 
that, as a result of a fully subscribed public stoc k offering, EADS held approximately €8 billion in 
cash, cash equivalents, and short-term securities merely 11 days after the A380 programme launch.608  
In addition, the Panel failed to explain adequa tely or address the totality of the evidence 
demonstrating that Airbus could have raised from ri sk sharing suppliers at least a significant portion 
of the 33% of the A380 development costs covered by LA/MSF.609  Furthermore, the Panel's finding 
                                                      
605European Union's appellant's submission, paras. 603 and 604 (quoting Panel Report, para. 7.1926).   
606European Union's appellant's submission, para. 609.  
607European Union's appellant's submission, para. 614 (referring to Panel Report, para. 7.1947).  
608European Union's appellant's submission, para. 616 (referring to EADS, Reference Document – 
Financial Year 2000  (26 April 2001) (Panel Exhibit EC-54)).  
609European Union's appellant's submission, paras. 618-621.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 106  
 
  that the "significant amount of debt"
610 generated from the developmen t of previous LCA models 
would have made it impossible for Airbus to launch the A380 programme without access to LA/MSF 
is contradicted by its finding that a non-subsidized  Airbus would have launched fewer LCA.  In so 
finding, the Panel acted inconsistently with Article  11 of the DSU, because it failed to take into 
account evidence suggesting that, in the absence of the subsidies, Airbus could have launched a 
single-aisle LCA in or about 1987, and a twin -aisle 200-300 seat LCA in or about 1991.  
246. Finally, the European Union maintains that the Panel erred in finding that, in the absence of 
the subsidies, Airbus would not ha ve had the technological experience necessary to develop the A380.  
In order to establish causation under Articles 5(c) and 6.3(c), the Panel had to determine whether the 
smaller product offering that Air bus would have had in the absence of the subsidies would not have 
permitted it to obtain the technological experience ne cessary to launch the A380 in 2000.  In failing to 
examine evidence that suggest ed that this was the case, the Panel acted inconsistently with its duty to 
conduct an objective assessment of the matter under Article 11 of the DSU. 
(c) Non-LA/MSF subsidies  
247. The European Union claims that  the Panel erred in finding that the effect of non-LA/MSF 
subsidies was to cause displacement of Boeing LCA from the various markets at issue and lost sales 
in the same market within the meaning of Article 6.3(a), (b), and (c) of the SCM Agreement .  In 
particular, the Panel erred in finding that equity and share transfer measures of France and Germany, 
infrastructure measures, and R&TD subsidies "compl emented and supplemented" the "'product' effect 
of LA/MSF".611  The European Union requests the Appella te Body to reverse this finding, and 
exclude non-LA/MSF subsidies from the scope of the Pa nel's finding that the effect of the subsidies 
was to cause displacement of Boeing LCA from the vari ous markets at issue and lost sales in the same 
market within the meaning of Article 6.3(a), (b), and (c) of the SCM Agreement .   
248. The European Union argues that the Panel erred in cumulatively assessing the effects of 
LA/MSF and non-LA/MSF subsidies for the purposes of  establishing causation under Article 6.3(a), 
(b), and (c).  The Panel incorrectly presumed th at non-LA/MSF subsidies impacted the launch of 
particular LCA products, despite the absence of fa ctual findings to this effect.  Referring to US – 
Upland Cotton , the European Union notes that the panel in  that dispute declined to cumulate the 
effects of price-contingent and non- price contingent subsidies because of differences in their nature 
                                                      
610European Union's appellant's submission, para. 622 (quoting Panel Report, para. 7.1948).  
611European Union's appellant's submission, para. 635 (quoting Panel Report, para. 7.1956).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 107  
 
  and effects.
612  According to the European Union, it is on ly appropriate to aggregate the effects of the 
subsidies for the purpose of establishing causation where "the nature of the subsidy, the way in which 
the subsidy operates, {and} the extent to which th e subsidy is provided in respect of a particular 
product or products"613 is "identical or similar".614  However, in the light of the distinct nature, 
structure, and operation of the non-LA/MSF subsidi es, the Panel was required to conduct a detailed 
causation analysis for each of the subsidies at issue.615  For the European Union, in cumulating non-
LA/MSF with LA/MSF subsidies for the purposes of its causation analysis, the Panel erroneously 
presumed that all non-LA/MSF measures had the same effect as LA/MSF.   
249. According to the European Union, the Panel's conclusion that the non-LA/MSF subsidies 
"complemented and supplemented" the effect of LA/MSF does not provide a sufficient basis for 
establishing causation under Article 6.3(a), (b), and (c) of the SCM Agreement .  This is particularly 
the case where the United States' overa ll theory of causation is based on a specific factual finding that, 
but for LA/MSF, Airbus would not have been able to launch each of its LCA models of aircraft.  
Thus, unless the Panel could establish that each of the challenged subsidies was necessary to enable 
Airbus to launch a particular LCA model at a par ticular time, it was required to conduct a full 
causation analysis for each of the measures found to c onstitute specific subsidies in order to establish 
a "genuine and substantial" causal link between each of those subsidies and the observed market 
effects.616  
250. Turning to each specific set of non-LA/MSF subsid ies, the European Union submits that the 
Panel's conclusion that the French and German Gove rnments' equity investments and share transfer 
measures "ensured the continued existence and fi nancial stability of the respective national entities 
engaged in the Airbus enterprise" does not suffi ciently establish the impact of those measures on 
Airbus' ability to launch a particular LCA at a particular point in time.617  In particular, the 
European Union underscores that there is no evidence on the record to suggest that the transfer by the 
French Government to Aérospatiale of a 45.76%  stake in Dassault Aviation enabled a product launch 
                                                      
612European Union's appellant's submission, para. 639 (referring to Panel Report, US – Upland Cotton , 
paras. 7.1349 and 7.1350).   
613European Union's appellant's submission, paras. 640 and 646 (quoting Panel Report, Korea – 
Commercial Vessels , para. 7.560).  
614European Union's appellant's submission, para. 646.  
615European Union's appellant's submission, paras. 639 and 640 (referring to Panel Report, US – 
Upland Cotton , paras. 7.1349 and 7.1350, and Panel Report, Korea – Commercial Vessels , para. 7.560 
respectively).  
616European Union's appellant's submission, paras. 648, 650, and 651 (quoting Appellate Body Report, 
US – Upland Cotton (Article 21.5 – Brazil) , para. 368).  
617European Union's appellant's submission, para. 652 (quoting Panel Report, para. 7.1957).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 108  
 
  by Airbus.
618  Similarly, the transfer of the 20% equity  of Kreditanstalt für Wiederaufbau ("KfW") in 
Deutsche Airbus to Messerschmitt-Bölkow-Blohm GmbH ("MBB") in 1992 was presumed to have 
impacted Airbus' ability to launch its LCA, despite th e fact that it benefited an independent entity that 
did not produce Airbus LCA.619  
251. Similarly, the Panel erroneously found that infrastructure subsidies "relieved Airbus of 
significant expenses related to facilities and production,  and thereby enabled Airbus to 'continue with 
the launch of successive models of LCA'"620, despite the lack of evidentiary support in this respect.  In 
particular, the European Union charges the Pane l with establishing "causation by association" in 
finding that the Mühlenberger Loch project enable d the establishment of the final assembly line in 
Hamburg, which in turn was necess ary to ensure the launch of the A380.  Furthermore, the Panel's 
finding that the Aéroconstellation site and the co nstruction of EIG facilities were dependent on the 
development and production of the A380 does not conclu sively establish that "but for the creation of 
the infrastructure", the A380 would not have been developed and produced.621  The European Union 
underscores further that the Panel made no separate mention of regional aid measures in Germany and 
Spain, despite the fact that their purpose and effect was to offset the additional burden of investing in 
less-developed regions.   
252. With respect to R&TD subsidies, the Europ ean Union emphasizes that the Panel found that 
such measures enabled Airbus to develop "featur es and aspects" of its LCA, but failed to link any 
such features and aspects to any of  Airbus' actual launch decisions.622  The Panel also made no finding 
as to the relative importance of the development of such "features and aspects" to the launch of one or 
more models of LCA, nor did it examine their timing .  Moreover, the Panel recognized that the impact 
of pre-competitive R&TD on Airbus' market presence was "perhaps more attenuated, compared with 
the other subsidies at issue".623   
253. Finally, the European Union contends that the Panel acted inconsistently with Article 11 of 
the DSU by making findings without a sufficient evidentiary basis, and by failing to provide a 
"reasoned and adequate" explanation for its findings.  The European Union posits that the Panel failed 
to point to any evidence establishing a "genuine and substantial relationship of cause and effect" 
                                                      
618European Union's appellant's submission, para. 653 (referring to Panel Report, paras. 7.1414 
and 7.1957).  
619European Union's appellant's submission, para. 654 (referring to Panel Report, para. 7.1294).   
620European Union's appellant's submission, para. 655 (quoting Panel Report, para. 7.1958).  
621European Union's appellant's submission, para. 657 (referring to Panel Report, para. 7.1177). 
(emphasis omitted) 
622European Union's appellant's submission, para. 659 (quoting Panel Report, para. 7.1959).  
623European Union's appellant's submission, para. 659 (quoting Panel Report, para. 7.1959).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 109  
 
  between non-LA/MSF subsidies and Boeing's lost sales and market share.  In addition, in finding that 
the non-LA/MSF subsidies "complement" and "supplemen t" the effect of LA/MSF, the Panel failed to 
provide an adequate explanation for its finding that  those subsidies caused displacement or lost sales 
under Article 6.3(a), (b), and (c) of the SCM Agreement . 
(d) The relevance of the 1992 Agreement  
254. Finally, the European Union claims that the Pane l erred in its interpretation of Article 5(c) of 
the SCM Agreement , and further acted inconsistently with Articles 11 and 12.7 of the DSU, in failing 
to take into account the 1992 Agreement in its analys is of the United States' adverse effects claims.  
The European Union argues that the United States failed to demonstrate that its interests were 
adversely affected by LA/MSF, insofar as these subs idies met the terms of Article 4 of the 1992 
Agreement.  For the European Uni on, the Panel's failure to take this argument into account in its 
analysis of the United States' adverse effects clai ms amounts to an error in the interpretation of 
Article 5(c) of the SCM Agreement , and failure to conduct an objective assessment and set out the 
basic rationale for the Panel's findings under Articles 11 and 12.7 of the DSU.   
(e) Contingent appeal on the existence of suppressed and depressed 
prices for the Boeing 777 
255. In the event that the United States appeals th e Panel's finding that the United States did not 
establish that the effect of the subsidies was significant price suppression and price depression within the meaning of Article 6.3(c) of the SCM Agreement , the European Union conditionally appeals the 
Panel's assessment of significant price suppression and price depression on the basis of a single 
product market, consisting of all m odels of LCA, and the Panel's fi nding concerning the existence of 
significant price suppression and price depression with respect to the Boeing 777.  As the 
United States has not appealed the Panel's finding th at the United States failed to demonstrate that the 
price effects observed during the reference period were  the effect of the subsidies, the condition upon 
which the European Union's appeal  rests has not materialized.  
B. Arguments of the United States – Appellee 
1. The Panel's Terms of Reference
 
(a) The Spanish PROFIT programme 
256. The United States supports the Panel's finding that the Spanish PROFIT programme loans 
were within the Panel's terms of reference.  The United States argues that, although it did not 
explicitly reference the PROFIT programme in its panel request, it asked questions about the WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 110  
 
  programme four months later during the Annex V pro cess and "demonstrated continued interest in the 
program by including it in an updated consultation request".
624  The United States also notes that the 
European Communities, after objecting during the Annex V process that the PROFIT programme was 
outside the Panel's terms of reference, failed to present that objection in its subsequent request for 
preliminary rulings.  The United States considers the European Union's appeal "an exaggeration", 
noting that the Panel found that the description in section (6)(d) of the United States' panel request 
identified the provider, the time, the purpose, an d the subject of the funding at issue.  The 
United States further contends that its Annex V questions confirmed what it thought was clear from 
the panel request—that, because the PROFIT progr amme provided funding for aeronautics research, it 
fell within the scope of the United States' panel request. 
257. The United States argues that the European Un ion has "no basis" for its supposition that 
references in the panel request to the Spanish PTA  programme loans show that the United States 
should have known about the PROFIT  programme at the time it filed its request and that the 
United States' Annex V questions show that it actually did know.625  The United States maintains that 
its consultations request indicated both that there was a vast quantity of information and that it had 
listed everything of which it was aware.  The United States adds that a more general reference to the 
Spanish subsidy programmes was sufficient to put  the European Communities on notice that the 
issues that had been part of its consultations re quest, and which would become part of its Annex V 
procedures request, were the subject of the United States' panel request.  The United States disagrees 
with the European Union that the Panel referred to  the Annex V questions to  expand the scope of the 
dispute;  instead, it confirmed its  initial conclusion that the panel request on its face was not overly 
expansive.  The United States maintains that th e Appellate Body has endorsed reference to a 
complaining party's first written submission for this  purpose;  and such reference should apply with 
greater force to Annex V questions because they are more contemporaneous with the panel request. 
258. The United States also takes issue with the Eur opean Union's contention that it did not object 
to the PROFIT programme claim because it believed it was not part of the United States' case, and that to hold against the European Union would require defendants "to raise, through preliminary 
ruling requests, Article 6.2 issues concerning an open-ended number of measures not mentioned in a 
panel request."
626  In the United States' view, the Europ ean Communities should have been aware of 
the United States' continued interest in PROFIT pr ogramme loans, and its decision not to reference 
                                                      
624United States' appellee's submission, para. 465.  
625United States' appellee's submission, para. 468. 
626United States' appellee's submission, para. 470 (quoting European Union's appellant's submission, 
para. 1212).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 111  
 
  those loans in its preliminary rulings request  "is evidence of how it understood the terms of 
reference".
627  Also, the United States maintains, the Panel did not purport to state a general rule that 
preliminary ruling requests are always relevant to requests under Article 6.2 of the DSU. 
259. Finally, the United States points out that it "addressed {the} PROFIT {programme} explicitly 
in its first written submission".628  The Appellate Body has endorsed  "reference to the complaining 
party's first written submission 'to confirm the meani ng of the words used in the panel request and {to 
determine if} the ability of the respondent to defend itself was prejudiced'."629  In addition, the 
United States maintains that "the context provided by other claims against R&D subsidies in other 
jurisdictions indicated that the {United States'} cl aims were exhaustive, applying to every known 
example of government R&D funding".630   
(b) The French R&TD grants 
260. The United States contends that the Appellate Body's findings in US – Carbon Steel  and US – 
Continued Zeroing  indicate that scrutiny of a panel request for purposes of Article 6.2 allows 
reference to materials other than the panel request, and leaves open the possibility that a panel request 
can afford sufficient specificity wit hout identifying each measure by name.631  Although it did not 
reference funding sources by name, the United States asserts that:  its consultation request referenced 
information on these programmes in the Statement of  Available Evidence;  it asked questions about 
these programmes during consultations;  and it s uggested additional questions concerning these 
programmes during the Annex V process.  That process revealed that subsidies were conferred by the 
Direction des Programmes Aéronautiques et de la Coopération ("DPAC"), information that the United States referenced in its first written submi ssion.  The United States notes that, on this basis, the 
Panel concluded that the panel requ est "identifie{d} the measures at  issue in a manner sufficient to 
present the problem clearly", thereby satisfying Article 6.2 of the DSU.
632 
261. The United States contends that the European Union "identifies no basis"633 in the DSU or the 
SCM Agreement  for its assertion that a complainant should, at a minimum, be required to identify the 
legal basis of the measures it challenges.  The Unite d States argues that "compliance with Article 6.2 
                                                      
627United States' appellee's submission, para. 470.   
628United States' appellee's submission, para. 472 (ref erring to United States' first written submission to 
the Panel, paras. 697-703). 
629United States' appellee's submission, para. 472 (quoting Appellate Body Report, US – Carbon Steel , 
para. 127). 
630United States' appellee's submission, para. 472.  
631United States' appellee's submission, paras. 462-464 (referring to Appellate Body Report, US – 
Carbon Steel , para. 127;  and Appellate Body Report, US – Continued Zeroing , para. 169).   
632United States' appellee's submission, para. 474 (quoting Panel Report, para. 7.150).   
633United States' appellee's submission, para. 476.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 112  
 
  of the DSU depends not on an abstract level of specifi city or identification of the 'legal basis for such 
a series of actions', but on communicat ing enough information that the pa nel, the parties, and the third 
parties can understand what the dispute is about."
634  The United States submits that its panel request 
"did that, especially in light of the attendant ci rcumstances", consisting of questions posed to the 
European Communities during consultations, informati on in the Statement of Available Evidence, and 
the United States' statement to the DSB at the time its panel request was first tabled.635 
262. The United States maintains that the confidentia l nature of consultations does not prevent 
reference to the questions posed by the United St ates during that process.  According to the 
United States, reference to those questions help to  understand what the panel request covered, and not, 
as the European Union contends, that the Panel reli ed on the questions to remedy a deficiency in the 
panel request;  they list pertinent facts about Fr ench R&TD subsidies, including the amounts and 
years of grants, which help to identify which pr ogrammes the United States sought to challenge and 
how they related to the Statement of Available Evid ence.  In the United States' view, "they elucidate, 
rather than add to, the panel request."636   
263. The United States accepts that the French Sena te reports identified in its Statement of 
Available Evidence do not refer to a subsidy progra mme or to the entity that provided the funding.  
However, the reports list amounts of  money budgeted and link them to an official document of the 
French Government, thus giving the French G overnment and the European Communities "solid 
information to identify both particular program s that the United States had challenged and the 
agencies that administered those programs."637  The French Senate reports established that the French 
Government subsidized Airbus research, but "did  not indicate how, under what program, or by 
whom."638  The United States argues that its claim matche d the level of specificity of information that 
France made available to the public.  To hold the United States to a higher standard of specificity "would create a rule whereby Members could shield  any subsidy from WTO scrutiny by simply not 
talking about it."
639 
                                                      
634United States' appellee's submission, para. 476 (quoting European Union's appellant's submission, 
para. 1224).   
635United States' appellee's submission, paras. 476 and 477.   
636United States' appellee's submission, para. 479.   
637United States' appellee's submission, para. 480.  
638United States' appellee's submission, para. 481.   
639United States' appellee's submission, para. 481. (footnote omitted)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 113  
 
  264. Finally, the United States argues that  the European Union "is mistaken"
640 when it asserts that 
the United States' statement to the DSB did not me ntion French R&TD support.  The United States 
argues that it "provided further information that would help the government of France understand the 
extent of the panel request's reference to French research and development subsidies".641  The 
United States maintains that the absence of any reference to particular programmes is irrelevant because Article 6.2 of the DSU "does not dictate how Members satisfy this standard, let alone require 
that they do so by naming specific programs or administrative agencies."
642  Thus, the United States 
concludes, it "was free to satisfy Article 6.2 w ith a functional description of the French R&D 
subsidies it challenged, rather than by naming them."643 
2. The Temporal Scope of Article 5 of the SCM Agreement  
265. The United States submits that the Appellate Body should uphold the Panel's finding that 
Article 5 of the SCM Agreement  applies to all of the subsidies at issue in this dispute.   
266. First, the United States considers that the Panel correctly applied the principle of 
non-retroactivity of treaties reflected in Article 28 of the Vienna Convention  by focusing on the nature 
of the obligation contained in Article 5 of the SCM Agreement .  The United States disagrees with the 
European Union's assertion that "the proper appr oach was 'to identify the relevant government 
conduct in the first place, characterise it as 'act' or 'situation' and examine whether such an 'act' or 
'situation' was completed before  1995 or continued afterward."644  The United States considers that the 
European Union's proposed approach "would have the Appellate Body start with the assumption  that 
the grant of subsidies is the relevant act, fact, or situation in relation to which Article 5 of the 
SCM Agreement binds the Members."645  According to the United States, this approach "is essentially 
circular", because "starting with the assumption that  the only relevant activity is something that 
occurred in the past ... foreordains the conclusion that the provision applies to acts, facts, or situations 
that have already ceased to exist."646   
                                                      
640United States' appellee's submission, para. 482. 
641United States' appellee's submission, para. 482 (re ferring to United States' statement at the DSB 
meeting held on 13 June 2005, WT/DSB/M/191, para. 3).   
642United States' appellee's submission, para. 483. (original emphasis) 
643United States' appellee's submission, para. 483.   
644United States' appellee's submission, para. 20 (quoting European Union's appellant's submission, 
para. 33). 
645United States' appellee's submission, para. 20. (original emphasis) 
646United States' appellee's submission, para. 20.  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  267. The United States maintains that "Article 28 of the Vienna Convention frames the 
retroactivity analysis in terms of the acts, facts, or  situations with respect to which a treaty binds its 
parties", and argues that nothing in the text of Article 28 "limits those acts, facts, or situations to 
governmental 'conduct' as opposed to a government ob ligation that continues after particular conduct 
has occurred."
647  The United States notes that the Europ ean Union contends that, "under general 
international law, the question of whether tr eaty obligations apply is associated with the government 
conduct and its timing "648, highlighting that the European Unio n "does not claim to derive this 
conclusion from the Vienna Convention, nor ev en from commentary on the Vienna Convention."649   
268. The United States counters that the ILC Articles650, which the European Union cites in 
support of its argument, "are not onl y irrelevant to the interpretation of the {non-}retroactivity rules 
reflected in Article 28 of the Vienna Convention, they also do not suppor t the proposition for which 
the European Union cites them."651  Where, as in the case of Article 5 of the SCM Agreement , "the 
primary obligations of a treaty are concerned with  causing effects through prior government action, 
causing those effects itself is the 'wrongful act', a nd the conclusion as to retroactivity will 'depend' on 
whether it is 'completed' or 'has a continuing character'".652  The United States points in this regard to 
Article 14(1) of the ILC Articles, which "applies only to 'an act of a State not having a continuous 
character'."653  The United States further highlights that Article 14(3), which, "by contrast, deals with 
'an international obligation requiring a State to pr event a given event'—analogous to the obligation in 
Article 5 of the SCM Agreement not to cause adve rse effects ... {and} provides specifically, that a 
breach of such an obligation 'occu rs when the event occurs and extends over the entire period during 
which the event continues and remains not  in conformity with the obligation.'"654 
269. The United States argues that the decisions by the ICJ and the ECtHR cited by the 
European Union do not support the European Union' s view that "government conduct alone, and not 
the effects of government conduct, is relevant to an  analysis of retroactivity, depending on the actual 
text of the treaty that is being interpreted".655  These rulings therefore do not provide guidance as to 
                                                      
647United States' appellee's submission, para. 22. 
648United States' appellee's submission, para. 24 (quoting European Union's appellant's submission, 
para. 43 (original emphasis)).  
649United States' appellee's submission, para. 24. 
650Supra , footnote 106.  
651United States' appellee's submission, para. 24 (referring to European Union's appellant's submission, 
paras. 40-43). 
652United States' appellee's submission, para. 27 (quoting Commentary on Article 14 of the ILC 
Articles, supra , footnote 105, para. (3), p. 60). 
653United States' appellee's submission, para. 28. 
654United States' appellee's submission, para. 28. 
655United States' appellee's submission, para. 30.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 115  
 
  the non-retroactivity rule reflected in Article 28 of the Vienna Convention , or how that rule would 
apply to the specific legal obligatio n contained in Article 5 of the SCM Agreement .   
270. The United States further submits that the Panel correctly found that application of Article 5 
of the SCM Agreement  to "the causing of adverse effects through the use of subsidies" was consistent 
with the non-retroactivity principl e reflected in Article 28 of the Vienna Convention .
656  T h e  
United States recalls in this regard that "the object and purpose of the SCM Agreement 'is to 
strengthen and improve GATT disciplines relating to  the use of both subsidies and countervailing 
measures, while, recognizing at the same time, th e right of Members to impose such measures under 
certain conditions'."657  According to the United States, the Pa nel's approach is consistent with the 
established object and purpose of the SCM Agreement  in that it allows Members to grant or maintain 
subsidies while ensuring that, "when they cause a dverse effects, the subsidizing Member must 
withdraw them or eliminate the adverse effects."658  
271. The United States also rejects th e European Union's argument that  the act, fact, or situation 
under Article 5 of the SCM Agreement  is, for purposes of Article 28 of the Vienna Convention , limited 
to government conduct.  For example, the indicia of serious prejudice laid out in Article 6.3 of the 
SCM Agreement  "are largely independent of government action".659  In addition, "Article 5 itself 
provides no grammatical agent for the noun 'use', i ndicating that the obligation applies whenever a 
Member causes adverse affects through the 'use' of a subsidy by anyone—whether the subsidy 
recipient, the government, or some other entity."660   
272. The United States submits that the Panel corr ectly rejected the European Communities' 
arguments regarding the treatment of transitional issues under the SCM Agreement  and the 
implications for the temporal scope question arising in this dispute.  The United States argues that the 
Appellate Body's findings in EC – Hormones  with regard to the application of the non-retroactivity 
principle to the SPS Agreement provide relevant guidance in this re gard.  The Appellate Body stated 
in that case that, "{i}f the negotiators had wanted  to exempt the very large group of {sanitary and 
phytosanitary} measures in existence on 1 January  1995 from the disciplines of provisions ... , it 
                                                      
656United States' appellee's submission, para. 34 (referring to Panel Report, para. 7.64). 
657United States' appellee's submission, para. 42 (quoting Appellate Body Report, US – Softwood 
Lumber IV , para. 64, in turn referring to Appellate Body Report, US – Carbon Steel , paras. 73 and 74). 
658United States' appellee's submission, para. 42. 
659United States' appellee's submission, para. 44. 
660United States' appellee's submission, para. 46. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 116  
 
  appears reasonable to us to expect th at they would have said so explicitly."
661  According to the 
United States, the same is true for the SCM Agreement . 
273. The United States disagrees with the European  Union's critique that "paragraph 7 of 
Annex IV merely sets out 'a method  to estimate the amount of subsidies granted to a particular 
product in a given year'."662  The argument that paragraph 7 addresses a "transitional issue" of 
preventing circumvention of Article 6.1(a) of the SCM Agreement  is factually incorrect, because 
Article 31 describes Article 6.1(a) as subject to "pro visional application" rather than as a transitional 
measure.663  According to the United States, nothing in the SCM Agreement  serves to characterize 
paragraph 7 of Annex IV as an anti-circumventi on measure.  The United States also disputes the 
European Union's argument that, "if all pre-1995 subsidies are covered by Article 5, the requirement to allocate 'existing benefits' to future producti on arising from pre-1995 subsidies would already be 
covered by that rule", because the Annex states explicitly some rules that might otherwise be 
considered obvious.
664  In this context, the United States ar gues, the statement that the calculation 
includes subsidies granted prior to  the entry into force of the SCM Agreement is not redundant since it 
merely "clarifies" that the "general rule" also applies under Article 6.1(a).665 
274. The United States disagrees with the European  Union that the absence of any mention of 
individual subsidies in Article 28 of the SCM Agreement reflects an intention to exclude individual 
subsidies from the SCM Agreement  as completed acts or situations.666  The United States asserts that 
the only conclusion to draw from the silence in Article 28 of the SCM Agreement  with respect to 
individual  pre-1995 subsidies (as opposed to subsidy programmes ) is that Article 28 does not apply to 
such pre-1995 subsidies.  This does not imply,  however, that the other provisions of the 
SCM Agreement  do not apply to such subsidies. 
275. The United States also disputes the European Union's arguments regarding Article 32.3 of the 
SCM Agreement .  In the United States' view, "the omission of any transitional provision for individual 
pre-1995 subsidies signifies only one thing—that the negotiators saw no need for a transitional 
                                                      
661United States' appellee's submission, para. 48 (quoting Appellate Body Report, EC – Hormones , 
para. 128). 
662United States' appellee's submission, para. 51 (quoting European Union's appellant's submission, 
para. 106 (original emphasis)). 
663United States' appellee's submission, para. 52 (referring to European Union's appellant's submission, 
paras. 106 and 107). 
664United States' appellee's submission, para. 54 (quoting European Union's appellant's submission, 
paras. 109). 
665United States' appellee's submission, para. 54. 
666United States' appellee's submission, para. 57 (referring to European Union's appellant's submission, 
para. 102).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 117  
 
  arrangement."
667  Similarly, the United States argues that  the explicit obligation in Article 32.5 
"to bring named classes of measures into complian ce with international obligations does not imply 
that other measures are free from the obligations."668   
276. The United States submits in the alternative that, if the Appellate Body finds that the granting 
of the subsidy itself is the relevant act, fact, or situation under Article 28 of the Vienna Convention , it 
should complete the Panel's analysis and find that  pre-1995 subsidies are "a situation that did not 
cease to exist before entry into  force of the SCM Agreement."669   
277. In support of its position, the United States argues that, "{b}y its terms, Article 1.1 indicates 
when a subsidy begins to 'exist,' but not when it ends."670  The remainder of the SCM Agreement  
makes clear that the subsidy continues to exist afte r the act of conferring the financial contribution.  
For example, the requirement under Article 4. 7 and the option under Article 7.8 of the 
SCM Agreement  "to 'withdraw' the subsidy would be meani ngless if the subsidy did not continue to 
exist."671  For the United States, the same holds true for Article 21.1 of the SCM Agreement , which 
provides that a countervailing duty shall remain in fo rce only as long as and to the extent necessary to 
counteract subsidization that is causing injury.  The United States finds support in this regard in the 
finding by the Appellate Body that "an investiga ting authority may presume, in the context of an 
administrative review under Article 21.2, that a 'benefit' continues to flow from an untied, 
non-recurring 'financial contribution'."672  In addition, the United States recalls that the Appellate 
Body "has confirmed that it is consistent with th e SCM Agreement for Members to treat subsidies as 
having a 'duration' and to allocate the benefit over that period."673 
278. The United States further submits that "{t}he government act of giving the subsidy may end 
upon final transfer of the funds."674  However, under Article 1.1 of the SCM Agreement , a subsidy is 
deemed to "exist" if there is a financial contribu tion and a benefit is thereby conferred.  A subsidy 
therefore exists once a complaining party establish es these conditions.  A responding party is free to 
show that the subsidy subsequently ends at so me point thereafter because "it is a {non-}recurring 
                                                      
667United States' appellee's submission, para. 61. 
668United States' appellee's submission, para. 62. 
669United States' appellee's submission, para. 64 (referring to European Union's appellant's submission, 
para. 47). 
670United States' appellee's submission, para. 65. (footnote omitted) 
671United States' appellee's submission, para. 65.  
672United States' appellee's submission, para. 65 (quoting Appellate Body Report, US – Lead and 
Bismuth II , para. 62;  and referring to Appellate Body Report, US – Countervailing Measures on Certain EC 
Products , para. 84). 
673United States' appellee's submission, para. 65 (referring to Appellate Body Report, Japan – DRAMs 
(Korea) , para. 210F). 
674United States' appellee's submission, para. 67. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 118  
 
  subsidy or because of a full privatization, end of th e allocation, or operation of some other mechanism 
that rebuts the evidence that the benefit exists."
675  There is no legal basis, however, to assume that the 
subsidy ends upon completion of the financial contribution.  The United States submits that "{t}his 
legal conclusion reflects the economic reality that the benefit of a subsidy may continue long beyond 
actual receipt of the funds."676 
279. Finally, the United States supports the Panel's conclusion that the 1979 Tokyo Round 
Subsidies Code  is not relevant for purposes of the present dispute.  The United States asserts that the 
general rule of interpretation reflected in Article 31 of the Vienna Convention  also "places limits on 
the intertemporal application of international law" , namely that, "{i}f the ordinary meaning of the 
terms of a treaty in their context and in light of the treaty's object and purpose creates a change in the 
legal regime applicable to existing measures,  that is the legal regime that applies."677  The 
United States disagrees with the European Union's description of the intertemporal application 
principle, and states that "the whole point of the SCM Agreement was to make 'dramatic changes' to 
existing disciplines, including the Tokyo Round Subsidies Code."678  
3. The Life of a Subsidy and Intervening Events  
(a) Whether the Panel erred in its in terpretation and application of 
Articles 1, 5, and 6 of the SCM Agreement   
280. The United States submits that the Appellate B ody should uphold the Panel's finding that, on 
a proper interpretation of Articles 1, 5, and 6 of the SCM Agreement , there is no requirement to 
demonstrate a "continuing benefit" for purposes of an adverse effects analysis.   
281. The United States contends that the structure of Article 1.1 of the SCM Agreement  does not, 
by itself, require a "subsidy extinction analysis".679  The United States disagrees that the use of the 
term "exist" in the present tense in Article 1 of the SCM Agreement  signifies that the SCM Agreement  
does not concern subsidies that no longer exist and th at are not capable of causing adverse effects.  
The United States claims that the phrase "shall be deem ed to exist" indicates that application of the 
definition means that a subsidy must be considered to  exist, at the time of analysis, if it meets the 
listed criteria in Article 1—namely that "there is" a financial contribution and a benefit "is" thereby 
conferred.  The United States supports the Panel's find ing that the use of the present tense with respect 
                                                      
675United States' appellee's submission, para. 67. 
676United States' appellee's submission, para. 67. 
677United States' appellee's submission, para. 72. 
678United States' appellee's submission, para. 74. 
679United States' appellee's submission, para. 93.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 119  
 
  to the "financial contribution" and "benefit", a nd the use of the term "thereby" to indicate the 
relationship between them, indicates that they exist at the same time.
680  C o n t r a r y  t o  t h e  
European Union's arguments, the United States a sserts that the use of the present tense in the 
definition in Article 1 has never been  taken to suggest that the financ ial contribution must occur at the 
same time as the alleged adverse e ffects under Part III or material injury under Part V.  In fact, the 
Appellate Body, panels, and parties have accepted that "there is" a financial contribution even where 
it occurred many years before the injury or adver se effects that the subsidy is alleged to have 
caused.681  
282. Although the United States acknowledges that the Appellate Body has required a 
demonstration of a "continuing benef it" in situations where there is full privatization for fair market 
value and at arm's length in which the government no longer retains control, the United States submits 
that the analysis of the Appellate Body was "gr ounded" in Articles 19.4 and 21.1 of Part V of the 
SCM Agreement .682  According to the United States, this does not mean that the definition operating 
by itself, or applied in the context of another part of the SCM Agreement , would necessitate the same 
result.  The United States observes the Appellate Body's finding in US – Upland Cotton that 
Article 6.3(c) of the SCM Agreement  contains no indication regarding the methodology for 
quantifying subsidies.683   
283. The United States notes the European Union's reliance on the Appellate Body report in 
Japan – DRAMs (Korea) , in which it alleges that the Appellate  Body treated the calculation of the 
amount of benefit and its allocation over time separately.684  The United States agrees that 
quantification and allocation are different issues, bu t asserts that this does not mean either or both 
calculations are necessary to find the existence of a subsidy under Article 1 of the SCM Agreement . 
284. The United States disagrees that the verb tense of  the word "cause" in Article 5 and "is" in 
Article 6.3 supports the notion that "subsidies that  have been withdrawn or ceased to exist cannot 
'cause' adverse effects or trigger" the typ es of adverse effects set out in Article 6.3.685  According to 
the United States, the present tense indicates only that th e "effect" is in the present, in the form of one 
                                                      
680United States' appellee's submission, para. 89 (referring to Panel Report, para. 7.218). 
681United States' appellee's submission, para. 90 (referring to Appellate Body Report, US – Lead and 
Bismuth II , para. 60;  and Appellate Body Report, US – Countervailing Measures on Certain EC Products , 
para. 84). 
682United States' appellee's submission, para. 91.  
683United States' appellee's submission, para. 91 (referring to Appellate Body Report, US – Upland 
Cotton , para. 465). 
684United States' appellee's submission, para. 92 (referring to European Union's appellant's submission, 
para. 223, in turn referring to Appellate Body Report, Japan – DRAMs (Korea) , para. 199.  
685United States' appellee's submission, para. 99 (referring to European Union's appellant's submission, 
paras. 207 and 208).  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  of the four situations that indicate, in the present,  the existence of serious prejudice.  It says nothing 
about whether the source of that effect  is in the present or in the past.  
285. With respect to "cause", the United States argues th at its use in the infinitive, paired with the 
auxiliary verb "should", renders it mandatory through  the operation of the remedies in Article 7.8 of 
the SCM Agreement .  The United States argues that the use of "should", as the past tense of "shall", 
could refer to action in the present or future, so th at its use in Article 5 conveys no indication as to 
whether the "causing" is in the past or the present.   Furthermore, the word "subsidy" appears in an 
adverbial clause ("through the use of any subsid y") showing instrumentality—the means used to 
accomplish the action.  For the United States, neither  the clause, nor the use of the word "cause" 
indicates whether that instrumentality occurs before  or at the same time as the resulting "adverse 
effects".
686  Moreover, the United States disagrees with th e assertion by the European Union that it is 
inconceivable that a subsidy that is withdrawn or ot herwise discontinued or diminished to a negligible 
amount could cause present adverse effects, and th at "{i}ndirect effects ... cannot be sufficient".687  
According to the United States, Article 5 does not di fferentiate between direct and indirect effects, 
present subsidies, past subsidies, or subsidies th at have ceased to confer a benefit.  Although a 
complaining party may have difficulty in demonstr ating a causal link where a subsidy is provided in 
the distant past or where effects are indirect, such an inquiry is part of the adverse effects analysis and 
is "not a matter to resolve through a presumption as to what a subsidy with a diminished benefit can 
do".688  Moreover, the United States submits that the European Union's arguments suggest a 
"de minimis " requirement, as in Article 11.9 of the SCM Agreement , which requires the termination of 
a countervailing duty investigation if th e subsidy margin is less than 1% ad valorem .  The 
United States observes that Article 5 contains no su ch provisions.  Finally, the United States believes 
that, contrary to the European Union's assertions, the Panel "carefully" considered, as part of its 
causation analysis, the effect of subsidies "over the passage of time".689  
286. The United States rejects the European Uni on's argument that the availability of a 
"withdrawal" remedy under Articles 4.7 and 7.8 of the SCM Agreement  provides contextual support 
for the notion of a "continuing benefit".690  The United States disagrees that Articles 4.7 and 7.8 are 
the "equivalent of" Articles 21.2 and 21.3 of the SCM Agreement  or that the Appellate Body had 
recognized that those provisions require the term ination of remedial action against subsidies once 
                                                      
686United States' appellee's submission, para. 100. 
687United States' appellee's submission, para. 101 (quoting European Union's appellant's submission, 
para. 207). 
688United States' appellee's submission, para. 101.  
689United States' appellee's submission, para. 103 (referring to Panel Report, paras. 7.1921-7.1949).  
690United States' appellee's submission, paras. 94 and 98.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 121  
 
  those subsidies had been removed in some way.
691  Referring to the case law in US – Countervailing 
Measures on Certain EC Products  and US – Lead and Bismuth II , the United States asserts that the 
Appellate Body did not couch its reasoning in terms of  "remedies" generally, but rather in terms of the 
permissible levels of application of countervailing duties.   
(b) Whether the Panel erred in its inte rpretation and application of the 
"privatization" case law 
287. The United States supports the Panel's finding th at the Appellate Body's statements about a 
presumption of "extinction" of past subsidies in its  privatization case law do not apply to the sales 
transactions involving Airbus companies between 1999 and 2006.  In the United States' view, the 
Panel properly relied on the A ppellate Body's reasoning in US – Countervailing Measures on Certain 
EC Products that "only one kind of change in ownership (t hat is, a privatization at arm's length and 
for fair market value where the government transfers all or substantially all the property and retains no 
controlling interest in the firm)" pr esumptively extinguishes past subsidies.692  The United States 
submits that the Appellate Body should uphold the Panel's conclusion that the reasoning in that 
dispute does not, as the European Union asserts, creat e a general "principle" that "the sale of a 
company at arm's length and for fair market valu e removes any benefit of prior subsidies to the 
buyer"693, nor does it justify the application of such a "pri nciple" to private-to-private sales and partial 
privatizations.   
288. The United States disagrees with the European Union that the Appellate Body's reasoning in 
US – Countervailing Measures on Certain EC Products  "effectively established a rebuttable 
presumption  that there is no distinction between a fi rm and its owners for the purpose of the 
SCM Agreement."694  According to the United States, the Appe llate Body criticized the panel in that 
dispute for making the same erroneous assertion and f ound that the distinction between a firm and its 
owners was "certainly not conclusive" and "is not  necessarily relevant" for determining whether a 
benefit exists.695  In the United States' view, these statemen ts indicate that the Appellate Body was 
open to consider the distinction between a firm an d its owners as a relevant factor in its overall 
evaluation of a transaction.  The United States as serts that "{a} better characterization {of the 
                                                      
691United States' appellee's submission, para. 96 (referring to European Union's appellant's submission, 
para. 200). 
692United States' appellee's submission, para. 105 (quoting Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 117). 
693United States' appellee's submission, para. 107 (quoting European Union's appellant's submission, 
para. 226, in turn quoting European Communities' response to Panel Question 197, para. 223).  
694United States' appellee's submission, para. 113 (quoting European Union's appellant's submission, 
para. 240 (original emphasis)). 
695United States' appellee's submission, para. 113 (quoting Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 115). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 122  
 
  Appellate Body's finding} would seem to be that the sameness of a firm and its owners is an 
analytical construct, warranted in some instances ... and not warranted in others".
696  T h e  
United States also rejects the Eu ropean Union's attempts to defend its presumption as "rooted in 
economic common sense" by hypothesizing sales of less than 100% of a firm's shares, and then proceeding to ask why the Appellate Body's finding that  a fully privatized firm and its new owners are 
the same should not apply to such sal es of lesser portions of the firm.
697  In the United States' view, a 
number of factors should be analyzed in consider ing whether a firm and its owners are distinct, 
including whether the owners have the ability to control the assets of the firm.698   
289. The United States also notes the European Uni on's criticism of the Panel on the ground that 
the "two financial contributions"—the original subsidy and the sale of the company to private 
owners—"are not comparable".699  The United States explains that the two transactions are not 
comparable since they involve different fina ncial contributions measured against different 
benchmarks.700  In the United States' view, the Europ ean Union's argument that the difference is 
significant because the original subsidy " increases  the value of the firm" while the sale price " includes 
the market value of the subsidy create d by the original financial contribution ", and therefore 
"removes the benefit of the subsidy", ignores the fact that the increase in the value of the firm is not 
the benefit  of the subsidy, but the effect  of the subsidy—a consideration which should not affect the 
evaluation of the benefit.701 
290. The United States notes the European Union's ar gument that the Appellate Body's statement 
in US – Countervailing Measures on Certain EC Products , that "{t}he Panel's absolute rule of 
'no benefit' may be defensible in  the context of transactions between private parties taking place in 
reasonably competitive markets"702, creates an " irrebuttable " presumption in private-to-private sales 
                                                      
696United States' appellee's submission, para. 114 (referring to Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , paras. 113, 115, and 118). 
697United States' appellee's submission, para. 115 (quoting European Union's appellant's submission, 
para. 241). 
698United States' appellee's submission, para. 115 (quoting Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , paras. 117 and 119, where the Appellate Body specifically 
disagreed with the panel's "overreaching conclusion that 'f or the purpose of the bene fit determination under the 
SCM Agreement , {investigating authorities should make} no distinction ... between a company and its 
shareholders'", and noted that the panel "should have confined its findings to {the} specific circumstances" of "a 
privatization at arm's length and for fair market value wh ere the government transfers all or substantially all the 
property and retains no contro lling interest in the firm"). 
699United States' appellee's submission, para. 125 (referring to European Union's appellant's 
submission, para. 245). 
700United States' appellee's submission, para. 125 (referring to Panel Report, para. 7.243).  
701United States' appellee's submission, para. 125 (quoting European Union's appellant's submission, 
para. 245 (original emphasis)). 
702United States' appellee's submission, para. 116 (quoting Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 124).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 123  
 
  that an arm's-length, fair market value sale "precludes the pass-through of benefit from seller to 
buyer".
703  The United States submits that the caveat u sed by the Appellate Body—namely that it 
"may be defensible"—signals the Appellate B ody's lack of confidence in its conclusion.704  The 
United States argues further that, upon full priva tization, the relationship between a firm and its 
owners changes, since private owners are "profit-maximizers"705 while the government is not.  
Moreover, the subsidizing government receives a pa yment from the new owners equal to the market 
value of any subsidized and non-subsidized contribu tions to the company.  As the United States sees 
it, these changes in the owner-company relationship and the company-government relationship in a 
privatization context do not occur in a transaction between two private parties.  The United States 
observes that the US Department of Commerce (t he "USDOC") methodology memorandum, relied on 
by the European Union for its arguments that under US law a private-to-priva te transaction establishes 
a presumption of extinction of subsidy706, demonstrates that such a presumption applies only to full 
privatizations and is rebuttable if "parties can de monstrate that the broader market conditions were 
severely distorted by the government and that the transaction price was meaningfully different from 
what it would otherwise have been absent the distortive government action."707 
291. The United States disagrees with the European Union that the compliance panel's finding in 
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) supports the view that 
partial sales extinguish prior subsidies.  The United States observes that, although the French 
Government in that case allowed one group of purchasers (the employees) to pay less than fair market 
value for their shares, the case involved a full pr ivatization of a state-owned company, Usinor.708  
Even if the employee share purchases led to the conc lusion that the privatization did not cover 100%, 
the sale of the remaining 94.84% of shares, in the c ontext of a transfer to the public of 100% of the 
                                                      
703United States' appellee's submission, para. 116 (quoting European Union's appellant submission, 
para. 253 (original emphasis)). 
704United States' appellee's submission, para. 116 (quoting Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 124). 
705United States' appellee's submission, para. 122 (quoting Appellate Body Report, US –  
Countervailing Measures on Certain EC Products , para. 103). 
706United States' appellee's submission, para. 117 (referring to European Union's appellant's 
submission, para. 254;  and USDOC, Issues and Decision Memorandum, supra , footnote 158, p. 2). 
707United States' appellee's submission, para. 117 (quoting USDOC, Issues and Decision Memorandum, 
supra , footnote 158, p. 2).  
708The United States submits that, save for 5.16% of the shares that were sold to  Usinor employees at a 
substantial discount and not at fair market value, the privatization was exactly the "one kind of change in 
ownership" covered in US – Countervailing Measures on Certain EC Products , involving "privatization at arm's 
length and for fair market value where the government tran sfers all or substantially al l the property and retains 
no controlling interest in the firm." (United States' appellee's submission, para. 128 (quoting Appellate Body 
Report, US – Countervailing Measures on Certain EC Products , para. 117) (footnote omitted))   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 124  
 
  shares and complete surrender of government cont rol, would meet the criterion of transferring 
"substantially all the property".
709 
292. Finally, the United States supports the Panel' s finding that adopting a "principle" whereby 
"changes in the underlying ownership of a subsid ized producer automatically or presumptively 
eliminate the benefit conferred by  prior financial contributions" would "potentially eviscerate the 
SCM Agreement".710  The United States agrees with the Pa nel that any exchange of shares in a 
publicly held company would, under the European Union's reasoning, eliminate a corresponding share 
of the benefit of subsidies, even though it ch anged nothing about the company's operations and 
nothing meaningful about the company's ownership.711 
(c) Whether the Panel erred in finding that the transactions did not 
"withdraw" the benefit conferred by the past subsidies, within the 
meaning of Articles 4.7 and 7.8 of the SCM Agreement  
293. The United States submits that, contrary to th e European Union's arguments, Articles 4.7 
and 7.8 of the SCM Agreement  do not create a "separate and independent" requirement to evaluate 
whether the subsidizing Member has "withdrawn" or  "extracted" a subsidy.  The provisions specify 
the remedies available following a finding that subsid ies are prohibited or cause adverse effects, and 
do not contain or imply substantive rules as to when  subsidies exist for purposes of Article 5 of the 
SCM Agreement .  Moreover, the United States observes that  the provisions create an obligation on the 
Member, or in the case of Article 7.8 give the Me mber an option, to withdraw the subsidy.  
Accordingly, the Member  must do something affirmative to "remove" or "take away" the subsidy.712  
The United States does not consider a transfer of fu nds or other assets by the subsidy recipient to an 
entity other than the government to be action by the Member  to remove or take away the subsidies, as 
required under Articles 4.7 and 7.8 of the SCM Agreement . 
(i) "Cash extractions" involving CASA and Dasa  
294. As a general matter, the United States rejects the "theory underlying" the European Union's 
arguments on "extraction" or "withdrawal", name ly that "benefits from subsidies existed as 
                                                      
709See United States' appellee's submission, paras. 126-128 (quoting Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 117).  
710United States' appellee's submission, para. 129 (quoting Panel Report, paras. 7.246 and 7.252). 
711The United States contends that the European Union fails to explain the distinction it draws between 
the daily trading of shares and the tr ansactions in this case, which, according to the European Union, involve 
"significant" sales by government, industry or institutio nal shareholders. (United States' appellee's submission, 
para. 130) 
712United States' appellee's submission, para. 135 (referring to Appellate Body Report, Brazil – Aircraft 
(Article 21.5 – Canada)  para. 45;  Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 226 and 227;  
and Panel Report, Australia – Automotive Leather II (Article 21.5 – US) , para. 6.27).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 125  
 
  enhancements to CASA's and {Dasa's} balance shee ts" and that, through the "cash extraction",  the 
"incremental value" created by the subsidies was removed.
713  In the United States' view, a number of 
other factors may increase (or decrease) the incrementa l value of a company, and it would be incorrect 
to equate the "effect of the subsidy on the company" to the "benefit" of a subsidy.  Although the United States does not dispute that there are circ umstances in which a Member may remove cash from 
a subsidized company in a way that "withdraws"  the subsidy for purposes of Articles 4.7 and 7.8 
—such as where a Member takes back the valu e of the subsidy and gives nothing in return
714—paying 
a third party, such as DaimlerChrysler in th is dispute, carries no such implication.   
295. Turning to the transactions at issue in this dispute, the United States agrees with the Panel's 
conclusions that there was no "extraction" or "withdrawal" of subsidies with respect to Dasa.715  In the 
United States' view, since the "cash extraction" did not involve a payment to the German Government, 
there is no basis to conclude that "the Member gr anting or maintaining such  subsidy ... withdr{e}w 
the subsidy" for purposes of Article 7.8.  Moreover,  in the United States' view, the European Union's 
argument focuses on the wrong corporate relationship,  because DaimlerChrysler's incentives to return 
money to Dasa following the transaction were  unchanged as it still owned 100% of Dasa.716  T h e  
United States also notes the Panel's finding that th e Airbus creation process "was structured so as to 
maintain the overall interests of Daim lerChrysler and the Spanish government in Airbus Industrie as a 
whole ."717  In the United States' view, evidence as to ongoi ng control of the recipient by Dasa, and by 
DaimlerChrysler through Dasa, is important to an i nquiry into whether the "cash extraction" "removed 
the incremental contribution of alleged prior subs idies" and whether anything in fact left the 
recipient.718  Finally, the United States points out that Da imlerChrysler did in fact confer "something 
to Dasa in exchange for the funds transferred to it".719  The United States recalls that the "cash 
extraction" from Dasa reduced the value of its assets to a level where it was equivalent to the number 
                                                      
713United States' appellee's submission, para. 136 (quoting European Union's appellant's submission, 
paras. 172 and 173). 
714In support, the United States refers to the panel report  in Australia – Automotive Leather II 
(Article 21.5 – US) , where the panel found that where the subsidized entity made cash payments to the 
government this could constitute "withdrawal" of subsidies. (United States' appellee's submission, para. 137 
(referring to Panel Report, Australia – Automotive Leather II (Article 21.5 – US) , para. 6.28)) 
715The United States disagrees with th e European Union's argument that the transfer of cash from Dasa 
to DaimlerChrysler was "permanent" on the ground that, after the formation of EADS, DaimlerChrysler held a 
much smaller share of EADS than it had previously held of Dasa, and any return of the money would therefore 
be spread over a larger shareholder base. (United States' appellee's submission, para. 142 (referring to European Union's appellant's submission, para. 190)) 
716United States' appellee's submission, para. 143 (referring to Panel Report, section VII.E.1 
(attachment), footnote 2241 to para. 4). 
717United States' appellee's submission, para. 143 (quoting Panel Report, para. 7.275 (original 
emphasis)). 
718United States' appellee's submission, para. 144 (quoting Panel Report, para. 7.268;  and referring to 
European Communities' response to Panel Question 200, para. 247). 
719United States' appellee's submission, para. 145. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 126  
 
  of EADS shares agreed upon.
720  In such a circumstance, argues the United States, no one would 
argue that this was a "withdrawal" for purposes of Articles 4.7 and 7.8 of the SCM Agreement . 
296. With respect to the transaction involving CA SA, the United States notes the different 
approach taken by the Panel given the involvement of the government.  The United States agrees with 
the Panel that SEPI provided "somet hing of equal value" in return for the transfer—namely, as with 
Dasa, the reduction of capital in CASA in preparation for its contribution to EADS.721  The 
United States also agrees with the Panel that, give n that the Spanish Government exercised the same 
degree of ownership and control over Airbus before  and after the creation of EADS, the funds had not 
left the company-shareholder unit.722  
(ii) Sales transactions 
297.  The United States submits that, despite the Eur opean Union's assertions to the contrary, the 
European Communities "never made arguments" that the sales transactions were "extractions" or 
constituted "withdrawals" within the meaning of Articles 4.7 and 7.8 of the SCM Agreement .723  The 
United States submits that the European Communiti es used the term "extraction" interchangeably 
with "extinction".724  Moreover, the European Communities' discussions on "extraction" addressed 
only the specific facts of the Dasa and CASA transactions.725  According to the United States, the 
references cited by the European Communities do not contain separate arguments that the sales 
transactions "withdrew" prior subsidies fo r purposes of Articles 4.7 and 7.8 of the SCM Agreement , 
but rather reflect the European Communities' view that subsidies that have been "extinguished" for 
                                                      
720In the United States' view, the transaction was no different from a situation where Dasa contributed 
its assets to EADS without the cash transfer, and receive d a higher number of shares than it was entitled to, after 
which DaimlerChrysler sold the excess back  to EADS in exchange for cash.   
721United States' appellee's submission, para. 148 (quoting Panel Report, para. 7.285). 
722United States' appellee's submission, para. 149 (referring to Panel Report, para. 7.285).  Finally, the 
United States asserts that, contrary to the European Union's arguments, the Panel did not make general 
statements as to whether the transfer from a government-owned company to the government for nothing in return might indicate that the relevant Member withdrew the subsidy to the extent of  the transfer;  rather, the 
Panel in this dispute simply found that the CASA -SEPI transfer did not sa tisfy these criteria. ( Ibid., para. 150) 
723United States' appellee's submission, para. 151.  
724United States' appellee's submission, para. 152 (r eferring to European Communities' first written 
submission to the Panel, paras. 263, 271, and 282). 
725United States' appellee's submission, para. 152 (refe rring to European Communities' oral statement at 
the first Panel meeting, paras. 32 and 61;  European Communities' responses to Panel Question 80, para. 152, 
Panel Question 81, para. 161, and Panel Question 112, paras. 313 and 315;  European Communities' second 
written submission to the Panel, para. 990;  European  Communities' responses to Panel Questions 198-201, 
paras. 235-254, and Panel Question 222, paras. 55 7-559;  and European Communities' comment on the 
United States' response to Panel Question 222, paras. 392 and 397-401).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 127  
 
  purposes of Articles 1, 5, and 6 of the SCM Agreement  are also "withdrawn" for purposes of 
Articles 4.7 and 7.8.
726   
298. In the United States' view, the concepts of "e xtinction" and "withdrawal", as argued by the 
European Union with respect to th e sales transactions, are mutually exclusive.  On the one hand, the 
European Union's "extinction" argument rests on the proposition that a new buyer extinguishes a 
subsidy by paying the owners money that reflects th e value added to the company by past subsidies, 
such that there is an exchange of  value for value.  On the other ha nd, the European Union argues that 
a subsidy is "withdrawn" when the recipient pays money without  getting something in return.  
According to this view, no transaction for fair ma rket value could ever withdraw a subsidy because, 
by definition, the parties would be exchanging equal values.  The United States also contends that, 
since most of the sales transactions involved priv ate entities, they would not qualify as withdrawals 
under Articles 4.7 and 7.8, which only apply when the government  removes money from the subsidy 
recipient.  Finally, the United States argues that , since the European Communities never explained 
how the sales transactions "withdrew" the subsidies, the Panel would have been required to devise its 
own explanations to support any conclusion, whic h is not a permissible role for panels under the 
DSU.727 
(d) Whether the Panel violated Article 11 of the DSU  
299. The United States rejects the five claims of error alleged by the European Union under 
Article 11 of the DSU.  According to the United States, the Panel correctly applied the relevant 
provisions of the covered agreements and presente d a thorough and well-reasoned explanation of its 
findings.  In the United States' view, the European  Union's arguments consist primarily of a mere 
repetition of its arguments that the Panel improperl y understood the substa ntive provisions of the 
SCM Agreement .  The United States considers that it has shown these arguments to be "unfounded".728  
The United States submits that, even if the European Union were correc tly to identify legal errors, this 
is not a sufficient basis for a claim under Article 11 of  DSU.  In this regard, the United States recalls 
the Appellate Body's statement that Article 11 clai ms are not to be "made lightly" or "merely as a 
                                                      
726According to the United States, since the European Communities' argument that the sales 
transactions "extinguished" benefits failed before the Pa nel, its argument with resp ect to Articles 4.7 and 7.8 
also fails. (United States' appellee's submission, para. 154 (referring to Panel Report, para. 7.266)) 
727United States' appellee's submission, para. 157 (referring to Appellate Body Report, Japan – 
Agricultural Products II , paras. 130 and 131). 
728United States' appellee's submission, para. 163.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 128  
 
  subsidiary argument or claim in support of a claim of  a panel's failure to construe or apply correctly a 
particular provision of a covered agreement".
729 
300. Second, the United States observes that the Eu ropean Union bases many of its claims of 
violation of Article 11 of the DSU on the alleged failure by the Panel to provide a "reasoned and 
adequate explanation" of its findings.  According to the United States, the European Union thereby 
attempts to apply "a new standard of review" b ased on whether the explanation of the Panel's finding 
is sufficiently robust.730  While the United States acknowledges th at the panel's lack of explanation 
and coherent reasoning was one considera tion that led the Appellate Body in US – Upland Cotton 
(Article 21.5 – Brazil)  to find that grounds for reversal ex isted, the Appellate Body did not put 
forward "lack of a 'reasoned and adequate explanatio n' as a new and independent basis for reversing a 
panel's findings."731   
301. In addition to these "overarching legal flaws", the United States addresses each of the five 
claims of error alleged by the European Union.732  First, with respect to the European Union's 
argument that the Panel failed to explain the signi ficance of its finding that the reduction in CASA's 
capital represented something of value received fro m SEPI in exchange for the CASA-SEPI transfer, 
the United States considers that the significance of the Panel's finding was clear and that the Panel 
provided a reasoned and ade quate explanation.   
302. Second, regarding the argument that the Panel failed to provide a "r easoned and adequate 
explanation of", and had insufficient evidence for, its finding that the agreement to pool voting rights 
gave SEPI and DaimlerChrysler a greater claim to the earnings of any funds returned to EADS, the 
United States recalls that the Panel made no finding that the agreement affected claims on earnings.  
Rather, the Panel's finding that the agreement affect ed the control of the company was one of several 
reasons cited by the Panel for its conclusion th at the CASA-SEPI and Dasa-DaimlerChrysler "cash 
                                                      
729United States' appellee's submission, para. 164 (quoting Appellate Body Report, US – Steel 
Safeguards , para. 498). 
730United States' appellee's submission, para. 165.  The United States considers that there is little 
support in the existing jurisprudence for this argument, and does not consider that the footnote in the Appellate 
Body's report in US – Upland Cotton (Article 21.5 – Brazil)  referred to by the European Union supports the 
proposition.  By contrast, the United States reads the finding of the Appellate Body in that case to be that the 
compliance panel violated Article 11 of  the DSU because it "effectively disr egarded the re-estimates data" and 
used "internally inconsistent reasoning"—both grounds for past findings of Article 11 inconsistencies. ( Ibid., 
paras. 165-167 (referring to Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 294, 
295, and footnote 618 to paragraph 293;  Appellate Body Report, Korea – Alcoholic Beverages , para. 164;  and 
Appellate Body Report,  US – Wheat Gluten , para. 161))  
731United States' appellee's submission, para. 167. 
732United States' appellee's submission, para. 168.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 129  
 
  extractions" did not move cash out of the company- shareholder unit.  Therefore, the United States 
considers that the Panel did explain its findings in  this respect carefully and in appropriate detail.
733 
303. Regarding the third claim by the European Uni on—namely that the Panel contradicted itself 
by finding elsewhere in its Report that the French  Government's contribution of Dassault shares to 
Aérospatiale, a state-owned entity, was a fina ncial contribution, while finding that "the removal of 
money from a state-owned entity by its government shareholder does not qualify as 'withdrawal' of 
those payments"—the United States considers this to  be a "misperception" by the European Union.734  
The Panel did not dispute the possibility that in certain conditions, removal of money from a state-
owned entity by the state could qualify as withdrawal of a subsidy;  rather its finding was that those 
conditions were not present in this one instance.735   
304. Fourth, the United States notes the European Union's argument that the Panel violated 
Article 11 of the DSU by not addressing whether th e six sales transactions "withdrew" past subsidies 
for purposes of Articles 4.7 and 7.8 of the SCM Agreement .  According to the United States, while the 
European Union had made arguments with regard  to "cash extractions" involving CASA-SEPI and 
Dasa-DaimlerChrysler, it never pursued that argumen t with any clarity with respect to the sales 
transactions.  
305. Finally, with respect to the European Union's claims that the Panel erred in finding that the 
European Communities did not argue that each of th e sales transactions was at "arm's length", the 
United States notes that the reference cited by the European Union regarding two of the sales does not 
even mention the term "arm's length"736, and that other citations referred to by the European Union 
"can scarcely be considered 'arguments'."737  With respect to other transactions that the 
European Union argues were at arm's length, the Unit ed States submits that a panel is not required to 
address every argument raised by a party.738  For the United States, "the larger point" is that the 
Panel's statement regarding whether the sales were at  "arm's length" was made in the context of its 
analysis of whether a "continuing benefit" require ment applies beyond the factual situation following 
privatization at arm's length for fair market value where the government transfers all or substantially 
                                                      
733United States' appellee's submission, para. 170 (ref erring to Panel Report, paras. 7.275, 7.283, 
and 7.285, referred to in European Union's appellant's submission,  para. 274). 
734United States' appellee's submission, para. 171 (quoting European Union's appellant's submission, 
paras. 277 and 284 (original emphasis)).  
735United States' appellee's submission, para. 171 (referring to Panel Report, paras. 7.283 and 7.284). 
736United States' appellee's submission, para. 173 (referring to European Union's appellant's 
submission, para. 279, third bullet). 
737United States' appellee's submission, para. 173.  
738United States' appellee's submission, para. 173 (referring to Appellate Body Report, US – Anti-
Dumping Measures on Oil Country Tubular Goods , para. 134, in turn quoting Appellate Body Report, EC – 
Poultry , para. 135). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 130  
 
  all control to a privatized producer.
739  The United States argues that, to  the extent that the Panel was 
incorrect, any such error did not affect the Pane l's ultimate conclusion since none of the sales 
transactions involved the transfer of all or substantia lly all the property, or the surrender of all of the 
controlling interest by the relevant governments.  Therefore, the United States concludes, regardless 
of whether the transactions were at "arm's length", they would in any case not have created a situation 
in which a subsidy extinction anal ysis was necessary or appropriate. 
(e) Whether the Panel erred by finding that there was no requirement to 
conduct a "pass-through" analysis  
306. The United States submits that the Panel was co rrect in finding that the changes to the 
corporate structure through which Airbus LCA we re produced did not require the United States to 
demonstrate, as part of its prima facie  case, that subsidies to previous producers of Airbus LCA 
"passed through" to Airbus SAS.  In support, the United States refers to the Appellate Body's 
reasoning in US – Upland Cotton , where it affirmed that, in contrast to a Part V context, a 
"pass-through" analysis is not critical for an assessment of significant price suppression under 
Article 6.3(c) in Part III of the SCM Agreement .740  Moreover, the United States explains that an 
analysis of subsidies differs between Part III and Part V:  whereas Part V addresses a Member's 
remedy against subsidized imports causing material injury to a domestic industry, Part III provides a 
multilateral remedy against a more general categor y of adverse effects of  subsidies themselves.741  
Additionally, the United States observes that Part  V has different substa ntive and procedural 
requirements than Part III, including a requirement to  quantify the subsidy that is absent from Part III. 
307. The United States submits that, as the complaining party, its only burden was to establish that 
the European Communities' subsidies caused adverse effects to the United States' interests, which it 
did by establishing that the four member States ma de financial contributions that each conferred a 
benefit on producers of Airbus LCA and that these subsidies caused adverse effects to the 
United States' interests.  To the extent that th e Appellate Body considers that the United States bore 
some further burden, the United States argues that  it satisfied that burden by establishing that the 
corporate predecessors of Airbus SAS were all produ cers of Airbus LCA and that, as the Panel found, 
there was no indication that the reorganization am ong the Airbus entities to create Airbus SAS had 
any impact on the "quality or nature of control" of  Airbus Industrie or on the work share distribution 
                                                      
739United States' appellee's submission, para. 174. 
740United States' appellee's submission, para. 159 (referring to Appellate Body Report, US – Upland 
Cotton , para. 472).   
741United States' appellee's submission, para. 160 (referring to Appellate Body Report, US – Upland 
Cotton , para. 436).    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 131  
 
  between the Airbus partners.
742  For these reasons, the United States submits that the Panel did not err 
in finding that "the Airbus Industrie consortium (i .e., each of the Airbus partners, their respective 
affiliates and Airbus GIE) {is} the same producer of Airbus LCA as Airbus GIE."743 
(f) Conclusion  
308. For the above reasons, the United States requests the Appellate Body to uphold the Panel's 
finding that there was no requirement for the United States to demonstrate a "continuing benefit" pursuant to Articles 1, 5, and 6 of the SCM Agreement .  Moreover, the United States requests that the 
Appellate Body reject the European Union's argument s that any and/or all of the transactions at issue 
resulted in "extinction" or "withdrawal" of subsidies to Airbus companies.  Finally, the United States 
requests the Appellate Body to dismiss the European  Union's claim that the Panel failed to make an 
objective assessment of the matter pursuant to Article 11 of the DSU. 
4. The 1992 Agreement
  
309. The United States disagrees that Article 4 of  the 1992 Agreement constitutes the relevant 
benchmark for a determin ation of "benefit" under Article 1.1(b) of the SCM Agreement .  The 
United States agrees with the Panel that the 1992 Agreement contains no defi nition of subsidy, nor 
does it make any reference to the notion of benefit.   First, the United States argues that, by its own 
terms—in particular, Article 4 and the fifth r ecital to the preamble of the 1992 Agreement744—the 
1992 Agreement has no bearing on, and is therefore not "relevant" to, the parties' rights and obligations under the SCM Agreement .  The United States submits th at the 1992 Agreement was not 
aimed at putting in place a new "benchmark" for what  would constitute a s ubsidy and a benefit under 
the SCM Agreement , but rather was only intended to place constraints on the amount and terms of 
LA/MSF, without any prejudice to the parties' differe nt views as to the consistency of the measures 
under the GATT 1947 or any successor agreement.  Second, even assuming that Article 4 were 
"relevant" to an interpretation of the SCM Agreement  pursuant to Article 31(3)(c) of the Vienna 
Convention , the United States does not consider it to be  "applicable in the relations between the 
                                                     
 
742United States' appellee's submission, para. 161 (quoting Panel Report, para. 7.199, in turn referring 
to European Commission, Merger Procedure Article 6(2) Decision, Case No. COMP/M 1745 – EADS (11 May 2000) (Panel Exhibit US-479), para. 16 (emphasis added by the Panel omitted)).  
743United States' appellee's submission, para. 161 (quoting Panel Report, para. 7.199 (original 
emphasis)). 
744The fifth recital to the Preamble of the 1992 Agreement reads: 
NOTING {the European Economic Community's and the Government of 
the United States of America's}  intention to act without prejudice to their 
rights and obligations under the GATT and under other multilateral 
agreements negotiated under th e auspices of the GATT[.]  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 132  
 
  parties" based on a proper interpretation of Article 31, and in the light of past panel and Appellate 
Body reports.
745   
(a) The meaning of Article 31(3)(c) of the Vienna Convention 
310. The United States disagrees with the interpreta tion of "the parties" advocated by the 
European Union.  The United Stat es points to the numerous references to the term "treaty" in the 
subparagraphs of Article 31 , and argues that its use each time "mak es it clear that it refers to the treaty 
that is subject to 'interpretation'".746  Applying the definition in Article 2(1)(g) of "party" to 
Article 31(3)(c) of the Vienna Convention  could only mean "States which have consented to be bound 
by the treaty subject to the interpretation  and for which that treaty is in force".747  
311. Turning to "context", the United States su bmits that, although worded differently, 
Articles 31(2)(a) and 31(2)(b) of the Vienna Convention  refer respectively to agreements "between all 
the parties", and that any instrument made "by one or more parties ... and accepted by the other 
parties" illustrates that all the parties must endorse  an instrument "in some fashion" before it can 
become one of the interpretive tools to which Article 31 of the Vienna Convention  refers.748  T h e  
United States rejects the European Union's argument th at the use of "all the parties" in Article 31.2(a) 
indicates that "the parties" in Article 31(3)(c) must mean "some or all of the parties".749  T h e  
United States points out that, even under Article 31(2) , the use of two different phrases to refer to all 
the parties indicates that the negotiators of the Vienna Convention  recognized multiple ways to 
capture this concept. 
312. With respect to the "object and purpose", the Un ited States disagrees that the preamble of the 
Vienna Convention  provides a basis for reading Article 31 in a manner that would require that an 
agreement between only two parties to the SCM Agreement  would affect the meaning for other WTO 
Members that did not accept the bilateral agreemen t.  The United States observes that Articles 3.2 
and 11 of the DSU provide support for the view that  the DSU establishes jurisdiction over only those 
disputes arising under the covered agreements and not over all disputes among WTO Members with 
regard to all treaties to which they are parties.  Fi nally, the United States recalls that the fifth recital of 
the preamble of the 1992 Agreemen t states that the disciplines of  the 1992 Agreement are "without 
prejudice" to the parties' rights and obligations  under the GATT and other multilateral agreements 
negotiated under the auspices of the GATT.  In the United States' view, this provision illustrates that 
                                                      
745See United States' appellee's submission, paras. 230-240 and 252-263.  
746United States' appellee's submission, para. 245.  
747United States' appellee's submission, para. 245. (emphasis added) 
748United States' appellee's submission, para. 246.  
749United States' appellee's submission, para. 247.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 133  
 
  "the 1992 Agreement itself rejects any applicab ility to the covered agreements, including the 
SCM Agreement ."
750   
313. Neither does the United States consider that th e various panel and A ppellate Body reports 
relied on by the European Union support its interpre tation that bilateral agreements among only two 
WTO Members can be used to interpret the covere d agreements.  First, the United States notes that 
the panel's ruling in EC – Approval and Marketing of Biotech Products  was never appealed and was 
adopted by the DSB, and therefore remains persuasi ve.  The United States also refers to findings of 
panels and the Appellate Body in US – Shrimp , US – Shrimp (Article 21.5 – Malaysia) , EC – Poultry , 
and US – FSC (Article 21.5 – EC) , and explains that the non-WTO rules at issue in those disputes did 
not qualify as instruments within the meaning of Artic le 31(3)(c), but were instead used to interpret 
the ordinary meaning of terms unde r Article 31(1) or the special meaning of terms under Article 31(4) 
of the Vienna Convention .751  The United States also asserts that , even using these other interpretative 
tools, the Appellate Body did not consider the isolated practices of one or two countries.752 
(b) Whether Article 4 of the 1992 Agreem ent is relevant to interpreting 
the term "benefit" in Article 1.1(b) of the SCM Agreement 
314. The United States submits that the 1992 Agreem ent, on its own terms, has no bearing on 
parties' rights and obligations under the SCM Agreement .  According to the United States, the use of 
the term "support" in Article 4 and in other provisions of the SCM Agreement , and the reference in 
Article 4 of the 1992 Agreement and the SCM Agreement  to "thresholds" as a mechanism to trigger 
obligations, do not create a link that  is relevant for purposes of the SCM Agreement .  The term 
"support", as used in Article 1.1(a)(2) of the SCM Agreement , only defines income and price 
"supports" as a "financial contribution", which are separate from "development support" in Article 4 
of the 1992 Agreement.  Moreover, the United States highlights that "support" in Article 3.2 of the 
Agreement on Agriculture  is not a synonym for "subsidy", since the use of the "support" as opposed to 
subsidy indicates that the two terms have diffe rent meanings under the covered agreements.  
                                                      
750United States' appellee's submission, para. 251.  Th e United States consider s that the agreements 
negotiated in the Uruguay Round of Multilateral Trade Negotiations—including the SCM Agreement —are 
encompassed by the phrase "multilateral agreements negotiated under the auspices of the GATT".  Thus, the 
Ministerial Declaration launching the Uruguay Round st ated that the Contracting Parties to the GATT 1947 
"DECIDE to enter into Multilateral Trade Negotiations on trade in goods within the framework and under the 
aegis of the General Agreement on Tari ffs and Trade".  Accordingly, argues th e United States, the fifth recital to 
the 1992 Agreement confirms that the Agreement does not prejudice the rights of the United States under the SCM Agreement . (United States' appellee's submission, footnote 407 to para. 239) 
751In this respect, the United States refers to Appellate Body Report, US – Shrimp , and Appellate Body 
Report, US – FSC (Article 21.5 – EC) . (United States' appellee's submission, paras. 255, 260, and 261) 
752See United States' appellee's submission, para. 260 (referring to Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 143). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 134  
 
  315. The United States also rejects the European Un ion's argument that Article 4 is relevant 
because it creates "market" conditions that serve as a benchmark for the interest rates charged for 
LA/MSF.  The United States submits that this  argument "confuses government lending conditions 
with the broader 'market' for financing" since, although the 1992 Agreement may have put constraints 
on state lenders, private financiers remained free to offer whatever terms the commercial market 
would bear.  Moreover, the 1992 Agreement did not affect the market in a way relevant for a 
determination of benefit un der Article 1.1(b) of the SCM Agreement . 
(c) Whether Article 4 of the 1992 Agreement is a relevant fact to 
establish the market benchmark 
316. The United States submits that, even if the Appe llate Body were to treat Article 4 of the 1992 
Agreement as a "fact", this would not affect the outcome given that the Panel never found that the 
1992 Agreement influenced the market in the way al leged by the European Union.  For these reasons, 
the United States argues that there were "no releva nt facts" for the Panel to "take into account".
753 
5. LA/MSF Benefit Benchmark  
(a) Whether the Panel erred in finding that the LA/MSF measures confer 
a benefit within the meaning of Article 1.1(b) of the SCM Agreement  
317. The United States requests the Appellate Body to uphold the Panel's findings under 
Article 1.1(b) of the SCM Agreement  regarding the applicable project-specific risk premium.  The 
United States maintains that the Panel made an objective assessment of the facts as required by 
Article 11 of the DSU in criticizing and rejecti ng the risk premium benchmark proposed by the 
European Communities.  The United States also cl aims that the Panel validly found that the 
reasonableness of repayment forecasts does not dict ate the appropriateness of the rate of return. 
(i) Errors of application of the law to the facts of the case 
318. The United States asserts that "there is no dispute ... as to whether {LA/MSF} conferred a 
benefit" and that "{t}he only question is what the market would have demanded for comparable 
financing".754  The United States points to the Panel's finding that "even relying on the 
European Communities' own estimates of the rates of re turn and market interest rate benchmarks, it is 
                                                      
753United States' appellee's submission, para. 238.  
754United States' appellee's submission, para. 176 (referring to Panel Report, para. 7.490).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 135  
 
  clear that the financial contributions provided in the form of LA/MSF conferred a benefit on 
Airbus."
755   
319. The United States contends that the European Un ion understates the substantial risk that the 
member State governments undertook in providing LA/MSF.  The United States notes that financing the development of LCA is expensive and risky, costing as much as US$10 billion or more per new 
LCA model, and that once the investment has been made, very little can be recovered in the event the 
programme fails to perform as e xpected.  LA/MSF is a highly prefer ential form of financing with 
unique terms that absorb the extrao rdinary costs and offset the massi ve risks of LCA development.  
The United States asserts that the European Union has not identified any errors with the Panel's 
finding that all LA/MSF measures include long-term unsecured loans at zero or below-market rates of 
interest with back-loaded repayment schedules that al low Airbus to repay the loans through a levy on 
each delivery of the financed aircraft and provisions that allow outstanding balances to be indefinitely 
extended or forgiven if Airbus fails to sell a su fficient number of the aircraft to repay the loan. 
320. The United States rejects the European Union's clai m that the Panel erred in its application of 
Article 1.1(b) of the SCM Agreement .  According to the United States, the European Union is 
challenging findings that the Panel did not make or arguments that the United States did not proffer.  
The United States submits that the European Union's claim under Article 1.1(b) of the 
SCM Agreement  fails because "it is merely a thinly-veiled critique of the Panel's careful weighing and 
balancing of the facts—not a proper legal challenge to the actual application of the Article 1.1(b) 
'benefit' standard".
756  
321. First, the United States argues that neither the Panel nor the United States agreed to apply or 
attempted to apply a constant project-specific ri sk premium to all LA/MSF measures.  Instead, the 
Panel found that the inquiry must "identify{} the most appropriate project-specific risk premium for each  of the challenged LA/MSF contracts".
757  The Panel then identified ranges in which it considered 
the appropriate premium was likely to fall and found th at certain groups of LCA entail levels of risk 
that, though not necessarily identical, fall in the same range.  On this basis, the United States 
concludes that the Panel's finding that premia for mu ltiple aircraft may fall in the same range is fully 
consistent with the Panel's criticism of a "one-siz e-fits-all" premium and with its finding that the 
"most appropriate" premium should be ascr ibed to each model of aircraft.758  The United States also 
                                                      
755United States' appellee's submission, para. 176 (quoting Panel Report, para. 7.490). 
756United States' appellee's submission, para. 187. (footnote omitted) 
757United States' appellee's submission, para. 189 (quoting Panel Report, para. 7.468 (original 
emphasis)). 
758United States' appellee's submission, para. 189. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 136  
 
  rejects the European Union's contention that the United States and the European Communities "agreed 
in the course of the Panel's proceedings that it w ould be appropriate to apply a constant project-
specific risk premium to all {LA/}MSF loans."
759  The United States is of the view that the 
European Union misunderstood the testimony of th e United States' expert Dr. Ellis, who proposed a 
single premium of 700 basis points as a conservative estimate applicable to all transactions, but recognized that "a model-based benchmark rate mu st reflect, in addition to the company's general 
level of riskiness (as reflected in the general cor porate borrowing rate), project-specific risk resulting 
from the particular risk profile of {LCA} deve lopment and other project- or {LA/MSF}-specific 
features."
760  The United States adds that Dr. Ellis recognized that the actual premium might be 
higher, for example, noting that "a 40 percent risk premium or something of that order of magnitude would probably be quite appropriate for the earlier years of Airbus' existence given the high-risk of 
LA/MSF and the project-specific repayment during the early life of the company."
761   
322. Second, the United States maintains that, in pa ragraph 7.468 of its Report, the Panel did not 
lay out a roadmap that the Panel then failed to follow, but instead described the detailed factual 
analysis that it actually performed and which led to its conclusions.  Specifically, the Panel itself 
noted that the categories of facts it listed are some of the "{v}arious pieces of evidence and arguments 
provided by the parties indicat{ing} that the risk  associated with LCA development will vary over 
time depending on a variety of factors."762  The United States therefore concludes that the factors were 
simply the categories of facts that the Panel consid ered in concluding that different projects might 
warrant different premia and in identifyi ng the range in which to put each project.763  
323. Third, the United States maintains that the Panel did not apply the "relative experience" factor 
solely to the A300 and A310 and the "level of technology" factor solely to the A380.764  T h e  
United States asserts instead that the Panel's placeme nt of the different Airbus models into three 
different ranges of risk premia re flects its appreciation of all of the factors that it considered 
relevant.765  The United States clarifies that it is "unsur prising" that the Panel found that technological 
challenges played a noteworthy role for the A 380 and that the relative experience factor was 
                                                      
759United States' appellee's submission, para. 190 (quoting European Union's appellant's submission, 
footnote 969 to para. 759). 
760United States' appellee's submission, para. 190 (quoting NERA, Economic Assessment of the Benefits 
of Launch Aid (10 November 2006) (Panel Exhibit US-80 (BCI ) (hereinafter the "Ellis Report")). (emphasis 
added by the United States omitted) 
761United States' appellee's submission, para. 190 (quoting Panel Report, para. 7.468, in turn quoting 
Ellis Report, supra , footnote 760, at footnote 28).  
762United States' appellee's submission, para. 191 (quoting Panel Report, para. 7.468). 
763United States' appellee's submission, para. 191. 
764United States' appellee's submission, para. 192 (quoting European Union's appellant's submission, 
para. 763). 
765United States' appellee's submission, para. 192.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 137  
 
  particularly significant with respect to some of the first models that Airbus developed.
766  However, 
the specific mention of technological challenges or relative experience for the A300, A310, and A380 
does not signal that other aircraft developments  did not pose technical challenges or were not 
influenced by relative experience.  The United St ates also notes that, under Article 1.1(b) of the 
SCM Agreement , the Panel was required to find that a benefit was conferred but not to quantify the 
exact amount of the benefit conferred.   
324. Fourth, the United States contends that ther e is no evidence that the Panel ruled out the 
possibility that the project-specific benchmark mi ght be lower than the European Communities' 
generalized, all-aircraft risk premium for the A 330-200 and A340-500/600.  For the United States, the 
European Union appears to be suggesting that the Panel was required to decide the issue based on an 
argument that the European Communities did not make before the Panel, "which is not the function of 
a {p}anel".767  The United States argues that it is clear from the Panel's description of its analysis that 
it reviewed the totality of the facts before it and concluded that the A330-200 and A340-500/600 
benchmarks "lie in the range of interest rates a dvanced by both of the parties—that is, above the 
interest rate benchmarks proposed by the Eur opean Communities but below the benchmark levels 
submitted by the United States."768  
325. Furthermore, the United States claims that the Eu ropean Union is incorrect in arguing that the 
Panel applied a risk premium based on venture capita l financing with respect to the A300, A310, and 
A380, which the Panel had previously rejected as inherently more risky than LA/MSF.  The Panel 
concluded, with respect to the A300 and A310 (the  earliest Airbus models), that "the premium 
proposed by the United States was a reasonable proxy for the minimum  project-specific risk 
premium".769  Moreover, the Panel found "specifically that for the A380, the premium proposed by 
the United States 'could be reasonably accepted to represent the outer limit of the risk premium that a market lender would ask'."
770  Thus, the Panel merely found that "for some  contracts, the U.S. 
premium was 'an appropriate proxy'".771  The United States notes that, "{b}y using the premium from 
a venture capital portfolio , the United States avoided the extremel y risky types of projects that may 
have motivated the Panel's concerns" and that "{t}he  'risk premium' that the Panel applied, moreover, 
                                                      
766United States' appellee's submission, para. 192. 
767United States' appellee's submission, para. 193 (referring to Appellate Body Report, US – Continued 
Zeroing , para. 343;  and Appellate Body Report,  US – Wool Shirts and Blouses , p. 14, DSR 1997:I, 323, at 335). 
768United States' appellee's submission, para. 193 (quoting Panel Report, para. 7.486). (footnote 
omitted) 
769United States' appellee's submission, para. 194 (referring to Panel Report, para. 7.485). (original 
emphasis) 
770United States' appellee's submission, para. 194 (quoting Panel Report, para. 7.487).  
771United States' appellee's submission, para. 194 (referring to Panel Report, para. 7.469). (original 
emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 138  
 
  is only an addition to the company-specif ic 'general corporate borrowing rate'."
772  The United States 
concludes that the Panel's qualified use of the Unit ed States' risk premium derives from the careful 
factual assessment that the Panel undertook and is not incoherent or internally inconsistent.   
(ii) Whether the Panel erred under Article 11 of the DSU 
326. The United States rejects the European Union's argument that the Panel's assessment fails to 
meet the requirements of Article 11 of the DSU.  According to the United States, the Panel undertook 
an analysis that was more than lengthy, thorough,  and explained how the Panel arrived at its finding 
that the benchmark proposed by the Eu ropean Communities was not valid.   
327. The United States disagrees with the European Union's position that the Panel lacked the 
"purportedly required 'positive evidence' to make its finding".773  The United States asserts that the 
Panel had before it substantial evidence concerning the relative riskiness of the Airbus projects at 
issue.774   
328. The United States also argues that the Panel properly grouped together slightly different LCA 
models with similar risk characteristics for purposes of determining a risk premium, as the Panel was not obligated and did not attempt to provide a preci se explanation of the risk applicable to each 
aircraft model.   
329. The United States rejects the European Union's cl aim that the Panel failed to explain why the 
acknowledged technological challenges of the A380 indicate that the A380 was a more risky project, 
because the Panel had explicitly r ecognized that the eventual su ccess of an LCA project was highly 
uncertain.  Technological challenges, according to th e United States, are a "critical component of this 
uncertainty".
775  
330. The United States denies that the Panel was incons istent in finding that the benchmark return 
proffered by the United States was a suitable mini mum return a market investor would demand for 
investment in the A300 and A310 and the maximum retu rn an investor would demand to invest in the 
A380.  The United States asserts th at the European Union's argument  rests on the flawed assumption 
that the Panel fully accepted the European Communities ' arguments with regard to the project-specific 
risk premium while rejecting the United States' ve nture capital-based premium.  The United States 
                                                      
772United States' appellee's submission, para. 195. (original emphasis)  
773United States' appellee's submission, para. 200. 
774United States' appellee's submission, para. 200 (referring to Panel Report, footnote 2679 to 
para. 7.468;  and United States' first written submission to  the Panel, paras. 142-145, 260-265, and footnotes 113 
and 185 thereto). 
775United States' appellee's submission, para. 202 (quoting Panel Report, para. 7.367).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 139  
 
  argues that, even though the Panel found that LA/M SF is not entirely comparable with venture capital 
investments, the Panel did not reject the use of a venture capital risk premium as a suitable analogue 
where warranted.   
(b) The Panel's criticisms of the Eu ropean Communities' benchmark 
331. The United States asserts that the Panel made an objective assessment of the facts relating to 
the European Communities' propo sed benchmark and provided th e European Communities full 
opportunity to rebut the United States' prima facie  case.  The United States claims that the 
European Union's arguments relate to the Panel's conclusions as to the credibility of evidence and the 
particular arguments that it addressed, and do not identify any inconsistency with Article 11 of the 
DSU or Article 1.1(b) of the SCM Agreement .  Specifically, the United States argues that, instead of 
failing to "address some  of the {European Communities'} arguments and ... not prompt{ing} the 
European {Communities} to provide further argu ments and information", the Panel actually made 
extensive findings on the evidence given by the Eu ropean Communities' expert, Professor Whitelaw, 
and found that "the overall record did not support the expert's conclusions".
776  The United States 
argues that this approach is consistent  with the Appellate Body's finding in US – Upland Cotton  
(Article 21.5 – Brazil)  that "a well-considered analysis of  economic evidence and modeling falls 
within a panel's discretion as trier of fact."777  Moreover, the United States asserts that "the Panel was 
not required to espouse a view on every argument ma de in the parties' respective expert reports"778, a 
concept emphasized by the Appellate Body in EC – Poultry .779   
332. The United States contends that the European Union's allegations that  the Panel erred under 
Article 11 of the DSU address isolated findings and ignore the broad weight of the evidence on which 
the Panel relied.  The Panel outlined several defi ciencies indicating that the European Communities' 
proposed benchmark underestimated the appropriate level of project-specific risk properly associated with LA/MSF for each of the challenged measures, and based its ultimate conclusion on a number of 
flaws, rather than on any one single fault in th e European Communities' proposed approach.  The 
United States further claims that the European Uni on's assertions that the Panel violated Article 11 of 
the DSU fail at the overall level.  Specifically, th e United States contends that the European Union 
never explains why, assuming arguendo  that its individual criticisms we re valid, it would change the 
                                                     
 
776United States' appellee's submission, para. 211. (original emphasis) 
777United States' appellee's submission, para. 210 (referring to Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 435). 
778United States' appellee's submission, para. 211. 
779United States' appellee's submission, para. 212 (referring to Appellate Body Report, EC – Poultry , 
para. 135). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 140  
 
  Panel's conclusion based on the totality of the ev idence that the European Communities' benchmark 
was not valid, as required by the Appellate Body's finding in US – Continued Zeroing .
780   
333. The United States asserts that the European Union has not provided a reason to overturn 
individual findings that led the Panel to conc lude that the European Communities' proposed 
benchmark was invalid.  Referring to  the Appellate Body report in US – Wool Shirts and Blouses , the 
United States rejects the European Union's contention that "the Panel's finding that it had 'no way of 
verifying' the value of the European {Communitie s'} proposed project-specific risk premium was in 
error because the Panel 'failed to ask  for evidence it considered necessary'."781  The United States 
argues that the European Communities never provided the relevant underlying da ta.  Furthermore, the 
United States claims that the Panel could not have  expressed more detail in its Report regarding the 
European Communities' proposed project-specific risk premium because th e European Communities 
had designated the specific repayment provisions of  the risk-sharing supplier contract, to which it 
referred, as HSBI.   
334. The United States rejects the European Uni on's contention that the Panel erred under 
Article 11 of the DSU by failing to assess evidence  presented by the Euro pean Communities when 
finding that "there is 'logical merit to the Unite d States' argument suggesting that risk-sharing 
suppliers had an incentive to lower their expected rates of return'."782  The Panel's finding with regard 
to the incentives facing risk-sharing suppliers is a findi ng of fact that is outside the scope of appellate 
review.  The Panel asked specific questions regard ing the issue, which the Panel reviewed in the 
context of the totality of the evidence before it.  The fact that the Panel did not discuss each of the 
specific arguments proffered by the European Co mmunities is not, in itself, inconsistent with 
Article 11 of the DSU.  In addition, as a result of  the European Communities' own designations, most 
of the information relevant to this point was HSBI .  The United States further argues that neither the 
Panel nor the United States can be faulted for fa iling to present sufficient evidence to substantiate 
their arguments with regard to the risk-sharing suppl iers' expected rate of return because the inability 
to produce that evidence was a r esult of the European Communiti es' failure to provide the full 
information necessary.  Despite the European Co mmunities' failure to provide information, the 
United States demonstrated that the supplier rela tionships do involve significantly lower risk than 
LA/MSF contracts.  The United States also disagrees  with the European Union's claim that the Panel 
                                                      
780United States' appellee's submission, paras. 213-215 (referring to Appellate Body Report, US – 
Continued Zeroing , para. 331). 
781United States' appellee's submission, para. 217 (quoting Panel Report, para. 7.480;  and 
European Union's appellant's submission, paras. 794-800;  and referring to Appellate Body Report, US – Wool 
Shirts and Blouses , p. 14, DSR 1997:I, 323 at 335). 
782United States' appellee's submission, para. 219 (referring to the European Union's appellant's 
submission, paras. 809-821).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 141  
 
  erred in the interpretation and app lication of Article 1.1(b) of the SCM Agreement  by reasoning that 
the actions of a market actor that has an exis ting business relationship with a company that is 
allegedly subsidized cannot serve as a benchmar k because that market actor would somehow be 
tainted.
783  The United States asserts that the Panel's findi ngs on this issue do not rely on this premise, 
but instead the Panel found that, in this particular sc enario, the risk-sharing suppliers could not in fact 
have been acting on strictly market terms and th at they may have had incentives to lower their 
expected rates of return.784   
335. The United States rejects the European Union's c ontention that "the Panel violated Article 11 
of the DSU by engaging in 'speculation' when it ag reed with the view expressed by Brazil and the 
United States that LA/MSF to Airbus lowers th e risk imparted to risk-sharing suppliers."785  In 
addition, the United States disagrees with the Eu ropean Union's assertion that the Panel erred in 
finding that LA/MSF for the A380 reduced the leve l of risk associated with risk-sharing supplier 
financing.  The United States argues that the Pa nel found elsewhere in its Report that LA/MSF 
reduced the risk associated with development of LCA, and that risk would obviously affect the 
company's ability to pay other debt, incl uding risk-sharing supplier financing. 
336. The United States also disagrees with the Europ ean Union's argument that "the Panel failed 
'to provide a reasoned and ad equate explanation of its  finding' that available information 'suggests that 
risk-sharing participants' involvement in the A380 pr oject may not have been on strictly market terms 
for all the participants'."786  Specifically, the United States ment ions the Panel's reference to the 
information cited by Dr. Ellis showing that a nu mber of suppliers used in Professor Whitelaw's 
analysis themselves received financing like LA/MSF or  other government subsidies that reduced their 
cost of capital and would therefore reduce the re turns they required on contracts with Airbus.787  The 
Panel did not use this information as an independe nt reason for concluding that the European Union's 
benchmark was invalid, but as one of a number of considerations supporting that conclusion.  The 
United States maintains, therefore, that there w as no need to show that LA/MSF-like financing to 
                                                      
783United States' appellee's submission, footnote 382 to para. 221 (referring to European Union's 
appellant's submission, para. 811, in turn referring to Appellate Body Report, Japan – DRAMs (Korea) , 
para. 172).  
784United States' appellee's submission, footnote 382 to para. 221 (referring to Panel Report, 
para. 7.480). 
785United States' appellee's submission, para. 222 (referring to European Union's appellant's 
submission, para. 826). 
786United States' appellee's submission, para. 223 (quoting and referring to European Union's 
appellant's submission, paras. 829-834). 
787United States' appellee's submission, para. 223 (referring to NERA, Response to Whitelaw Report  
(24 May 2007) (Panel Exhibit US-534a (BCI/HSBI)), p. 24).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 142  
 
  suppliers by itself explained the differential be tween LA/MSF terms and the terms for risk-sharing 
supplier financing.   
337. Therefore, the United States asserts that the Eu ropean Union's allegations under Article 11 of 
the DSU and Article 1.1(b) of the SCM Agreement should be rejected. 
(c) The relevance of sales forecasts 
338. The United States rejects the European Union's argument that the Panel erred under 
Article 1.1(b) of the SCM Agreement  in finding that "the number of sales over which full repayment is 
expected reflects little regarding the ap propriateness of the rate of return."
788  The United States notes 
the implicit uncertainty in long-term forecasts, in  addition to the massive investments required for 
LCA projects.  On that basis, the United States ar gues that, "even if the programs at issue could be 
expected to be profitable and the return expecta tions {could be} 'reasonable', it does not follow that a 
manufacturer or investor bearing the full commercia l risk of the launch would 'bet the company' by 
investing {US}$10 billion on the simple expectation that certain forecast sales, however reasonable, 
may be achieved over a 20-year period of time."789 
6. Export Subsidies  
339. The United States submits that, contrary to the European Union's arguments, the Panel 
correctly found that the LA/MSF measures by the Governments of Germany, Spain, and the United 
Kingdom for the A380 were contingent in fact upon export performance within the meaning of Article 3.1(a) and footnote 4 thereto of the SCM Agreement .  The United States responds to the four 
sets of grounds of appeal raised in the European Union's appeal. 
(a) The first set of grounds of appeal:  Alleged legal errors in the Panel's 
interpretation of the terms "continge nt", "tied-to", and "actual or 
anticipated" 
340. The United States contends that, contrary to  the European Union's argument, the Panel 
"carefully reviewed the specific legal meaning of e ach of the relevant terms in Article 3.1(a) and 
footnote 4 of the SCM Agreement{,} ... {and} ex amined the ordinary meaning of the terms 
'contingent', 'tied to', 'actual or anticipated', in their context and in light of the object and purpose of 
                                                     
 
788United States' appellee's submission, para. 224 (referring to European Union's appellant's 
submission, paras. 839-847). 
789United States' appellee's submission, para. 225.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 143  
 
  the SCM Agreement, in particular relating them to the concept of an 'in fact' as opposed to 'in law' 
export contingency."
790   
(i) The interpretation of Article 3.1(a) and Footnote 4 
341. The United States argues that "{t}he reasoning in the Canada – Aircraft  Appellate Body 
report continues to offer the primary guidance on the meaning of Article 3.1(a)" and footnote 4.791  
Specifically, the Appellate Body found that an "i n fact" subsidy determination under these provisions 
involves proving three elements:  (i) the "granting" of a subsidy (ii) that is "tied to" (iii) "actual or anticipated exportation or export earnings".
792  The Appellate Body further stated that "in fact" 
contingency must be "inferred from the total conf iguration of facts constituting and surrounding the 
granting of the subsidy, none of which is  likely to be decisive in any given case".793  In addition, "{a} 
relationship of 'conditionality' or 'dependence' be tween the subsidy and exports demonstrates the 
existence of a 'tie' between the grantin g of a subsidy and export performance."794  The United States 
further recalls that the Appellate Body noted that "the type of evidence that may be employed to 
demonstrate the two types of contingency will be different, but that the standard is the same."795 
342. The United States submits that, contrary to the European Union's argument, nothing in 
Article 3.1(a) or footnote 4 "limits the notions of a 'c ontingency' or 'tie' to 'if-then' relationships where 
subsidies lead inexorably to exports, or 'favour{} exports' or 'create an incentive for a company to 
prefer exports over domestic sales'".796  In the United States' view, although "the {European Union} 
may have identified one way to sa tisfy Article 3.1(a) of the SCM Agreement, there is nothing to 
indicate that it is the only way".797  Moreover, the United States submits that "Article 3.1 and 
footnote 4 do not require that a subsidy follow 'as a consequence of' exports actually being 'realized' 
(that is, if there is export, then you get a subsidy)".798  Rather, the legal standard focuses on whether a 
relationship of conditionality ex isted between exports and the granting of the subsidy.  
                                                      
790United States' appellee's submission, para. 272. 
791United States' appellee's submission, para. 276. 
792United States' appellee's submission, para. 276 (quoting Appellate Body Report, Canada – Aircraft , 
para. 169). 
793United States' appellee's submission, para. 276 (quoting Appellate Body Report, Canada – Aircraft , 
para. 167). 
794United States' appellee's submission, para. 276 (quoting Appellate Body Report, Canada – Aircraft , 
paras. 170 and 171). 
795United States' appellee's submission, para. 276 (referring to Appellate Body Report, Canada – 
Aircraft , para. 167;  and Appellate Body Report, Canada –  Autos , para. 107). 
796United States' appellee's submission, para. 291 (quoting European Union's appellant's submission, 
para. 1318).   
797United States' appellee's submission, para. 291.   
798United States' appellee's submission, para. 292. (original emphasis and underlining) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 144  
 
  343. Turning to the phrase "actual or anticipated e xportation" in footnote 4, the United States 
submits, contrary to the European Union's argument, that the word "actual", by its ordinary meaning, 
means "real" rather than "existing".
799  Thus, "actual" exports may be either current or future "real" 
exports.  Moreover, "{a}s a participle, 'anticipated' simply acts as an adjective describing the nature or 
attribute of 'being anticipated'" and "i mplies that someone is 'anticipating'."800  This interpretation is 
consistent with the Appellate Body's finding that  the word "anticipated" means "expected" and that 
"anticipated exportation" refers to "the  anticipation … that exports will result."801  The United States 
further submits that, consistent with this interpre tation, actual exportation may be either current or 
future "real" exportation, whereas anticipated exportation is expected at present but may not 
necessarily occur in the future.  If "anticipated" exports simply meant future exports, as the 
European Union alleges, then "it is unclear why that  term was needed at all, as 'actual' exports would 
already include both current and future  'actual' exports."802  Therefore, the United States contends that 
"the {European Union's} interpretations of the term{s } 'actual' as 'past or present', and 'anticipated' as 
'future', and each of the conclusions it draws from this, are contrary to the ordinary meaning and context of those terms, as explained in past Appellate Body findings."
803 
344. As to the evidence required to demonstrate e xport contingency in fact, the United States 
contends that the European Union erroneously s uggests that there is a higher threshold for finding 
export contingency in fact and that this th reshold is "insurmountable" in this dispute.804  T h e  
United States notes the European Union's assertion th at a panel must determine the "precise content" 
of a subsidy before finding that the subsidy is contingent in fact upon export performance.805  The  
United States argues that neither the Appellate Body nor any panel has articulated such a standard for 
"in fact" contingency.  In prior disputes, the "preci se content" criterion was referred to in the specific 
context of a question about the legal standard for an "as such" challenge based on an "unwritten rule 
or norm".806  The United States further maintains that, even  if a "precise content" test would apply, it 
is clear from the detailed and thorough assessment that  the Panel made of the structure, meaning, and 
context of the LA/MSF agreements and the surroundi ng facts that its analysis met the "precise 
content" test that the European Union argues should apply. 
                                                      
799United States' appellee's submission, para. 288. 
800United States' appellee's submission, para. 287. 
801United States' appellee's submission, para. 286 (quoting Appellate Body Report, Canada – Aircraft , 
para. 172). 
802United States' appellee's submission, para. 288. (original emphasis) 
803United States' appellee's submission, para. 307. 
804United States' appellee's submission, para. 278 (quoting European Union's appellant's submission, 
para. 1308). 
805United States' appellee's submission, para. 283. 
806United States' appellee's submission, para. 283 (referring to Panel Report, US – Zeroing (EC) , 
para. 7.319).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 145  
 
  (ii) The alleged double standard of "dependent motivation" 
imposed by the Panel 
345. The United States submits that, contrary to the European Union's arguments, the Panel did not 
apply a double standard for determ ining export contingency in fact.  Rather, the Panel applied the 
same standard for the United States ' claims on in fact and in law export contingency, and examined 
"a different, broader set of factual evidence in its  assessment of the former, as compared to the 
latter".
807  The United States maintains that the Pane l's approach did not "equate" the contingency 
standard with "motivation" in reaching these findings808 and "is entirely consistent with prior 
Appellate Body and panel findings and reasoning".809   
346. According to the United States, "apart from its inclusion of an additional 'subjective 
motivation' requirement", the Panel correctly artic ulated the standard for finding a prohibited export 
subsidy based on an in fact contingency on "antic ipated" exports as opposed to in law contingency.810  
More specifically, the Panel recalled the Appellate Body 's finding that "satisfaction of the standard for 
determining de facto  export contingency ... requires proof of three different substantive elements: 
first, the 'granting' of a subsidy;  second, is 'tied to';  and third, 'actual or anticipated exportation or 
export earnings'."811  Moreover, the United States argues that  the Panel correctly applied the same 
standard to export contingency in fact and export co ntingency in law, but considered that the former 
may rely on different evidence, as compared to the la tter.  In particular, the Panel found that "in fact" 
contingency must be "inferred from the total conf iguration of facts constituting and surrounding the 
granting of the subsidy, none of which is  likely to be decisive in any given case"812, whereas "in law" 
contingency must be demonstrated primarily on th e basis of "the text of the challenged LA/MSF 
contracts" and "as a matter of law".813  The United States submits that the Panel's approach was 
consistent with Article 3.1(a), which "makes clear that 'in fact' and 'in law' contingency are not 
materially different".814  Moreover, the Panel's approach was also  consistent with the Appellate Body's 
                                                      
807United States' appellee's submission, para. 277. 
808United States' appellee's submission, para. 293. 
809United States' appellee's submission, para. 277. 
810United States' appellee's submission, para. 279 (referring to United States' other appellant's 
submission, paras. 7-24).  
811United States' appellee's submission, para. 280 (quoting Panel Report, para. 7.630, in turn quoting 
Appellate Body Report, Canada – Aircraft , para. 169 (original emphasis omitted)). 
812United States' appellee's submission, para. 280 (quoting Panel Report, para. 7.648, in turn quoting 
Appellate Body Report, Canada – Aircraft , para. 167 (original emphasis omitted)). 
813United States' appellee's submission, para. 280 (quoting Panel Report, para. 7.716).  
814United States' appellee's submission, para. 281.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 146  
 
  finding that "the legal standard expressed by  the word 'contingent' is the same for both de jure  and 
de facto  contingency."
815 
347. With respect to the Panel's interpretation of the term "anticipated exportation", the 
United States submits that the Panel recalled the Appe llate Body's finding that the word "anticipated" 
means "expected".816  The United States maintains that, bu ilding on the findings of the Appellate 
Body, the Panel noted that the ordinary meaning of th e verb "anticipate" is "{t}ake into consideration 
before due time", "{o}bserve ... be fore due time", "look forward to"817, "be aware of (a thing) in 
advance and act accordingly" and "expect, foresee, regard as probable".818  Thus, the Panel found that 
"the term 'anticipated' does not impose a relati onship between the granting of a subsidy and the 
realization  of anticipated export performance, as is imp licit in the European Union's argument that 
'anticipated' exports are 'future' exports."819  According to the United States, the Panel therefore 
correctly concluded that "anticipated" exportatio n "may be understood to be exportation that a 
granting authority considers, expects or foresees will occur after  it has granted a subsidy".820   
348. With regard to the Panel's interpretation of th e terms "contingent on" in Article 3.1(a) and 
"tied to" in footnote 4, the United States recalls th e Panel's finding that "{t}he ordinary meaning of the 
word 'contingent' has been held in previous dispute settlement pr oceedings to be 'conditional' or 
'dependent for its existence on something else'."821  The United States further recalls the Panel's 
finding that "the expression 'tied to' has been interp reted as connoting to 'limit or restrict as to ... 
conditions'."822  Thus, the Panel followed the relevant  jurisprudence and did not "equate" the 
contingency standard with "motivation" in reachi ng these findings.  Furthermore, the Panel concluded 
that "{o}ne way of describing the standard may well be in terms of an 'if-then' relationship"823, as the 
European Communities contended, but cautioned that "it would be wrong to conclude that this means 
                                                      
815United States' appellee's submission, para. 282 (quoting Appellate Body Report, Canada – Aircraft , 
para. 167). (underlining added by the United States omitted) 
816United States' appellee's submission, para. 286 (quoting Panel Report, para. 7.641, in turn quoting 
Appellate Body Report, Canada – Aircraft , para. 172). 
817United States' appellee's submission, para. 286 (quoting Panel Report, para. 7.641, in turn quoting 
The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 88). 
818United States' appellee's submission, para. 286 (quoting  Panel Report, para. 7.641, in turn quoting 
The Concise Oxford Dictionary , 9th edn, D. Thompson (ed.) (Clarendon Press, 1995), p. 53).  The United States 
notes that the European Union also cites several of these same definitions. ( Ibid., para. 286) 
819United States' appellee's submission, para. 286 (referring to Panel Report, para. 7.641). (original 
emphasis) 
820United States' appellee's submission, para. 286 (quoting Panel Report, para. 7.641 (original 
emphasis)). 
821United States' appellee's submission, para. 289 (quoting Panel Report, para. 7.634, in turn referring 
to Panel Report, Canada – Aircraft , para. 9.331;  and Appellate Body Report, Canada – Aircraft , para. 166). 
822United States' appellee's submission, para. 289 (quoting Panel Report, para. 7.634, in turn quoting 
Appellate Body Report, Canada – Aircraft , para. 170). 
823Panel Report, para. 7.640.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 147  
 
  that the contingency standard focuses on a relationship between the realization  of anticipated export 
performance and the granting of a subsidy."
824  The United States submits that, in so doing, the Panel 
properly found that the legal standard for subsid ies contingent on anticipated exportation does not 
require that a subsidy follow as a con sequence of exports being achieved.   
349. The United States maintains that the Panel's inte rpretation of Article 3.1(a) and footnote 4 is 
consistent with relevant findings of  panels and the Appellate Body in prior disputes.  Specifically, in 
Canada – Aircraft , it was export sales " ensuing " from the subsidy rather than the subsidy following as 
a consequence of export sales that supported a finding of export contingency.825  I n  Australia – 
Automotive Leather II , no actual exportation was required under th e grant contract found to constitute 
an export subsidy, and the first payment under th e grant contract was made before any of the 
anticipated export performance had occurred.826  The United States submits that, in those cases, the 
panels' finding of "contingency on anticipated  exports was not, as the {European Communities} 
asserted before the Panel, that the ' consequence  required by Article 3.1(a) and footnote 4 (grant of a 
subsidy) was demonstrated'"827, "but that the grant contract was tied to 'anticipated' export 
performance in a broader, more literal sense of that term."828 
350. Finally, the United States submits that it agr ees with the European Union that "the Panel 
imposed an unsupported and subjective additional requirement  of 'subjective motivation'", but 
disagrees with the European Union that evidence of "motivation" or "intent" cannot be a relevant 
factor in a panel's analysis of the total configuration of the facts.829  In the United States' view, "the 
motivation or intent behind a measure may well be probative evidence of its export contingency, but 
is not in and of itself an additional requirement be yond the three export subsidy criteria—granting of a 
subsidy, that is tied to, actual or anticipated exportation."830   
                                                      
824United States' appellee's submission, para. 291 (quoting Panel Report, para. 7.640 (original 
emphasis)). 
825United States' appellee's submission, para. 295 (referring to Panel Report, Canada – Aircraft , 
para. 9.339 (original emphasis)). 
826United States' appellee's submission, para. 296 (referring to Panel Report, Australia – Automotive 
Leather II , para. 9.67). 
827United States' appellee's submission, para. 296 (quoting European Communities' first written 
submission to the Panel, para. 669). (emphasis added by the United States) 
828United States' appellee's submission, para. 296. 
829United States' appellee's submission, paras. 304 and 305 (referring to the European Union's 
appellant's submission, paras. 1353-1355 and 1371). (original emphasis) 
830United States' appellee's submission, para. 305. WT/DS316/AB/R BCI deleted, as indicated [***] 
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  (iii) Other alleged legal errors in the Panel's legal interpretation  
351. The United States further submits that the remaining legal errors alleged by the 
European Union in its first set of grounds of app eal are unfounded.  First, the United States contends 
that the Panel did not err in reviewing the "in f act" claim first, because the United States' claim was 
"principally a claim of de facto  contingency".
831  In any event, the Panel's approach "in no way 
affected the outcome of its analysis" because, as the European Union also acknowledges, "there is a 
single standard for 'in fact' and 'in law' contingency."832  Therefore, that "{i}t is ... entirely logical for a 
panel to begin its analysis with a party's claims of contingency 'in fact', if that party itself has 
indicated that it believes the evidence to be  primarily supportive of such a claim."833  Furthermore, the 
United States argues that the Panel did not find, on  the basis of the same evidence, that certain 
subsidies were contingent in fact on export performance, but not contingent in law on export 
performance.  Instead, the Panel "simpl y found that certain legal documents alone  were not sufficient 
to establish contingency 'in law', whereas tho se documents in combination with additional 
surrounding facts  were  sufficient for a finding of contingency 'in fact'."834   
352. Third, the United States maintains that the Pa nel's findings did not "discriminate" against 
certain types of subsidies or small economies.  Spec ifically, the Panel did not find that a normal loan 
repayable on a monthly or quarterly basis would be export contingent, but found that a loan to be 
repaid through sales that cannot be achieved wit hout exportation was export contingent.  Under the 
Panel's finding, therefore, "{t}he subsidizing Member  can structure the subsidy in different ways, and 
only if it does so in a way that 'ties' it to the 'an ticipated exports' is a finding of 'export contingency' 
justified."835  Similarly, the Panel did not find that an ticipated exportation, which may arise more 
easily in a small economy, would alone be sufficien t to establish export contingency, but found that 
the requirement to show a "tied to " relationship must be satisfied. 
353. Fourth, the United States asserts that the Panel's findings did not render the second sentence 
of footnote 4 ineffective.  Rather, the Pane l "followed the Appellate Body's guidance in Canada – 
Aircraft  that ... 'the export orientation of a recipien t may be taken into account as a relevant fact, 
provided that it is one of several facts which are considered and is not the only fact supporting a 
finding'".836  Thus, the Panel appropriately considered th e export orientation of Airbus, but based its 
                                                      
831United States' appellee's submission, para. 300 (quoting Panel Report, para. 7.628). 
832United States' appellee's submission, para. 301. 
833United States' appellee's submission, para. 301. 
834United States' appellee's submission, para. 302. (original emphasis) 
835United States' appellee's submission, para. 308. 
836United States' appellee's submission, para. 306 (quoting Appellate Body Report, Canada – Aircraft , 
para. 173).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 149  
 
  ultimate findings of export contingency on a range of factors, "the most important of which were the 
sales-based repayment structure of LA/MSF and the exchange of commitments between Airbus and 
the Airbus governments."
837   
354. Finally, the United States submits that the Pa nel did not impute to the European Communities 
arguments it did not make.  The United States highli ghts the European Communities' argument before 
the Panel that "none of the provisions that the United States relie{d} upon as evidence of a 
commitment to export oblige Airbus to make any sales at all, let alone export sales."838  Thus, as the 
Panel rightly found, the European Communities er roneously argued that th e absence of a legal 
condition requiring the company to export is dispos itive as to the lack of export contingency.  
Similarly, the Panel did not err in finding that the European Communities argued that "an inconsistency only arises when an export 'is re alised'", because this is "precisely what the 
European Union does argue when it a sserts that only current or future actual  exports can give rise to 
the anticipation that serves as the basis for a 'tie' that establishes export contingency."
839 
(b) The second set of grounds of appeal:  Alleged legal errors in the 
Panel's application of the standard set out by the Panel 
355. With regard to the European Union's second set of grounds of appeal, the United States 
maintains that the Panel "did not err in its applicati on of the legal standard to the facts, other than to 
impose on the United States the additional requirement of 'subjective motivation' for demonstrating 
'in fact" contingency".840  Moreover, the United States submits that the Panel "performed a thorough 
and complete assessment of the facts and carefully ap plied each of the elements of the legal standard", 
and did not act inconsistently with Article 11 of the DSU when finding that the German, Spanish, and 
UK A380 LA/MSF constituted subsidies con tingent in fact upon export performance.841 
(i) The 1992 Agreement 
356. The United States argues that, contrary to the European Union's assertion, the Panel was not 
required to take into account the 1992 Agreemen t in examining the United States' claims on de facto  
export contingency.  Rather, the Pa nel properly rejected the European Communities' argument that the 
United States "acquiesced" to the LA/MSF subsidies.842  Moreover, according to the United States, the 
Panel rightly noted that "the 1992 Agreement, by its own terms, was 'without prejudice to the rights 
                                                      
837United States' appellee's submission, para. 306. 
838United States' appellee's submission, para. 303 (quoting Panel Report, para. 7.591).  
839United States' appellee's submission, para. 303. (original emphasis) 
840United States' appellee's submission, para. 310. (original emphasis) 
841United States' appellee's submission, para. 310.  
842United States' appellee's submission, para. 337 (referring to Panel Report, paras. 7.99 and 7.100). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 150  
 
  and obligations of the parties under the GATT and any agreement negotiated under its auspices'."
843  
The United States adds that the European Uni on's argument "would have required the Panel to 
determine the consistency of LA/MSF with the te rms of an agreement that is not a 'covered 
Agreement' which ... {was} simply not within the competence of the Panel."844 
(ii) The alleged internal conflicts in the Panel's findings 
357. The United States argues that, contrary to the Eu ropean Union's assertion, the Panel's findings 
regarding export contingency do not  contradict its findings on the existence of benefit and adverse 
effects.  The United States recalls the Panel's fi nding, in the context of its findings on benefit and 
adverse effects, that loans granted under th e LA/MSF contracts are unsecured and depend on the 
success of the financed projects,  because repayment is sales-depende nt and the governments have no 
recourse to Airbus' assets if the company fails to repay.  In the context of its findings on export 
contingency, the Panel referred to the contract ual warranties concerning the accuracy of sales 
forecasts and other representation that reinforced th e contractual tie between the provision of LA/MSF 
contracts and anticipated exports.  Thus, the United States contends that "there is no basis for the 
{European Union's} argument that the Panel's 'sta tement{s} in its assessment of {LA/MSF} are in 
direct conflict with its subsequent statemen ts in its assessment of export contingency'."845 
358. The United States further submits that the only inconsistency in the Panel's findings exist 
between its finding that all of the seven LA/MSF me asures are at least in part contingent upon 
anticipated exportation, and its subsequent findin g that only the German, Spanish, and UK LA/MSF 
contracts were contingent upon anticipated exportati on.  According to the United States, the Panel's 
finding that the sales-dependent repayment terms showed that the LA/MSF measures were "at least in 
part" conditional on anticipated expor tation "was sufficient to determine" that all seven measures were 
export-contingent.846  The United States submits that this in consistency, which the European Union 
fails to point out, is discussed in deta il in its other appellant's submission.  
                                                      
843United States' appellee's submission, para. 337 (quoting Panel Report, para. 7.95). 
844United States' appellee's submission, para. 337. 
845United States' appellee's submission, para. 331 (quoting European Union's appellant's submission, 
para. 1382). 
846United States' appellee's submission, para. 334.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 151  
 
  (iii) Whether the sales-dependent re payment provisions support a 
finding of export contingency 
359. According to the United States, the Panel pr operly found that the use of royalty-based 
financing in the seven LA/MSF contracts at issue,  as well as the exchange of commitments between 
the governments and Airbus pursuant to these contra cts, demonstrated that the provision of LA/MSF 
was "at least in part, 'conditional' or 'dep endent for its existence'" upon exportation.
847  T h e  
United States contends that the Panel correctly found that the two legitimate commercial reasons 
alleged by the European Communities did not explain why the LA/MSF governments required each 
of the challenged LA/MSF loans to be repaid wi th revenue generated from aircraft sales.  The 
United States recalls that the two alleged legitimate commercial reasons are:  aircraft deliveries are the 
most reliable indication that sufficient cash-flow w ill be on hand to make repayment;  and sales-based 
repayment reflects the allocation of risk that Ai rbus and the member State governments agreed to 
accept.  According to the United States, the Pane l properly found that the European Communities 
failed to substantiate its claim that the alleged co mmercial reasons explain why Airbus is required to 
repay the loans through revenues generated from LCA sales. 
360. Moreover, the United States submits that, as th e Panel correctly found, an exchange of 
commitments exist under all seven LA/MSF contract s because, "under each of the seven LA/MSF 
contracts at issue, Airbus was required to repay the loaned princi pal plus any interest from the 
proceeds of the sale of a specified number of LCA  developed with the financing provided ."848  
Moreover, the Panel properly found that "achieving the level of sales needed to fully repay each loan 
would require Airbus to make a substantial nu mber of exports" and that, consequently, the 
governments "must have held a high degree of certainty that the provision of LA/MSF would result in Airbus making those export sales".
849  On this basis, the United States submits, the Panel properly 
found that "the provision of {LA/MSF} on sales-depe ndent repayment terms was, at least in part, 
'conditional' or 'dependent for its existence' upon the EC member States' anticipated exportation or 
export earnings."850 
                                                      
847United States' appellee's submission, para. 314 (quoting Panel Report, para. 7.678). 
848United States' appellee's submission, para. 314 (quoting Panel Report, para. 7.678 (original 
emphasis)).  
849United States' appellee's submission, para. 313 (quoting Panel Report, para. 7.678).  
850United States' appellee's submission, para. 314 (quoting Panel Report, para. 7.678). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 152  
 
  361. Finally, the United States submits that it agre es with the European Union's argument that "a 
subsidy is either export contingent or it is not."
851  In the United States' view, "it is well established 
that even partial export contingency (that is, wher e exports or anticipated exports are only one among 
several conditions) constitutes export contingenc y within the meaning of Article 3.1(a)."852  Thus, the 
Panel's finding that each of the seven measures ch allenged is "at least in part" contingent or 
"dependent for its existence" on anticipated exports  is sufficient for a finding of contingency under 
Article 3.1(a)", and "{t}he Panel s hould have ended its analysis there."853 
(iv) Whether the "additional evidence" examined by the Panel 
did not support a finding of export contingency 
362. The United States notes that, in addition to the sales-dependent repayment provisions, the 
Panel also examined certain additional evidence to corroborate the existence of export contingency.  
The United States recalls that, as it argues in its ot her appeal, in examining the additional evidence, 
the Panel erroneously applied a standard that would require evidence of the relevant LA/MSF 
governments' subjective motivation in order to find  that the LA/MSF contracts at issue constituted 
export subsidies.  The United States submits, however, that, although evidence concerning a 
government's subjective motivation should not be required for a finding of export contingency, it 
could be taken into account as part of the total conf iguration of facts surrounding the granting of the 
subsidy.   
363. The United States maintains that, contrary to the European Union's argument, the Panel did 
not err in finding that the additional evidence co rroborated the finding of export contingency with 
respect to the German, Spanish, and UK LA/MSF contracts and that, in so finding, the Panel 
conducted an objective assessment of the facts, cons istently with Article 11 of the DSU.  As a 
preliminary matter, the United States notes that the European Union's arguments under Article 11 of 
the DSU appear to focus on the Panel's treatment of the additional evidence relating to the LA/MSF 
governments' motivation in providing the subsidies at  issue.  Thus, should the Appellate Body agree 
with the United States that no additional evidence concerning motivation is required in order to 
establish export contingency, the Appellate Body n eed not examine the European Union's arguments 
under Article 11 of the DSU.   
                                                      
851United States' appellee's submission, para. 316 (referring to European Union's appellant's 
submission, para. 1393). 
852United States' appellee's submission, para. 316 (referring to Article 3.1(a) of the SCM Agreement ;  
and Appellate Body Report, Canada – Aircraft , para. 166). 
853United States' appellee's submission, para. 316 (referring to Article 3.1(a) of the SCM Agreement ;  
and Appellate Body Report, Canada – Aircraft , para. 166).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 153  
 
  364. The United States argues that the Panel perfo rmed an objective assessment of the matter 
before it, including the facts, by taking into acc ount all evidence and arguments, carefully reviewing 
the evidence, and drawing its conclusion upon the review.  According to the United States, the 
European Union pointed to no evidence that would ju stify a finding that the Panel failed to conduct an 
objective assessment of the matter before it.  Noti ng the Appellate Body's finding that a claim under 
Article 11 constitutes "a very serious allegation "
854 and requires a demonstration of "egregious 
error"855, the United States maintains that the European  Union's claim under Article 11 does not meet 
the standard.  
365. Moreover, the United States argues, the Pane l "reviewed in detail the numerous facts it 
considered relevant", and its "k ey findings provide clear reasoning and explanation of the specific 
facts on which they are based and are fully consis tent with the legal standard that the Panel 
articulated."856  In addition, the United States maintains that "the European Union's approach of 
segregating the individual elements of fact on which the Panel relied is at odds with the requirement 
for the Panel to base its findings  of export contingency on the total configuration of the facts."857  
Finally, the United States submits that, even if the Appellate Body were to review the 
European Union's arguments concerning each of th e individual elements, the Appellate Body would 
find that none of the arguments is supported by evid ence.  For example, the European Union provides 
no evidence for its argument that a document refe renced in the preamble of the German LA/MSF 
contract was authored by Airbus.  In any event, according to the United Stat es, the European Union's 
argument is irrelevant because th e Panel relied, not on this partic ular document, but on a specific 
provision in the German LA/MSF contract that refers to this documen t and demonstrates the 
government's reliance on it. 
(c) The third set of grounds of appeal:  Alleged legal errors in the Panel's 
application of the correct legal standard of contingency 
366. The United States notes that, in its third set of  grounds of appeal, the European Union again 
claims that the Panel acted inconsistently with Ar ticle 11 of the DSU.  The United States submits that 
the European Union's claims and arguments in th is respect are addressed in the context of the 
European Union's second set of grounds of appeal.  In addition, the United States maintains that the 
                                                      
854United States' appellee's submission, para. 322 (quoting Appellate Body Report, US – Zeroing (EC) , 
para. 253, in turn quoting Appellate Body Report, EC – Poultry , para. 133). (emphasis added by the 
United States) 
855United States' appellee's submission, para. 322 (quoting Appellate Body Report, US – Wheat Gluten , 
para. 186;  and Appellate Body Report, Japan – Apples , para. 224). 
856United States' appellee's submission, para. 323. 
857United States' appellee's submission, para. 325. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 154  
 
  European Union failed to demonstrate that the Pane l acted inconsistently with Article 12.7 of the 
DSU.  Specifically, the Panel set out the basic rati onale behind its findings and, contrary to the 
European Union's assertion, was not required to e xplain the specific reasoning with respect to its 
assessment of each individual piece of factual eviden ce.  Finally, the European Union failed to explain 
how the Panel's findings would have resulted in a failure to meet the requirement of Article 7.2 to 
"address the relevant provisions in  any covered agreement or agreements cited by the parties".
858 
(d) The fourth set of grounds of app eal:  Further alleged legal errors 
367. With respect to the European Union's fourth set of grounds of appeal, the United States 
submits that none of the European Union's allegations of errors by the Panel has any merit.  First, the 
United Sates argues the Panel did not accept an untimely submission by the United States when 
considering the United States' argument in its second written submission that the LA/MSF contracts 
involved an "exchange of commitments".  Rather, the Panel properly found that the United States was 
entitled to expand and explain certain arguments by discussing various aspects of the evidence already 
submitted in its first written submission.  Second, the United States contends that there is no basis for 
the European Union's argument that the Panel ma de the case for the United States by adopting a 
"dependent motivation" standard.  On the contra ry, the Panel's application of a motivation-based 
standard led to its rejection of the United States'  claim that four of the LA/MSF contracts constituted 
export subsidies.   
368. Third, the United States maintains that the Eur opean Union's argument that the Panel equated 
performance with export performance is untrue and, in  any event, is a restatement of one of the 
fundamental issues addressed by the Panel, namely  whether the LA/MSF contracts were contingent 
upon export performance.  Fourth, the United States argues that the Panel di d not equate financial 
contribution with subsidy, because the Panel considered both benef it and financial contribution in 
reaching its conclusion that the LA/MSF contracts at  issue were subsidies within the meaning of 
Article 1.1 of the SCM Agreement .  In the United States' view, "the European Union argument ... that 
export contingency has to relate specifically to the 'decision to fix the terms of the {LA/}MSF 
measures at below market rate' equates 'benefit' with 'subsidy'".859  Finally, the United States contends 
that the European Union failed to provide any expl anation as to how the use of the terms "export" or 
"Europe" impacted the Panel's consideration and that , in any event, a panel is under no obligation to 
address every argument of a party. 
                                                      
858United States' appellee's submission, para. 340. 
859United States' appellee's submission, para. 348 (quoting European Union's appellant's submission, 
para. 1488).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 155  
 
  369. On this basis, the United States requests the A ppellate Body to reject the European Union's 
appeal that the Panel erred in finding that the German, Spanish, and UK LA/MSF measures for the 
A380 were contingent in fact upon export performance.  
7. The EC Framework Programmes
 
370. The United States rejects the European Union's contention that, because support to Airbus is 
organized under the EC Framework Programmes, the anal ysis of specificity must occur at that level.  
According to the United States, "{t}he European Union observes that a large number of industry 
sectors receive funding under each Framework, and argu es that this variety is dispositive evidence of 
non-specificity, even though individual disbursemen t categories applicable to aerospace set tight 
limitations on eligibility."860  The United States argues that, under such an approach, "the bureaucratic 
organization of subsidy programs, rather than th e substance of how they limit funding, dictates 
whether they are specific", and "{n}othing in the SCM Agreement supports such a formalistic 
analysis."861   
371. The United States considers that the te rm "subsidy" in Article 2 of the SCM Agreement  is a 
"flexible term" that can mean either "individual act s of granting subsidies within a broader subsidy 
program" or "multiple grants of the same type of subsidy".862  The United States contends that there is 
"no textual support" for the European Union's argument that the specificity analysis under 
Article 2.1(a) "should start with whatever 'progr am' generated the subsidy and examine the program 
as a whole".863  Unlike other provisions of the SCM Agreement , Article 2.1(a) does not mention the 
word "programme".864  The European Union's th eory "leads it to a specificity analysis in which the 
bureaucratic organization of subsidization dictates th e results, to the exclusion of the actual limitations 
on access to funds".  The United States also notes that  the theory indicates that, "if a funding system 
embraces a large enough number of targeted subsid ies, none is specific b ecause they collectively 
benefit a multitude of enterprises."865 
                                                      
860United States' appellee's submission, para. 446.  
861United States' appellee's submission, para. 446.  
862United States' appellee's submission, para. 448.  
863United States' appellee's submission, para. 450.   
864United States' appellee's submission, para. 450.  The Un ited States also states that there is no reason 
to conclude that the criteria for de facto specificity concerning a subsidy "programme" under Article 2.1(c) 
"would inform the meaning of the criteria for de jure  specificity under Article 2.1(a)". ( Ibid., para. 452)   
865United States' appellee's submission, para. 450.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 156  
 
  372. The United States also disagrees with the Eu ropean Union's argument that focussing the 
specificity analysis on individual acts of granting subsidies "would reduce the specificity requirement 
to a nullity".
866  The Panel's approach examines the cond itions imposed on access to pools of money, 
such that if the pool funds multiple subsidy grants, the Panel's analysis would not apply to individual 
grants.  The United States also addresses the Eur opean Union's argument that the Panel's standard 
would prevent Members from ensuring an even distribution of funds among multiple sectors by 
targeting funds to particular sectors.  The Unite d States considers that "{t}he notion that targeted 
subsidies lessen specificity does not comport well with  the definitions of 'specific' in Article 2.1."867  
Moreover, the United States maintains that the facts do not support, and the Panel findings contradict, 
the European Union's contention that "the Framework Programmes were non-specific because 
companies in all sectors, including the aerospace sector, faced the same situation of access to sector-
specific funds but exclusion from other funds."868 
373. Furthermore, the United States addresses the Eu ropean Union's argument that the Panel's 
analysis penalizes Members who target funds to particular sectors to avoid triggering de facto  
specificity under Article 2.1(c) of the SCM Agreement , or who are transparent about the 
administration of subsidies.  First, the United States recalls that targeted subsidies that are specific are 
subject to SCM Agreement  disciplines.  Moreover, nothing in the Panel's reasoning prevents other 
methods to ensure even distribution of subsidies, such as caps on the amount that any one applicant or 
any one sector could access.  Second, the United St ates maintains that the Panel's analysis only 
penalizes Members with transparent subsidy pr ogrammes if the criteria are specific.  The 
United States posits that, "{i}f a Member maintains a program that ensures impartial, general access, 
such as by allowing a large number of sectors acc ess to a unitary fund based on the merit of the 
research project as evaluated by neutral panels of scientists, transparency can only help to establish 
non-specificity."869 
374. For these reasons, the United States requests the A ppellate Body to uphold the Panel's finding 
that "subsidies to Airbus under the Second throu gh Sixth EC Framework Progr ammes are specific to 
aerospace enterprises" within the meaning of Article 2.1(a) of the SCM Agreement . 
                                                      
866United States' appellee's submission, para. 451.   
867United States' appellee's submission, para. 451.    
868United States' appellee's submission, para. 457.    
869United States' appellee's submission, para. 455.     BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 157  
 
  8. Infrastructure Measures
 
(a) Financial contribution 
375. The United States submits that there is no s upport for the European Union's argument that 
creation of infrastructure is excluded from the SCM Agreement , and requests the Appellate Body to 
uphold the Panel's reasoning, "which ensures a proper an alysis by using all of the available evidence 
to understand exactly what the government provided, and to whom it was provided".870 
376. According to the United States, the Panel recognized that member State and local 
governments provided subsidies in the form of several infrastructure projects designed specifically for Airbus and made them available to Airbus for less remuneration than a market-based supplier would 
have charged.  The United States observes that the Panel concluded in each case that "the authorities 
built the infrastructure specifically to address the needs of one company (Airbus) or group of 
companies (the aerospace industry)", and that "sp ecific limitations existed on the use of and access to 
the infrastructure, either de facto  (e.g., no possibility to access excep t from Airbus-owned land) or 
de jure ".
871  Specifically, the United States asserts that, in evaluating whether the Mühlenberger Loch 
project, the Bremen runway extension, and the Aéroc onstellation site were gene ral infrastructure, "the 
Panel focused on exactly what the relevant govern ments provided, and to whom", and complied fully 
with the requirements of the SCM Agreement .872 
377. The United States disagrees with the European Union's argument that the Panel failed to 
distinguish the "provision of infrastructure", which is covered by the SCM Agreement , from the 
"creation of infrastructure", which is "carved out" of the Agreement.  The United States argues that 
the use of the term "provides" in  the present tense in Article 1.1(a)(1)(iii) does not signify that "any 
pre-provision activity—such as 'creation' of infrast ructure—is outside the scope of the Agreement."873  
The United States submits that th e European Union's unsupported gene ralizations about the "type of 
actions which qualify as 'financial contributions'", an d its assertion that negotiators carved creation of 
infrastructure out of the SCM Agreement , are insufficient to bolster th e European Union's claims.  
378. The United States argues that the meaning of the word "provides" should be properly applied 
to the facts in this dispute.  The United States not es that several dictionary definitions "confirm that 
the act of 'providing' a thing includes 'making availa ble', 'equipping', 'preparing' and, therefore, can 
                                                      
870United States' appellee's submission, para. 368.   
871United States' appellee's submission, para. 351 (referring to, inter alia , Panel Report, para. 7.1043). 
872United States' appellee's submission, para. 356.  
873United States' appellee's submission, para. 358.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 158  
 
  involve or coincide with the act of 'creating' that thing."
874  This is especially the case, the 
United States contends, when the totality of the fact s demonstrate that the creation of the thing and its 
subsequent delivery to someone else are, as a fact ual matter, two interrelate d parts of one and the 
same activity.  The United States further submits that  the use of the present tense of "provides" does 
not indicate that "actions taken by the government prior  to the provision of the good or service in 
question are not relevant for the notion of 'fin ancial contribution' in Article 1.1(a)(1)(iii)."875  
According to the United States, events preceding the actual act of delivering a subsidy are often 
critical to understanding the subsidy;   the totality of the facts may indicate that an assessment of the 
measure as a whole should take into account the broader set of circumstances. 
379. The United States also considers it significant that  neither Article 1.1 nor any other provision 
of the SCM Agreement  refers to the "creation" of infrastruct ure.  If the negotiators had wanted to 
completely exclude the creation of infrastructure from the SCM Agreement , they would have done so 
explicitly.  The United States submits that the cont ext of Article 1.1(a)(1)(iii) supports the Panel's 
interpretation in two ways.  First, the other subpara graphs of Article 1.1(a)(1) use more specific and 
narrow terms than "to provide", which is used in Article 1.1(a)(1)(iii);  if the drafters of the 
Agreement had intended that only the actual "transfe r" of goods or services be covered, they could 
have used that term, as they did in Article 1.1(a)(1)(i).  Second, the United States points to the lack of 
examples in Article 1.1(a)(1)(iii), which suggests th e need for "a careful analysis of the total 
configuration of the facts", as performed by the Panel.876   
380. The United States submits that the European Union takes "an overly narrow view of the 
government-recipient economic relationship".877  The United States argues that, while the provision of 
infrastructure may become final upon the "act of provi sion", that does not mean that the "transfer" or 
"provision" is limited to that point in time.  In respect of the Mühlenberger Loch project, the Bremen 
runway extension, and the Aéroconstellation site , the government did not merely provide a piece of 
land or an undifferentiated landing right;  rather, the Panel determined that the government action 
included designing and building the infrastructure for th e recipient.  The United States also claims that 
the European Union speculates on the economic, so cial, and cultural development reasons WTO 
Members would have had for carving out the creation of infrastructure from the SCM Agreement  
without citing any negotiating history or text.  The Un ited States explains that other, more plausible, 
                                                      
874United States' appellee's submission, para. 359 (referring to, inter alia , The New Shorter Oxford 
English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 2, p. 2393).  
875United States' appellee's submission, para. 361 (quoting European Union's appellant's submission, 
para. 1031 (original emphasis)). 
876United States' appellee's submission, para. 364. 
877United States' appellee's submission, para. 366.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 159  
 
  intentions could be ascribed to the WTO Members, namely that they intended to include all of the 
steps of providing a particular piece of infr astructure within the analysis under the SCM Agreement .   
381. The United States rejects the European Union's th eory that the "creation" and "provision" of 
infrastructure are two distinct actions for purposes of analyzing whether a provision of goods is a financial contribution under the SCM Agreement .  The United States asserts that the European Union 
"simply assumes that the facts comport with its th eoretical construct", and accuses the Panel of failing 
to distinguish between the "creation" and "provision" of the infrastructure.
878  A careful review of the 
Panel's factual findings reveals that "the creation of  infrastructure was not distinct from its provision 
in Hamburg, Bremen, and Toulouse as a matter of fact ."879  
382. With respect to the Mühlenberger Loch site, the United States asserts that the Panel began 
with a careful review of the facts pertaining to that transaction, first considering whether it was 
possible to review the creation of the land (that is, the turning of wetland into usable land) separately 
from the lease to Airbus of the land and facilitie s (that is, the Mühlenberger Loch site).  The 
United States supports the Panel's finding that the lease of the land and sp ecial purpose facilities to 
Airbus cannot be separated from the creation of th e land (including the flood protection measures and 
the building of the special purpo se facilities), "because it was necessary to create the land in the first 
place in order to allow the remainder of the project , including the building and subsequent lease of the 
special purpose facilities, to be undertaken."880  The United States also points to the Panel's findings 
that "the land reclamation in question was undertak en in order to make possible the expansion of 
Airbus' existing facilities, and not for any independen t purpose" and that "the project was undertaken 
exclusively for Airbus."881  In the United States' view, "the government of Hamburg sought to help 
Airbus by creating new land in Mühlenberger Loch ";  "if not for the objective of giving land to 
Airbus, the land would not exist."882  The United States concludes that "creation" and "provision" 
cannot be viewed separately, because they are one and the same. 
383. The United States submits that similar considerations emerge from the Panel's findings with 
respect to the extension of the main runway at the Bremen airport.  The United States supports the 
Panel's finding that "the extension of the runway at  Bremen airport, and the associated noise reduction 
measures, were undertaken by the Bremen city au thorities specifically for Airbus' needs", and notes 
the Panel's reference to statements in the Bremen Parliament indicating that the runway extension was 
                                                      
878United States' appellee's submission, para. 369.   
879United States' appellee's submission, para. 370. (original emphasis)   
880United States' appellee's submission, para. 373 (quoting Panel Report, para. 7.1077).   
881United States' appellee's submission, paras. 373 and 374 (quoting Panel Report, paras. 7.1078 
and 7.1084).  
882United States' appellee's submission, para. 374.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 160  
 
  intended for Airbus' use.
883  Having found that the runway extension was undertaken to fulfil Airbus' 
specific needs, and that use of the extended runway is de jure  limited to Airbus for the purpose of 
transporting aircraft wings, the Panel concluded that the entire project (including the runway 
extension, the associated noise reduction measures, and the right of exclusive use) constitutes a 
financial contribution to Airbus within th e meaning of Article 1.1(a)(1)(iii) of the SCM Agreement .  
The United States argues that these f acts indicate that there is no difference between the creation and 
provision of this infrastructure.  According to the United States, the runway extension would not have 
occurred without the objective of transferring it to  Airbus, since it was "conceived, planned, and 
executed as part of a single package".884 
384. Regarding the Aéroconstellation site, the Unite d States quotes the Panel at length, noting the 
Panel's findings that "it is clear" that the de velopment of the Aéroconstellation site and the 
construction of the EIG facilities "was undertaken speci fically to enable Airbus to situate an A380 
final assembly line in an advantageous location, in France".885  The site was from the outset uniquely 
adapted to Airbus' needs, from its situation next to  and connected to the Toulouse-Blagnac airport, to 
the highly specific EIG facilities.  The United States argues that the Aéroconstellation site, similar to 
the Mühlenberger Loch and Bremen runway extensi on, indicates that the "project conception, project 
planning, and execution {are} all directed at provision of a specialized site to Airbus".886  According 
to the United States, identifying some of these step s as "creation" of the site and others as its 
"provision" would be "an artificial exercise with no grounding in the SCM Agreement or in reality".887  
Therefore, the United States concludes, even if the A ppellate Body were to find that, in principle, the 
creation of infrastructure and its provision coul d be different, the tailor-made, user-specific 
infrastructure in this dispute is not such a case. 
385. Finally, the United States submits that the Panel did not ignore the European Communities' 
arguments regarding the creation of infrastructure.  The United States observes that the Panel referred 
to the European Communities' "two-step approach" argument888 whereby, first, the government may 
build general infrastructure, and second, a government  may limit the use of that general infrastructure 
to certain companies.  The United States notes that  the Panel rejected that argument because it was 
"not convinced" that a distinction must be draw n between the creation of the infrastructure and 
subsequent limitations on its use or access.  The United States also supports the Panel's conclusion 
                                                      
883United States' appellee's submission, paras. 375 and 376 (quoting Panel Report, para. 7.1116).  
884United States' appellee's submission, para. 376.   
885United States' appellee's submission, para. 377 (quoting Panel Report, para. 7.1177).   
886United States' appellee's submission, para. 377.   
887United States' appellee's submission, para. 377.   
888United States' appellee's submission, para. 379 (refe rring to Panel Report, paras. 7.1042 and 7.1043).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 161  
 
  that, if it were to accept the European Communities' "two-step approach", this would imply that the 
general nature of some infrastructure is inherent  and that circumstances surrounding the provision of 
that infrastructure do not change its general nature .  The United States notes that the Panel considered 
that, "if an evaluation of the circumstances surroundi ng the creation of the infrastructure demonstrates 
that it was provided to a single entity or a limited group of entities, this supports the conclusion that the infrastructure created is not  properly considered general."
889  
(b) Benefit 
386. The United States notes that, having found that the provision of the Mühlenberger Loch 
project, the Bremen runway extension, and the Aé roconstellation site were the relevant financial 
contributions, the Panel "based the benefit analysis on how much a market investor would charge to 
provide comparable infrastructure."890  In each case, the United States contends, "the government 
made substantial upfront investments to create infrastructure tailor-made for Airbus which the 
company would otherwise have had to create itsel f or rely on commercial project developers to 
create."891  The United States claims that, taking into ac count these facts, as well as the legal standard 
set out in Article 1.1(b) of the SCM Agreement , the European Union's clai m that the Panel adopted 
what amounts to a "return-to-government" or "cost-to-government" standard fails. 
387. The United States argues that, contrary to the Eu ropean Union's claim, the Panel did not apply 
a "cost-to-government" standard.  Th e United States refers to the Panel's statement that "a benefit will 
be conferred whenever a fina ncial contribution is granted to a recipient  on terms more favourable than 
those available to the recipient  in the market."892  The Panel therefore used the cost of the initial 
infrastructure development "not because that was how  much the subsidy cost the government, but as a 
factual  element indicative of the return that a commercial investor would have demanded."893  The 
United States submits that the Pa nel's approach was not a "cost-to-government" approach;  instead, 
the Panel "simply ask{ed} what 'price' a comme rcial real estate developer, under the same 
circumstances would have demanded to provide a tailo r-made site, a runway extension, or facilities 
exclusively for a certain company or companies."894  The United States adds that the best proxy for 
that market price is what a commercial investor wo uld have sought as a return on that investment, 
namely recovery of its cost plus a certain profit.  The United States thus considers that the "cost" to 
                                                      
889United States' appellee's submission, para. 380 (quoting Panel Report, para. 7.1043). 
890United States appellee's submission, para. 381.  
891United States appellee's submission, para. 381.   
892United States' appellee's submission, para. 382 ( quoting Panel Report, para. 7.1091). (emphasis 
added by the United States) 
893United States' appellee's submission, para. 382. (original emphasis)  
894United States' appellee's submission, para. 383.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 162  
 
  the government of developing the infrastructure involved "was a factor  in determining whether Airbus 
would have had to pay more on the market to receive the same thing it actually received from the 
governments.  It was not itself the standard  against which the Panel determined the existence of a 
benefit."
895 
388. The United States submits that Article 14(d) of the SCM Agreement  supports the Panel's 
approach.  By directing the benefit inquiry at "w hether a market actor would have provided the good 
or service to the recipient at the time, on the sa me terms and conditions as the government provision 
at issue", the Panel evaluated the adequacy of the remuneration paid by Airbus.896  On that basis, in 
addressing the Mühlenberger Loch project, the Panel concluded that "a market actor who invested 
{€}750 million in land, whether by purchasing it or  by creating it through reclamation, would, in 
renting the property, seek a return on that investment."897  The United States maintains that the Panel 
followed a similar approach for the Bremen r unway extension and the Aéroconstellation site. 
389. The United States claims that th e European Union does not disput e the accuracy of the Panel's 
findings regarding the government's costs, or that a private investor would spend that sum of money only if it could obtain a commercial return.  Instead , the European Union contends that these figures 
are "pointless", because Article 14(d) of the SCM Agreement  "guides towards assessing any 'benefit' 
based on market value and price, rather than any return earned".
898  This, the United States argues, is 
not what Article 14(d) does.  Rather, it frames th e benefit analysis in terms of "adequacy of 
remuneration" based on "prevailing market conditi ons", including a number of factors.  The 
United States argues that the Panel followed the appro ach laid out in Article 14(d) "by considering the 
price the authorities paid for creating the infrast ructure in question, based on prevailing market 
conditions".899 
390. The United States also contends that the Eur opean Union's claims based on the panel and 
Appellate Body reports in Canada – Aircraft fail.  The United States argues that, in Canada – 
Aircraft , the Appellate Body found that "the word 'ben efit', as used in Article 1.1(b), implies some 
kind of comparison", and that "there can be no 'benefit' to the recipi ent unless the 'financial 
contribution' makes the recipient 'better off' than it would otherwise have been."900  The United States 
                                                      
895United States' appellee's submission, para. 383. (original emphasis)   
896United States' appellee's submission, para. 384 (quoting Panel Report, para. 7.1091).  
897United States' appellee's submission, para. 384 (quoting Panel Report, para. 7.1094). 
898United States' appellee's submission, para. 385 (quoting European Union's appellant's submission, 
paras. 1037 and 1067). 
899United States' appellee's submission, para. 385.  
900United States' appellee's submission, para. 386 (quoting Appellate Body Report, Canada – Aircraft , 
para. 157).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 163  
 
  also notes the Appellate Body's statement that, for that determination, "the marketplace provides an 
appropriate basis for comparison."
901  The United States argues that, although the European Union 
insists the marketplaces in question ar e for the rental of industrial property in Hamburg, the usage of 
runways in Bremen, and the purchase of industrial pr operty in the Toulouse region, "in none of these 
cases did Airbus receive the item the {European Uni on} seeks to value in the marketplace in which 
the {European Union} seeks to value it."902  The proper marketplaces, the United States contends, "are 
for the reclamation and protection of swampland al ong the River Elbe, for exclusive use of a runway 
in Bremen, and customized aeros pace-ready property in Toulouse".903  In addition, the standard under 
Article 14(d) of the SCM Agreement  for evaluating these items is not the generalized "market value", 
but the adequacy of the remuneration received by the government that provided the infrastructure.  The United States considers that, "{b}y examining what a commercial investor would expect, the 
Panel satisfied that standard."
904 
391. The United States also addresses th e European Union's critique th at the Panel's approach was 
"economically naïve" because "{n}o market actor can , as the Panel implies, set a price for a good 
simply based on its own investment or cost, and independent from the market value of the good 
created."905  This criticism simply reflects the "central  flaw" of the European Union's analysis, 
because "{i}t assumes that a good, in the form of infr astructure, specially designed and developed for 
the recipient, can properly be compared to an ordinary good."906  The United States argues, by 
analogy, that clothing designed by a tailor for a pa rticular person will invariably cost more than 
comparable clothing purchased off the rack at a stor e, because it is customized;  the price will be 
negotiated up front as a fixed fee, or based on hours worked, and therefore cannot be compared to average or "off-the-rack" goods.  The United States cont ends that the Panel's approach "demonstrates 
a sophisticated understanding of the economics of the situation", and that it is the European Union 
that is being "unrealistic".
907  The United States therefore requests the Appellate Body to reject the 
European Union's appeal in respect of whether a benefit was conferred under Article 1.1(b) of the 
SCM Agreement  and to uphold the findings of the Panel. 
                                                      
901United States' appellee's submission, para. 386 (quoting Appellate Body Report, Canada – Aircraft , 
para. 157). 
902United States' appellee's submission, para. 387.  
903United States' appellee's submission, para. 387.   
904United States' appellee's submission, para. 387.   
905United States' appellee's submission, para. 388 (quoting European Union's appellant's submission, 
para. 1074). 
906United States' appellee's submission, para. 388.   
907United States' appellee's submission, para. 388.    WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 164  
 
  9. Equity Infusions
 
(a) Capital investments 
392. The United States maintains that the Panel identif ied the correct legal standard to determine 
whether the challenged equity infusions provided by the French Government to Aérospatiale between 
1987 and 1994 conferred a be nefit.  Recalling evidence cited by the Panel, the United States notes that 
Aérospatiale's president told journalists in 1994 that the company's state was "repellent" from an 
investor's point of view, and that this statement wa s made at the end of an eight-year period in which 
the French Government had made almost FF 6 b illion in capital contributions to Aérospatiale.908  The 
United States contends that this statement is suppor ted by the Panel's review of Aérospatiale's return 
on equity, debt-to-equity ratio, a nd debt coverage ratios, and its conclusion that, "between 1985 and 
1994, Aérospatiale's financial ratios were uniformly and, in many cases, significantly inferior to the 
corresponding average ratios of its peer group of companies."909   
393. The United States notes the Panel's observation that  "it is well established that a financial 
contribution confers a benefit within the meaning of  Article 1.1(b) where the terms of the financial 
contribution are more favourable than the terms available to the recipient in the market."910  The Panel 
considered that Article 1.1(b) of the SCM Agreement  does not describe exactly how to perform this 
analysis;  however, Article 14 of the SCM Agreement  provides further guidance.  The Panel's 
approach to the issue was "to ask whether the United States ha{d} demonstrated that a private investor 
would not have made the capital investments in question based on information available at the 
time".911  The United States argues that the European Un ion is thus incorrect to assert that the Panel 
considered the relevant legal standard to be whet her the French Government could have expected to 
achieve a reasonable rate of return on its investment. 
394. The United States also maintains that the Panel a pplied the legal standard that it had set out.  
The Panel noted that a private investor will seek a reas onable rate of return, but it did not "elevate this 
observation to become a standard in and of itself".912  Instead, the Panel did three things in its 
analysis:  first, it set out a legal standard, namely whether a private investor would not have made the 
capital investments in question based on the information available at that time;  second, it noted that it 
is relevant in this regard that a private investor  evaluating an equity investment will be seeking to 
                                                      
908United States' appellee's submission, para. 396 (quo ting "EC to Review France's Aerospatiale Capital 
Injection", Aerospace Daily , 9 February 1994 (Panel Exhibit US-275), pp. 217 and 218). 
909United States' appellee's submission, para. 397 (quoting Panel Report, para. 7.1360).  
910United States' appellee's submission, para. 404 (quoting Panel Report, para. 7.1353).  
911United States' appellee's submission, para. 405 (quoting Panel Report, para. 7.1358).  
912United States' appellee's submission, para. 406.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 165  
 
  achieve a reasonable rate of return on its investment ;  and third, it gave an overview of information 
relevant to such an evaluation.
913  The United States argues that "an expectation of a reasonable rate of 
return is simply part of the usual investment pr actice of private investors as a matter of economics."914  
In the United States' view, the Panel therefore correctly articulated the standard set out in 
Articles 1.1(b) and 14(a) of the SCM Agreement  and identified a set of factor s that allowed it to apply 
that standard correctly. 
395. The United States further contends that the Pa nel did not fail to assess properly the evidence, 
but rather performed a thorough analysis of the fact s and, on that basis, concluded that the equity 
infusions were inconsistent with the usual investme nt practice of private investors.  Moreover, the 
Panel applied a range of factors throughout its analys is and relied on an extens ive factual record.  The 
evidence on which the Panel relied, including market forecasts and studies, and statements contained 
in Airbus's annual reports, indicated perceptions  of the company's commercial expectations and 
anticipated future performance.  The financial ratios that the Panel reviewed and to which it attributed 
particular weight also reflected such potential or in creased risk for future i nvestment returns.  When 
the Panel found that this information indicated that  the government's decision was not consistent with 
the usual practice of private investors in France, "t hat necessarily implied that the investment did not 
promise a rate of return reasonable in the eyes of a private investor."915  The United States argues that 
the Panel thus performed a deta iled and thorough assessment, and produced a careful analysis as to 
each of the specific factual elements it considered rele vant, and that there is no basis to argue that the 
Panel failed to make an objective assessment of the facts.916   
396. The United States takes issue with the European Union's argument that the Panel should have 
used the behaviour of Boeing's investors as the market benchmark, rather than the financial 
performance of the peer group of aerospace and de fence companies in France on which the Panel 
relied.  The United States argues that the Panel specifically rejected the European Communities' 
attempt to rely on certain information relating to  the market for LCA in general, as well as Boeing's 
performance and outlook in particular.  The United States submits that the European Union's appeal 
"provides no reason to consider the practice of Boeing's investors to be relevant".917 
                                                      
913United States' appellee's submission, para. 408 (referring to Panel Report, para. 7.1358).   
914United States' appellee's submission, para. 409.   
915United States' appellee's submission, para. 413.  
916United States' appellee's submission, para. 414 and footnote 694 thereto.   
917United States' appellee's submission, para. 415.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 166  
 
  397. The United States contends that the Panel did not base its analysis solely on the peer group 
comparison, but rather on a careful review of the totality of the facts, including Airbus' own market 
forecasts and statements in Aérospatiale's financial re ports.  Even if the Appellate Body were to agree 
with the European Union's argumen t that Boeing's performance was somehow a relevant benchmark, 
"this would not by itself change the overall outcome of the Panel's analysis."
918  The United States 
also argues that, because Article 14(a) prescribes a comparison to the usual investment practice of 
private investors "in the territory of that Member", it "calls for a comparison to French peer group 
companies and French investors, not a U.S. company traded on U.S. financial markets."919  T h e  
United States claims that the Panel's own findings reflect this territorial focus on the behaviour of 
private investors in France.  Moreover, prior pa nel and Appellate Body reports "make clear that 
Article 1.1(b) itself requires a comparison with 'the market'", and that the market "in which Boeing's 
investors operate—the United States, U.S. stock exchange, U.S. dollar denominated, etc.—is of 
course neither the same nor easily comparable to th e market in which Aérospatiale's investors or 
potential investors operate—France, the French st ock exchange and, at the time, French franc 
denominated."920  According to the United States, "{t}he qu estion is not who Aérospatiale or Airbus 
competes with in terms of its own product markets, but rather which financial markets it is a part of 
and where its investors are (predominantly) active."921  
398. The United States argues that further factual c onsiderations "support the Panel's reliance on a 
peer group of French aerospace and defen se companies as opposed to  a U.S.-based {LCA} 
company".922  The United States notes that, during the rele vant time period, Aérospatiale was much 
more of a European defence  company, and that Boeing had not yet merged with McDonnell Douglas 
and was therefore much more heavily invested in LCA markets.  In other words, the United States 
maintains, "{f}rom a financial and private investor  perspective, ... the two companies were not very 
easily comparable at all."923 
399. Finally, the United States asserts that much of the evidence to which the European Union 
refers relates not to Boeing's or Aérospatiale's i nvestors, but to general market expectations, or the 
expectations of Boeing's management, the Un ited States Government, or independent and ex post  
outside observers.  The United States contends that  the Panel "considered this evidence and either 
rejected it or accorded it relatively less weight".924  The United States also dismisses the 
                                                      
918United States' appellee's submission, para. 416.  
919United States' appellee's submission, para. 417.  
920United States' appellee's submission, para. 418.  
921United States' appellee's submission, para. 418. 
922United States' appellee's submission, para. 419.  
923United States' appellee's submission, para. 419. (footnote omitted) 
924United States' appellee's submission, para. 420.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 167  
 
  European Union's reference to Boeing's stock price and its development over time, stating that "{t}he 
fact that Boeing  investors invested in Boeing , however, indicates nothing about their or anyone else's 
attitudes towards Aérospatiale."
925  Moreover, the United States claims  that "it is useful to look in a 
little more detail" at the European Union's propo sed comparison between Boeing and Aérospatiale, 
adding that the European Union's "numbers are highly selective".926  The United States refers to 
revenues for Boeing and financial ratios for the two companies and concludes that "Boeing, in the 
relevant period of time, produced solid revenue and outperformed the market.  The same simply 
cannot be said for Aérospatiale."927 
(b) Share transfer 
400. In response to the European Union's contentio ns that control of Dassault Aviation had no 
market value, and that the two-for-one exchange of Aérospatiale and Dassault Aviation shares was, 
considered in isolation, an even exchange, the United States argues that "control does have definite 
economic value and ceding control in a highly profitable company like Dassault Aviation is not 
something that a private investor would do without compensation."928  The United States also argues 
that the Panel never reached the question of wh ether the evidence showed that the two-for-one 
exchange was an even exchange.  Nor did it have to, because the investment decision challenged by 
the United States "was not the decision as to the rati o for the exchange of shares, but the decision 
whether to convey the Dassault Aviation shares to Aérosp atiale, and to do so desp ite having to forego 
significant value in the form of control over Dassault Aviation."929  The United States adds that the 
Panel found this decision to be inc onsistent with the usual investment  practice of private investors, 
and that the European Union offers no arguments why that finding was in error.   
401. The United States maintains that the Panel, as it did for the 1987 through 1994 equity 
infusions, based its assessment of "benefit" in th e 1998 Dassault Aviation share transfer on a standard 
based on the "usual practice of private investors".  The United States submits that the Panel's approach 
was to ask whether a private investor would have transferred shares it held in Dassault Aviation to 
Aérospatiale "based on the information available at  the time, including Aerospatiale's financial 
position and health, and knowing that to do so w ould require surrendering control of Dassault 
                                                      
925United States' appellee's submission, para. 421. (original emphasis) 
926United States' appellee's submission, para. 422.   
927United States' appellee's submission, para. 422. 
928United States' appellee's submission, para. 426.  
929United States' appellee's submission, para. 426.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 168  
 
  Aviation."
930  The United States asserts that the Panel's fi ndings "were clear" that "a private investor 
would not have transferred shares."931 
402. The United States argues that the Panel could not have limited its analysis as the 
European Union maintains because "the transacti on was not limited to the exchange of shares or 
valuation of such shares, as the French State's arra ngement with the Dassault family played a critical 
role in the process."932  Thus, the European Union's analysis fails to address the transfer "taken as a 
whole".933  For the same reasons, the Europ ean Union's argument concerning the Commissaires ' report 
also fails.  That report "assesses the exchange ra tio between the Aérospatiale and Dassault Aviation 
shares"934, and is therefore not relevant to the determ ination that the Panel made.  The United States 
claims that what it challenged was the 1998 share transfer taken as a whole.  The United States 
considers that the exchange ratio findings in the Commissaires ' report, "even if taken at face value, go 
to only part of that issue", and at most "underscore{} that the French State received nothing for 
surrendering control of Dassault Aviation."935  
403. In response to the European Union's argument th at the 1998 share transfer was consistent with 
the usual investment practice of private investor s because it was part of a government effort to 
"consolidate" wholly owned assets in advance of a sale, the United States notes the Panel's conclusion 
that the European Communities presented no persu asive evidence that transferring the Dassault 
Aviation shares to Aérospatiale would improve the French Government's overall returns on its 
aerospace assets.  The European Union now on a ppeal "makes essentially the same argument" it made 
before the Panel, and "provides no basis to reverse the Panel's finding".936  The United States further 
notes that the Panel did not question that the 1998 shar e transfer was part of a broader strategy, and in 
fact found, as a factual matter, that the French Government's transfer of its 45.76% interest in Dassault Aviation to Aérospatiale was envisaged as a preliminary step in the consolidation of the 
French aeronautics industry.  The United States furt her supports the Panel's conclusion that there was 
no evidence that the overall return s the French Government could expect from a public offering of 
shares in a combined entity exceeded the rate of return it could expect from retaining its Dassault 
shares, including the double voting rights, separately from its ownership of Aérospatiale.
937 
                                                      
930United States' appellee's submission, para. 432.   
931United States' appellee's submission, para. 433.   
932United States' appellee's submission, para. 434. 
933United States' appellee's submission, para. 434.   
934United States' appellee's submission, para. 435.  
935United States' appellee's submission, para. 435.   
936United States' appellee's submission, para. 436.  
937United States' appellee's submission, para. 437 (referring to the Panel Report, para. 7.1411).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 169  
 
  404. The United States supports the Panel's finding that  the evidence came from a time when the 
French Government had already decided to transfer  the Dassault Aviation shares to Aérospatiale.  The 
Panel further found that the assessments did not provide any information that would allow the 
comparison the Panel considered relevant—that is, "between returns from the sale of Aérospatiale 
with the Dassault shares and the retu rns that the government would ha ve made if it kept Dassault 
Aviation and Aérospatiale separate."
938  In its arguments, the United States refers to two scenarios:  
the "Combination Scenario" and the "Separate Scen ario".  In response to the European Union's 
argument that the Panel failed to establish that the rate of return for the Combination Scenario was 
less than the rate of return for the Separate Scenar io, the United States maintains that this amounts to a 
burden of proof argument.  Because the European Communities was the party that asserted that the 
share transfer was consistent with the usual inv estment practice because it was part of a larger 
consolidation that was itself consistent with us ual investment practice, the European Communities 
was responsible for "proving that that was the case".939 
405. The United States argues that the European  Union "accuses the Panel of holding the 
{European Communities} to an inappropriate better-t han-market standard when it rejected evidence 
that the French State received fair mark et value for its Dassault Aviation shares."940  T h e  
United States maintains that the European Union "misunderstands th e situation", because the Panel 
did not reject evidence regarding the relative va lue of Dassault Aviation and Aérospatiale shares 
themselves in the 1998 share transfer, but "instead  concluded that the relative value was only one 
element of a larger transaction that, considered as a whole, was inconsistent with the usual investment 
practice of private investors in France."941  The Panel found that a private investor in the shoes of the 
French Government would have entered into the Co mbination Scenario only if there was "a rational 
basis for believing" that it would yield great er returns than the Separate Scenario.942  T h e  
United States contends that this conclusion "is ax iomatic if one accepts that private investors are 
rational."943  According to the United States, the Pane l was not suggesting that the returns on the 
Combination Scenario had to be higher than market, only higher than the status quo, and its analysis 
therefore "reflects the reality that the market offers investments with many different rates of return, 
and that private investors routinely reject market -consistent returns that are not as high as returns on 
their existing investments."944   
                                                      
938United States' appellee's submission, para. 437.  
939United States' appellee's submission, para. 438.   
940United States' appellee's submission, para. 439.  
941United States' appellee's submission, para. 439.  
942United States' appellee's submission, para. 440 (quoting Panel Report, para. 7.1411). 
943United States' appellee's submission, para. 440.  
944United States' appellee's submission, para. 440.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 170  
 
  406. Regarding the European Union's contention that the Panel acted improperly in rejecting the 
relevance of the investment analyses because "they were  not available to the French State at the time 
of the contribution"
945, the United States submits that the timing was not the only reason for 
considering that this information did not support the European Communities' argument.  The Panel 
considered that these assessments discussed the vi rtues of the Combination Scenario, but did not 
compare those returns to the returns of the Separate  Scenario.  The United States also contends that, 
like the Commissaires ' report, these assessments did not address the question before the Panel as to 
"whether a private investor would have engaged in the transactions at all";  rather, "{t}hey assume{d} 
that Aerospatiale and {Matra Hautes Technologies} we re to merge and that the further consolidation 
was to take place."946   
407. In any event, the United States ma intains, the Panel was right to conclude that the timing of 
the assessments meant that they did not support th e European Communities' argument, because they 
do not "provide any guidance as to whether the tran saction was consistent with the usual investment 
practice of private investors in Fr ance at the time of the transaction."947  In response to the 
European Union's assertion that the assessments were nevertheless relevant to  the Panel's analysis 
because they "evaluated financial conditions that  existed at the time of the capital contribution"948, the 
United States argues that the Eur opean Union "has merely cited the assessments themselves, and has 
not shown that they rel{ied} on da ta available to a private investor at the time of the 1998 share 
transfer."949  The United States also notes that its valuati on expert found that "serious questions could 
be raised as to the independence of the analysis reflected in the reports, which may simply have 
served the purpose of supporting the government's  intention to privatize {Aérospatiale-Matra}."950 
408. The United States submits that each of the Eu ropean Union's arguments on appeal fails 
because they are based on "misperception{s} of the legal standard, the Panel's actual findings in its report, and the facts underlying the issues to which this appeal relates".
951  The United States 
consequently requests the Appellate Body to reject  the European Union's claims on appeal and to 
uphold the Panel's findings. 
                                                      
945United States' appellee's submission, para. 441 (quoting European Union's appellant's submission, 
para. 1159). 
946United States' appellee's submission, para. 441.   
947United States' appellee's submission, para. 442.  
948United States appellee's submission, para. 443 (quoting European Union appellant's submission, 
para. 1161). (original emphasis omitted by the United States) 
949United States' appellee's submission, para. 443.   
950United States' appellee's submission, para. 443.   
951United States' appellee's submission, para. 444.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 171  
 
  10. The Subsidized Product and Product Market
 
409. The United States submits that the Panel properl y assessed the United States' adverse effects 
claims on the basis presented by the United States, including the United States' identification of "all 
Airbus LCA" as the "subsidized product".  The Un ited States disagrees with the European Union's 
contention that the Panel afforded the United States "absolute and unreviewable"952 discretion to 
frame the definition of the "subsidized" and "like" products at issue.  Instead, the United States argues 
that, as required by Article 11 of the DSU, "the Pa nel understood its task was to objectively assess the 
'matter' before it, including whether the subsidized  product identified by the United States as a basis 
for assessing its adverse effects claim was consistent with the SCM Agreement."953  The Panel 
correctly recognized that a complainant has the right  to structure its own complaint as it chooses, and 
confirmed the reasonableness of the United States' "s ubsidized product" and "like product" definitions 
in the light of the evidence before it.  In particul ar, the Panel based its conclusion on the United States 
having "reasonably defined the subsidized product as all Airbus LCA on several findings of fact, 
including those based on characteristics and uses,  a lack of clear dividing lines between models and 
families of Boeing and Airbus LCA, the nature of  the LCA market, considerations of LCA family 
'commonality,' and that the subsidies in disput e have benefited Airbus' full family of LCA."954  The 
United States adds that "even if the European Un ion's approach could be considered a factually 
reasonable alternative to the United States' subsidized product definition,  the Panel's decision to reject 
that alternative would not constitute reversible error in light of its finding that the definition of the 
product offered by the United States was reasonable."955  The United States further agrees with the 
Panel that there is no specific guidance in the SCM Agreement  regarding the identification of a 
"subsidized product" or a panel's role in that pro cess, and rejects the European Union's contention that 
the Panel failed to comply with its obligations under Article 11 of the DSU.  On the contrary, 
declining to "reformulate" the United Stat es' claim in the manner requested by the 
European Communities was consistent with the Pane l's obligations under Article 11 of the DSU.  The 
United States further adds that, "{h}ad the Pa nel accepted the European {Communities'} argument 
regarding the appropriate subsidi zed product definition, it would ha ve overstepped the boundaries of 
its mandate pursuant to Article 11 to make an 'objective assessment of the matter before it.'"956   
                                                      
952United States' appellee's submission, para. 510 (quoting European Union's appellant's submission, 
para. 298). 
953United States' appellee's submission, para. 499 (referring to Panel Report, paras. 7.1653-7.1655, 
7.1662, and 7.1663). 
954United States' appellee's submission, para. 512 (referring to Panel Report, paras. 7.1664-7.1667). 
955United States' appellee's submission, para. 519. 
956United States' appellee's submission, para. 520. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 172  
 
  410. The United States argues that the Appellate Body  should also reject the European Union's 
appeal of the subsidized product issue under Article  11 of the DSU "because it falls well short of the 
requirements for an Article 11 claim on appeal."
957  The European Union's claim under Article 11 of 
the DSU "consists of arguments that the Panel faile d to correctly interpret and apply provisions of 
Articles 5 and 6.3 of the SCM Agreement  and the contention that the Panel afforded the United States 
'absolute and unreviewable discretion' with respect to its identification of the 'subsidized product.'"958  
The United States considers that "{t}his blanket assertion coupled with recast arguments going to the 
interpretation and application of the SCM Agre ement cannot support a claim under Article 11."959  In 
any event, the United States argues that the Panel's "thorough review" of the "subsidized product" disposes of the European Union's "assertion that the Panel abdicated its responsibilities or otherwise 
failed to act objectively."
960   
411. Referring to previous findings by the Appellate  Body, the United States further noted that a 
claim pursued under Article 11 of the DSU must sta nd on its own and should "not  be made merely as 
a subsidiary argument or claim in support of a claim that a panel failed to apply correctly a provision 
of the covered agreements."961  In US – Zeroing (EC) (Article 21.5 – EC) , the Appellate Body rejected 
the claims under Article 11 of the DSU because it was "not persuaded that the claims and arguments 
by the European Communities under Article 11 of th e DSU differ{ed} from its claims that the Panel 
failed to apply correctly other provisions"962  According to the United St ates, the same basis exists 
here for the Appellate Body to reject the European  Union's Article 11 claim, which is "nothing more 
than an appendage" to the European Union's argum ents concerning the requirements in Articles 5 
and 6.3 of the SCM Agreement  with respect to the identification of the subsidized product.963  
412. The United States also disagrees with the Eu ropean Union's argument that "{s}ubsidized 
aircraft may be considered to be in the same ma rket, and hence a single 'subsidized product', only if 
they are engaged in actual or potential competition."964  According to the United States, the 
European Union's "proffered 'rationale'" for this s upposed requirement is based on a misreading of the 
                                                      
957United States' appellee's submission, para. 522. 
958United States' appellee's submission, para. 522 (quoting European Union's appellant's submission, 
para. 301). 
959United States' appellee's submission, para. 522. 
960United States' appellee's submission, para. 522. 
961United States' appellee's submission, para. 523 (quoting Appellate Body Report, US – Zeroing (EC) 
(Article 21.5 – EC) , para. 401). 
962United States' appellee's submission, para. 524 (quoting Appellate Body Report, US – Zeroing (EC) 
(Article 21.5 – EC) , para. 402). 
963United States' appellee's submission, para. 524 (referring to European Union's appellant's 
submission, paras. 301-304). 
964United States' appellee's submission, para. 527 (quoting European Union's appellant's submission, 
para. 310).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 173  
 
  Appellate Body's report in US – Upland Cotton .
965  The United States emphasizes that, in that dispute, 
the Appellate Body was not considering the defi nition of the subsidized product;  rather, it was 
evaluating the participants' contentions regarding th e geographic scope of the term "same market" in 
the context of Brazil's price suppression claim under Article 6.3(c) of the SCM Agreement .966  T h e  
United States considers that "{t}he Appellate Body's report in US – Upland Cotton  is relevant to the 
European Union's appeal, however, because it demons trates that even under Article 6.3(c) 'the 
determination of the relevant market unde r Article 6.3(c) of the SCM Agreement depends on the 
subsidized product in question .'"967  Hence, "the order of analysis is to establish first the definition of 
the subsidized product and then the definition of the like product against which it competes, and then 
to determine the geographic scope of the market in  which that competition occurs and adverse effects 
are alleged to have been caused."968  Referring to further findings made by the Appellate Body in 
US – Upland Cotton , the United States argues that "'actual or potential competition' may be relevant 
'for determining the area of competition between two products' but  it is not a concept that limits the 
definition of the term 'subsidized product'."969 
(a) Whether the Panel erred in assessing displacement on the basis of a 
single product and a single-product market 
(i) The Panel's interpretative approach 
413. The United States claims that the European Un ion's attempt to use the notion of "product 
markets" as a means of "restructuring the displacement analysis" has no basis in the SCM Agreement  
and the facts of this case.970  For the United States, "{i}t is the de finition of the subsidized product and 
the like product that sets the product framework for the displacement an alysis, while the references to 
'market' in Article 6.3(a) and (b) define  the geographic scope of that analysis."971   
                                                      
965United States' appellee's submission, para. 527 (referring to European Union's appellant's 
submission, para. 307, in turn referring to Appellate Body Report, US – Upland Cotton , paras. 405-410). 
966United States' appellee's submission, para. 527 (referring to Appellate Body Report, US – Upland 
Cotton, para. 409). 
967United States' appellee's submission, para. 529 (quoting Appellate Body Report, US – Upland 
Cotton , para. 408). (emphasis added by the United States) 
968United States' appellee's submission, para. 529. 
969United States' appellee's submission, para. 530 (quoting Appellate Body Report, US – Upland 
Cotton , para. 408). (emphasis added by the United States) 
970United States' appellee's submission, para. 540.  
971United States' appellee's submission, para. 541.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 174  
 
  414. The United States submits that European Union's argument is "anchored to a 
mischaracterization" of the findings by the Appellate Body in US – Upland Cotton .
972  In that case, 
the Appellate Body neither found nor implied that a "product market" is a requisite element of a 
displacement claim under Article 6.3(a) and (b) of the SCM Agreement .  Rather, it found that 
Article 6.3(c) calls for evidence and argumentatio n to define the geographic scope of the "same 
market".973  Moreover, "given the Panel's findings  that indicate homogenous conditions of 
competition amongst all Airbus and Boeing LCA", the US – Upland Cotton  report provides "no basis" 
for the European Union to argue that the Panel e rred in treating all LCA as competing "in the same 
market".974 
415. The United States submits that th e European Union's citation to EC – Asbestos  is also 
misplaced.  In that dispute, the Appellate Body was not looking at the definition of "market";  rather it 
was considering whether domestic  and imported products are "like" within the meaning of 
Article III:4 of the GATT 1994.975  The United States notes, however, that in this case the 
European Union is not appealing the Panel's determin ation of the product that is "like" the subsidized 
product.  Rather, "it argues that having identified th e subsidized and like product, the Panel was then 
obligated to segment each subsidized product/like product pairing into multiple market segments for 
the purpose of assessing displacement of the like product."976  In the United States' view, however, 
neither the SCM Agreement  nor prior Appellate Body findings regarding the definition of the "like 
product" provide support for the European  Union's arguments in this regard. 
416. According to the United States, the approach taken by the panel in Indonesia – Autos in 
assessing claims concerning displacement and impedance is instructive.977  After identifying the 
relevant subsidized product and like product for purposes of its assessment of displacement or 
impedance in the Indonesian market, the  panel in that case "proceeded to  examine market share data 
without the additional 'product market' inquiry pr oposed by the European Union in the current 
dispute".978  The panel's assessment "properly confirmed that the identity of the subsidized product 
                                                      
972United States' appellee's submission, para. 542 (referring to European Union's appellant's 
submission, paras. 342-344).  
973United States' appellee's submission, para. 543 (quoting Appellate Body Report, US – Upland 
Cotton , para. 408). 
974United States' appellee's submission, para. 543 (quoting Appellate Body Report, US – Upland 
Cotton , para. 408). 
975United States' appellee's submission, para. 544 (quoting Appellate Body Report, EC – Asbestos , 
para. 103). 
976United States' appellee's submission, para. 544. 
977United States' appellee's submission, para. 545 (referring to Panel Report, Indonesia – Autos , 
para. 14.164). 
978United States' appellee's submission, para. 546.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 175  
 
  and like product, respectively, address 'product' issues."
979  Thus, "the term 'market' in Article 6.3(a) 
and (b) pertains only to the geographic location in  which competition between the subsidized product 
and like product is to be assessed."980  The United States concludes on this basis that the decision by 
the Panel in this case, after evaluating all the facts presented, to accept the United States' definition of 
a single "subsidized product" rather than five separate "products" offered by the 
European Communities, as the basis for its di splacement analysis, was "a reasonable one".981  
417. Regarding the issue of whether the Panel erred in considering that it would be precluded from 
assessing alleged linkages and spill-over effects of subs idies provided to different models of Airbus 
LCA in the case that it accepted the European Co mmunities' views concerning the subsidized product, 
the United States submits that the European Commun ities made a "concerted effort" to have the Panel 
disregard the spill-over effect of "the subs idies prior to subsequent product launches".982  In particular, 
the European Communities "attempted to quantify th e magnitude of subsidies only with respect to 
those provided for a particular LCA program and, on that basis, argued that the subsidy magnitude was de minimis  for each Airbus LCA model."
983  Finally, the United Stat es argues that, even if the 
SCM Agreement  "called for a separate 'product market' an alysis under Article 6.3(a)-(d), there is 
evidence of 'product market' in which all Ai rbus LCA compete against all Boeing LCA under 
homogenous conditions of competition irrespective of the European Union's proposed 'product 
markets,' and there is uncontested evidence of LCA competition outside the {European Union's} 
proposed 'product markets'."984 
(ii) Article 11 of the DSU 
418. The United States also disagrees with the Eu ropean Union's contention that the Panel 
"marginalised and disregarded entire categories of  highly relevant and c ontemporaneous evidence" 
and "failed to provide a reasone d and adequate explanation base d on a coherent reasoning", and 
thereby acted inconsistently with its obligations under Article 11 of the DSU.985  Rather than 
disregarding this evidence, the United States argues that the Panel found it "unpersuasive".986  
                                                      
979United States' appellee's submission, para. 546. 
980United States' appellee's submission, para. 546. 
981United States' appellee's submission, para. 547.  
982United States' appellee's submission, para. 551 (referring to Panel Report, para. 7.1873). 
983United States' appellee's submission, para. 551 (referring to Panel Report, para. 7.1963). 
984United States' appellee's submission, para. 554 (referr ing to Panel Report, paras. 7.1725 and 7.1668, 
respectively). 
985United States' appellee's submission, para. 555 (quoting European Union's appellant's submission, 
para. 359). 
986United States' appellee's submission, para. 556 (referring to Panel Report, para. 7.1668). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 176  
 
  419. The United States notes that, as a factual matter, the Panel found that "there is at least some 
degree of competition between adjacent product groups  identified by the European Communities, for 
instance, between a Boeing 747 and an Airbus A380."
987  Consistent with the Panel's findings, the 
United States submits that "the evidence ... shows a number of actual, 'head-to-head' campaigns in 
which Boeing and Airbus offered LCA across ev ery adjacent 'product market' identified by the 
European Union."988  Pointing to a table it compiled using information from Panel Exhibits EC-322 
and EC-323, the United States disagrees with the Eu ropean Union's assertion that there is competition 
across  the product groupings identified by the European Union "{o}nly in rare instances".989  To the 
contrary, " none of the 'product markets' identified by the European Union is a self-contained segment, 
capturing the full scope of competition for the models  within it";  "{i}n fact, LCA from each 'product 
market' have competed head-to-head ag ainst LCA from other "product markets."990 
420. The United States further submits that, "{w}hen the European Union refers to Exhibit EC-322 
and states that '{t}here were no sales campaigns in which Airbus A340 LCA family competed against 
any Boeing models other than the 777 LCA family,' it fails to mention that Exhibit EC-322 shows the 
Boeing 777 as having competed against the A330 (which the European Un ion places in a separate, 
'distinct product market') in {a number of} campaigns won by Airbus."991  Similarly, "when the 
European Union states that Exhib it EC-322 shows that '{t}here were no sales campaigns in which the 
Airbus A380 LCA family competed against Boeing 737NG, 767, 777 or 787 LCA family,' it ignores {a certain number of} competitions between the 747 and the A380, which are somehow in separate 
'product markets' according to the European Union."
992 
421. In a similar vein, the United States notes that the European Union cites to a variety of 
materials in an attempt to show a "lack of di rect head-to-head competition" between the A380 
and 747-8 (a derivative of earlier 747 models that was launched in 2005).993  According to the 
United States, "{w}hile it is true that the A380 and 747-8 do not have identical characteristics (e.g.,  
the standard A380 configuration has approximately  90 more seats than the 747-8), this does not 
change the essential fact that the A380 has competed against the 747 for sales."994  As the Panel noted, 
                                                      
987United States' appellee's submission, para. 557 (quoting Panel Report, para. 7.1668). 
988United States' appellee's submission, para. 557. (original emphasis) 
989United States' appellee's submission, para. 558 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), para. 11). 
990United States' appellee's submission, para. 558. (original emphasis) 
991United States' appellee's submission, para. 559 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), pa ra. 11, second bullet (original emphasis)). 
992United States' appellee's submission, para. 559 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), pa ra. 11, third bullet (original emphasis)). 
993United States' appellee's submission, para. 561 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), section III(A) heading). 
994United States' appellee's submission, para. 561.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 177  
 
  the Airbus A380 business case clearly contemplates competition between the A380 and the 747.
995  In 
rejecting the European Union's argument that the A380 should be separated from all other LCA 
competition, the Panel also considered evidence that customers purchased Boeing's 777 "to replace 
the delayed A380".996  And while the European Union finds Boeing's list of campaigns lost to Airbus 
persuasive in other aspects of its product arguments , the United States argues that it fails to mention 
that the Boeing document shows the 747 competed ag ainst, and lost to, the A380 in campaigns during 
the reference period.997  In this connection, the European Un ion cites to the statement of Airbus' 
Christian Scherer, to the effect that "Airbus did not compete—i.e.,  it made no offers, in any sales 
campaigns that resulted in orders for Boeing 747 family LCA during the 2001-2005 period"998, 
without acknowledging the numerous campaigns in which the 747 lost to the A380.   
422. The United States argues that the European Uni on cites a number of campaign-specific and 
other documents in an attempt to "demonstrate that demand {from (sic)} customers in sales 
campaigns for new LCA is specifically targeted at the particular groups of Boeing and Airbus LCA products".
999  However, "{a}ll these sources show is th at, in many instances where a customer 
conducts a formal head-to-head campaign, the offe rings from each manufacturer will have been pared 
down to a single aircraft—something the United States has never contested."1000   
423. The United States also notes that "{t}he Europ ean Union cites to statements from Boeing 
officials and marketing materials from Airbus and Boeing that, in its view, 'point towards the 
existence of different product groupings.'"1001  In doing so, "the European Union fails to acknowledge 
that the Panel duly considered the European Un ion's arguments and evidence concerning 'distinct 
product markets' but found them contradicted by the weight of the evidence showing competition of a far broader scope, as well as by an inadequate le gal basis for disturbing the {United States'} 
definition."
1002   
                                                      
995United States' appellee's submission, para. 561 (referring to Panel Report, paras. 7.1676, 7.1831, 
and 7.1832). 
996United States' appellee's submission, para. 561 (quoting Panel Report, para. 7.1831). 
997United States' appellee's submission, para. 561 (referring to Panel Exhibit EC-322 (BCI)). 
998United States' appellee's submission, para. 561 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), s ection III(A)(1), last bullet, p. 23). 
999United States' appellee's submission, para. 562 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), para. 14). 
1000United States' appellee's submission, para. 562. 
1001United States' appellee's submission, para. 563 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), para. 16). 
1002United States' appellee's submission, para. 563. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 178  
 
  424. Similarly, the European Union now claims that  Airbus statements relied upon by the Panel 
concerning the importance of a full family of LCA ar e "irrelevant to the question of whether all the 
Airbus LCA can be grouped together as one 'subs idised product' competing in one single product 
market."
1003  The United States submits that the term "Air bus family" originated in Airbus' marketing 
materials to its customers .1004  According to the United States, it is difficult the reconcile dismissal of 
the term "Airbus family" as irrelevant to compe tition, as the European Union claims, when Airbus 
markets its LCA as a full family to customers, st ressing the economic benefits of buying from the 
"Airbus family" over buying from Boeing's product line.  
425. Finally, the United States argues that "the  European Union's proposed multiple product 
market definitions have no support in the facts of the case."1005  The United States submits that 
"Airbus and Boeing each produce a full line of LCA models that compete against each other" and that 
"{t}he evidence before the Panel demons trated actual competition outside the 
European {Communities'} so-called 'product markets, ' including:  (1) bundled sales (such as the South 
African Airways lost sale, in which the airlin e chose A319s, A320s, and A340s over Boeing 737s 
and 777s);  and (2) Emirates and FedEx ordering the 777 when Airbus' A380 delays left those 
customers short on capacity."1006  The United States points out that the Europ ean Union itself 
recognizes that the Appellate Body "could reas onably find fewer, broader product markets".1007  The 
United States further notes that the European Uni on concedes that the Panel "need not have accepted 
the European {Communities'} argument that there were five different LCA markets."1008 
426. In sum, the United States considers that th e European Union has offered no basis on which 
the Appellate Body could find that the Panel's asse ssment of displacement unde r Article 6.3(a) and (b) 
on the basis of the specified geographic markets in which "all Boeing LCA" compete with "all Airbus LCA" is inconsistent with Article 11 of the DSU.
1009  The United States also submits that there is no 
                                                      
1003United States' appellee's submission, para. 565 (quoting European Union's appellant's submission, 
Annex II (Product Markets Annex) (BCI), para. 23). 
1004United States' appellee's submission, para. 565 (referring to Airbus marketing material, "Excellence 
runs in the family" (Panel Exhibit US-390), available at <http://events.airbus.com/img/media/multimedia/ 
advertising/press/excellence.pdf> (visited 20 September 2006)).  
1005United States' appellee's submission, para. 566. 
1006United States' appellee's submission, para. 566 (referring to Panel Report, paras. 7.1655, 7.1822-
7.1824, and 7.1831). 
1007United States' appellee's submission, para. 566 (referring to European Union's appellant's 
submission, para. 375). 
1008United States' appellee's submission, para. 566 (quoting European Union's appellant's submission, 
para. 370). 
1009United States' appellee's submission, para. 567.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 179  
 
  basis for the Appellate Body to "complete the anal ysis and find that there is a separate single-aisle 
LCA product market."
1010  
427. Finally, the United States disagrees with the Eur opean Union's allegation of a general error of 
"distortion" resulting from the Panel's assessment of  displacement under Article 6.3(a) and (b) on the 
basis of the subsidized product, like product, and geographic market.1011  According to the 
United States, the European Union "offers no textual support" for its argument that the Panel erred in 
applying the applicable provisions of the SCM Agreement .1012  The United States reiterates its position 
that "the framework for a displacement analysis under Article 6.3(a) and (b) is set by the definition of 
the subsidized product, the like product, and the geographic market."1013  According to the 
United States, "{b}y testing the {United States'} subsidized product definition for reasonableness, the 
Panel ensured, in the first instance, that the analysis of displacement is not based on an 
'inappropriately broad' product; and, notably, the European Union has not challenged the Panel's 
findings that 'all LCA' is a reasonabl e and coherent 'subsidized product.'"1014  According to the 
United States, "{o}ther factors indicating that the market position of the subsidized product in any particular segment of the market is not an eff ect of subsidy is a legitimate issue for a causation 
analysis;  however, the Panel raised every other factor raised by the European {Communities'} and 
found no attenuation of the causal link."
1015 
11. Serious Prejudice  
428. The United States argues that the Panel corr ectly found that the European Communities 
caused, through the use of the subsidies, serious pr ejudice to the United States' interests within the 
meaning of Article 5(c) of the SCM Agreement .  This serious prejudice took the form of displacement 
of imports of Boeing LCA into the European Co mmunities under Article 6.3(a), displacement (and 
threat thereof) of Boeing LCA exports in various  third country markets under Article 6.3(b), and 
significant lost sales in the same market under Article 6.3(c) of the SCM Agreement .  The 
United States requests the Appellate Body to uphold the Panel's finding to this effect for the reasons 
set out below.  
                                                      
1010United States' appellee's submission, para. 568 (referring to European Union's appellant's 
submission, para. 374). 
1011United States' appellee's submission, para. 569 (referring to European Union's appellant's 
submission, para. 90). 
1012United States' appellee's submission, para. 569. 
1013United States' appellee's submission, para. 569. 
1014United States' appellee's submission, para. 569. 
1015United States' appellee's submission, para. 569. WT/DS316/AB/R BCI deleted, as indicated [***] 
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  (a) Displacement of Boeing LCA fro m the European Communities and 
certain third country markets   
429. The United States submits that the Panel correct ly held that the effect of the subsidies 
provided to Airbus was to displace Boeing LCA from the markets of the Euro pean Union, Australia, 
Brazil, China, Korea, Mexico, Singapore, and Chinese Taipei, and likely future displacement from the 
market of India, within the meaning of Article 6.3(a) and (b) of the SCM Agreement .  Reflecting the 
Panel's "bifurcated analysis" of the United States ' serious prejudice claims, and the structure of the 
European Union's arguments on appeal, the United St ates also makes separate arguments in relation to 
the existence of displacement, on the one hand, and the question of causation, on the other hand. 
(i) Existence of displacement 
430. The United States argues that the Panel correc tly held that exports of Boeing LCA were 
displaced from the markets of Brazil, Korea, Me xico, Singapore, and Chinese Taipei within the 
meaning of Article 6.3(b) of the SCM Agreement .  The European Union's appeal concerning the 
existence of displacement cannot be reconciled with  the market gains that subsidized Airbus LCA 
made at the expense of Boeing LCA in those markets.  Moreover, the Panel's analysis and findings concerning the existence of displacement are fully supported by evidence of substantial market share 
losses by Boeing LCA, and corresponding market share gains by Airbus LCA in the 
European Communities and third country markets, and should therefore be upheld by the Appellate 
Body.   
431. According to the United States, the European  Union concedes that the Panel correctly 
evaluated the existence of displacement on the basis of volume and market share data.  The 
European Union also agrees with the Panel that data showing a decline in Boeing's market share 
during the reference period would sufficiently establish the existence of displacement.  However, the European Union's assertion that the Panel found that a " trend was absent " in the third country markets 
at issue is "not accurate".
1016  In the United States' view, the Panel simply found that the situation in 
the markets of Brazil, Korea, Mexico, Singapore, and Chinese Taipei was "less compelling" than in 
Australia and China, because LCA sales in those markets were more "spor adic" and sales volumes 
were "relatively small".1017  For the United States, the Panel's conclusion that the identification of a 
trend in a given market was "more difficult" does not indicate that a trend was absent.1018  
                                                      
1016United States' appellee's submission, para. 571 (quoting European Union's appellant's submission, 
para. 320). (emphasis added by the United States) 
1017United States' appellee's submission, para. 571 (quoting Panel Report, para. 7.1791). 
1018United States' appellee's submission, para. 571.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 181  
 
  432. The United States submits further that Article 6.3(b) does not provide textual guidance for 
determining "whether a given amount  of data ... in the form of e xport volumes, market share, or 
both"
1019 provides a sufficient basis for finding the ex istence of displacement.  The United States 
acknowledges that Article 6.4 contemplates a finding of displacement under Article 6.3(b) based on "a 
change in relative shares of the market to the disadvantage of the non-subsidized like product" where 
such trend occurs "over an appropriately representativ e period sufficient to demonstrate clear trends in 
the development of the market for the product concerne d, which, in normal circumstances, shall be at 
least one year."1020  However, the term "shall include" indicat es that Article 6.4 is not exhaustive, and 
the Panel correctly found that a complaini ng Member may demonstrate displacement under 
Article 6.3(b) in a manner not described in that provision.  The United States adds that, if the Appellate Body were to rely on Article 6.4 as contex t in determining the sufficiency of the evidence 
concerning the existence of displacement, Article 6.4 speaks of "clear trends" only in temporal terms, 
and does not specify the "level of data or quantum of  evidence" that is required to establish a trend of 
displacement.
1021  The United States highlights that the sal es and market share data reviewed by the 
Panel covered a period of time far longer than the one -year threshold provided for in Article 6.4, and 
that such data reveals an "unmistakable"1022 trend of Boeing losing market share to Airbus in each of 
the relevant third country markets.   
433. Moreover, the United States emphasizes that the European Union's attempt to show 
insufficient data to establish the existence of di splacement is limited to evidence concerning the 
Brazilian and Mexican markets, and that the Europ ean Union's appeal does not address the data for 
the markets of Korea, Singapore, or Chinese Taipei .  The United States underscores that in each of 
these three markets the data confirms that Boeing lost market share to Airbus over the 2001-2006 
reference period1023, and that multiple LCA deliveries by both Boeing and Airbus occurred in each 
year of the reference period.  
434. The United States considers "unavailing" the Eu ropean Union's arguments on the distinction 
between displacement and impeda nce under Article 6.3(a) and (b).1024  For the United States, these 
arguments are irrelevant for the markets where Bo eing's market share did in fact fall during the 
                                                      
1019United States' appellee's submission, para. 572.  
1020United States' appellee's submission, para. 572.  
1021United States' appellee's submission, para. 573.   
1022United States' appellee's submission, para. 573.   
1023The United States notes that Boeing's market share between 2001 and 2006 dropped from 83% to 
5 8 %  i n  K o r e a ;   f r o m  8 9 %  t o  5 4 %  i n  S i n g a p o r e ;   a n d  from 62% to 44% in Chinese Taipei. (United States' 
appellee's submission, para. 574) 
1024United States' appellee's submission, para. 575 (referring to European Union's appellant's 
submission, paras. 323-328). WT/DS316/AB/R BCI deleted, as indicated [***] 
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  reference period.  The United States stresses that the European Union concedes that the "concept of 
'displacement' revolves around the notion that market shares  of 'like' imports or exports fall over a 
reference period."
1025  
435. Finally, the United States argues that the Panel did not err in its interpretation of 
Article 6.3(b) of the SCM Agreement , and did not act inconsistently with Article 11 of the DSU, in 
finding the existence of threat of displacement of Boeing LCA from the market of India.  The 
United States maintains that the order data that s howed a "surge" in Airbus orders in India in 2005, 
with Airbus obtaining more than double the orders  of Boeing, provided a "sufficient and objective" 
basis upon which the Panel could make a finding of threat of displacement.1026  Furthermore, the 
United States questions the European Union's asse rtion that "undisputed evidence before the Panel 
demonstrated that Boeing's market share of deliver ies in the Indian market actually increased" after 
2006.1027  The United States considers that no such "und isputed evidence" exists  on the record, insofar 
as the evidence referred to by the European Uni on refers to order rather than delivery data.1028  The 
United States also observes that post-2006 order data  was offered by the European Communities "at a 
very late stage" in the panel proceedings, and ther efore the Panel did not err in basing its threat of 
displacement findings on "the most recent available, relevant and reliable data  that {it} could evaluate 
in a manner consistent with the requirements of due process".1029   
(ii) Causation – Observed displacement  
436. The United States argues that the Panel correc tly found that the subsidies caused serious 
prejudice to the United States' interests under Article  5(c), in the form of displacement of Boeing 
LCA from the European Communities and third country markets within the meaning of Article 6.3(a) 
and (b) of the SCM Agreement .   
437. The United States observes that the Appellate Body's reasoning in US – Upland Cotton  that 
Article 6.3(c) "requires the establishment of a causal link between the subsidy and the significant 
price suppression" applies with "equal force" to a ll the indicia of serious prejudice, including lost 
sales, displacement, and impedance.1030  The Appellate Body also observed that Article 6.3 does not 
                                                      
1025United States' appellee's submission, para. 575 (quoting European Union's appellant's submission, 
para. 324 (original emphasis)). 
1026United States' appellee's submission, para. 577.  
1027United States' appellee's submission, para. 578 (quoting European Union's appellant's submission, 
para. 389). (original emphasis and underlining added by the United States omitted)   
1028United States' appellee's submission, para. 578 and footnote 969 thereto (referring to Airclaims 
CASE database, 2007 Orders, data query as of 28 January 2008 (Panel Exhibit EC-987)).  
1029United States' appellee's submission, para. 578 (quoting Panel Report, para. 7.1713).  
1030United States' appellee's submission, para. 593 (quoting Appellate Body Report, US – Upland 
Cotton , para. 435).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 183  
 
  contain "the more elaborate and precise 'causation'  and 'non-attribution' language" found in Part V of 
the SCM Agreement , which suggests that panels have a de gree of discretion in establishing how to 
conduct a causation analysis.
1031  Referring to the Appellate Body report in US – Upland Cotton 
(Article 21.5 – Brazil) , the United States posits that a "central aspect" of any serious prejudice 
analysis is that "the effect ... must result from a chain of causat ion that is linked to the impugned 
subsidy."1032  According to the United States, such chai n of causation must focus on the way in which 
the subsidies were actually used  and their resulting effects, and does not involve "speculative, 
alternate market developments or  events that did not happen."1033 
438. In this regard, the United States emphasizes th at the European Union does not challenge the 
"crux of the Panel's causation finding"1034, namely that, but for LA/MSF, Airbus would not have been 
able to launch each of its LCA models at the time and in the manner that it did.  Instead, the 
European Union's appeal focuses on the absence of Panel findings concerning the allegation that 
Airbus " might have , at some other point in time, under differe nt circumstances, a nd in the absence of 
subsidies, launched different airc raft that might have won sales."1035  However, the findings that the 
European Union alleges are missing from the Panel's an alysis "do not relate to the actual use of the 
subsidies in light of their impact on the recipient a nd in relation to other factors actually present in the 
market at the same time as the subsidy."1036  According to the United States, there is no basis in 
Article 6.3 for a causation standard that requires a panel to speculate about whether a non-subsidized 
Airbus could have launched "fewer  but technologically superior airc raft" and "priced those aircraft 
aggressively"1037 so that it would have won any sales or mark et share.  According to the United States, 
in establishing "a chain of causation that is linked to the impugned subsidy"1038, a panel must examine 
"what were the actual effects in the markets in question"1039, and must ensure that it does not attribute 
to the subsidies the effect of other factors.  Simila rly, in a "but for" analysis, a panel must focus on 
"the market as it actually existed absent the subsidy".1040  However, the United States underscores that 
                                                      
1031United States' appellee's submission, para. 594 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 368).  
1032United States' appellee's submission, para. 595 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 372).  
1033United States' appellee's submission, para. 595.  
1034United States' appellee's submission, para. 582.  
1035United States' appellee's submission, para. 582. (original emphasis)  
1036United States' appellee's submission, para. 582.  
1037United States' appellee's submission, para. 585.  
1038United States' appellee's submission, para. 595 (quoting Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 372).  
1039United States' appellee's submission, para. 595. (original emphasis) 
1040United States' appellee's submission, para. 595 (referring to Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 375).   WT/DS316/AB/R BCI deleted, as indicated [***] 
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  the chain of causation that must be established und er Articles 5 and 6 does not involve "speculative, 
alternate market developments or  events that did not happen".
1041   
439. In the United States' view, the Panel properly f ound a "genuine and subs tantial" link between 
the subsidies and the effects of displacement of Bo eing LCA and that no other factors attenuated such 
causal link.  Based on the nature and magnitude of  the subsidies, the conclusions of the "Dorman 
Report"1042, the A380 business case, undisputed public statem ents of government and Airbus officials, 
and the "individual and cumulative" effect of LA /MSF in terms of generating economies of scope and 
scale1043, the Panel correctly concluded that LA/MSF and other subsidies enabled Airbus to bring its 
LCA to the market.  The United States adds  that the Panel correctly rejected the 
European Communities' argument that the structure, operation, and design of the different subsidies at 
issue precluded a cumulative assessment of their e ffects on the basis that non-LA/MSF subsidies were 
granted during the period in which each successi ve model was being developed, and that these 
subsidies "complemented a nd supplemented" the product effect of LA/MSF.   
440. According to the United States, the Panel corr ectly concluded that, by enabling Airbus to 
bring its LCA to the market, the subsidies caused Boeing to lose its position in the 
European Communities and third country markets, t hus causing serious prejudice to the United States' 
interests within the meaning of Article 6.3(a) and (b) of the SCM Agreement.   The Panel correctly 
based this finding on the conditions of competition in  the LCA industry, where aircraft availability at 
the time of purchase is "the fundamental factor"1044 in winning sales.  Consequently, the Panel did not 
err in concluding that once Airbus was able to de velop its LCA family, the conditions of competition 
in the market were such that its  market presence resulted in Boeing's  reduced market shares in each 
relevant third country market be tween 2001 and 2006.  In reaching its findings, the Panel also took 
appropriate account of the "magnit ude of the benefit" of LA/MSF, both in terms of percentage of 
development costs covered and the amount of  the discount off market interest rates.1045  The Panel 
further fulfilled its obligation to ensure that  any other factors, such as Boeing's alleged 
mismanagement of customer relationships, geo political considerations, the role of engine 
manufacturers, or the events of the 11 September 2001 attacks on the World Trade Center ("9/11"), 
did not dilute the "genuine and s ubstantial" link between the subsid ies and Boeing's loss of market 
                                                      
1041United States' appellee's submission, para. 595.  
1042Gary J. Dorman, The Effect of Launch Aid on the Econo mics of Commercial Airplane Programs  
(6 November 2006) (Panel Exhibit US-70 (BCI)). 
1043United States' appellee's submission, paras. 596-60 0;  Panel Report, para. 7.1881, 7.1911, 7.1913-
7.1918, 7.1923, 7.1935, 7.1937 , 7.1939-7.1941, and 7.1948.  
1044United States' appellee's submission, para. 604 (referring to Panel Report, paras. 7.1720, 7.1722, 
and 7.1724).  
1045United States' appellee's submission, para. 606 (referring to Panel Report, para. 7.1972).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 185  
 
  share in each third country market.
1046  The Panel correctly held that, regardless of these other factors, 
the availability of the subsidized LCA in the ma rket was a "fundamental cause" of the sales and 
market share lost by Boeing.1047  The Panel further found that the European Communities' arguments 
concerning the market contraction caused by th e events of 9/11 did not "detract from {its} 
conclusions concerning the effects of the subsidies in this dispute, which enabled Airbus to have 
available the particular models of LCA that it sold and delivered in the distressed market."1048  
Therefore, the United States argues, the Panel's non- attribution analysis is fully in line with the 
requirements of Articles 5 and 6.3 as in terpreted by the Appellate Body in US – Upland Cotton 
(Article 21.5 – Brazil) .1049   
441. According to the United States, once the Pane l found that the subsidies were the cause of 
market displacement and lost sales and that no othe r causal factors undermined that causal link, it was 
unnecessary for the Panel to speculate about what else might have occu rred in the LCA market in the 
absence of the subsidies.  The possibility that an unsubsidized competitor might have emerged in the 
place of a subsidized Airbus does not negate the actu al effects of the subsidies.  In any event, the 
Panel concluded that it was unlikely that a non-subsid ized Airbus would have been able to enter the 
LCA market, and that even if Airbus  had done so, it would have been a much weaker entity that was 
incapable of achieving the same market share.1050  
442. Moreover, the United States suggests that the Europ ean Union's appeal in this respect is based 
on an incorrect interpretation of Articles 5 and 6.3 of the SCM Agreement.   For the United States, 
speculation about conditions of competition in the absence of the subsidies would not affect the 
Panel's finding that, "but for" the subsidies, Ai rbus would not have launched its LCA when and as it 
did, and that the presence of those aircraft in th e market was the "fundamental cause" of Airbus' 
market share gains.  According to the United States, a "but for" analysis of the effects of the subsidies 
is limited to determining whether the subsidy reci pient could have done what it actually did in the 
absence of the subsidies.  Therefore, a "but for" an alysis does not require cons ideration of one or more 
counterfactuals and speculating how the subsidy reci pient might have evolved differently without the 
subsidies.   
                                                      
1046United States' appellee's submission, paras. 608-611.  
1047United States' appellee's submission, paras. 609 and 611 (quoting Panel Report, para. 7.1985).  
1048United States' appellee's submission, para. 610 (quoting Panel Report, para. 7.1987). (footnote 
omitted) 
1049United States' appellee's submission, para. 612 (referring to Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 381).  
1050United States' appellee's submission, para. 617 (referring to Panel Report, para. 7.1984 and 7.1993).   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 186  
 
  443. The United States adds that the European Union mischaracterizes the Panel's findings when it 
claims that the Panel found that a "non-subsidized Airbus would exist" and that "there would have 
been different, fewer or later in time Airbus LCA products."
1051  The Panel never found that a 
non-subsidized Airbus would exist;  rather, it speculated that Airbus might  have entered the LCA 
market without the subsidies in two "plausible scenar ios", which the Panel referred to as "the unlikely 
event that Airbus would have been able to en ter the LCA market as an unsubsidized competitor."1052  
In addition, the United States emphasizes that th e European Union's counterfactual scenario is 
contradicted by the Panel's findings concerning:  (i ) the existence of significant barriers to entry into 
the LCA market, and spillover and learning effects across models of LCA;  (ii) the significant proportion of the development costs of the A300 and A310 that were covered by the subsidies;  and (iii) the four-year lag between order and delivery of ai rcraft that suggested that Airbus could not have 
benefited from high demand for single-aisle ai rcraft during the late 1980s and early 1990s.
1053  
444. The United States further argues that the Panel di d not act inconsistently with its duty under 
Article 11 of the DSU to conduct an objective assessm ent of the matter in reaching its findings that 
the effect of the subsidies wa s the displacement of Boeing LC A from the various third country 
markets at issue.  The United States considers that  the Panel properly considered the evidence and 
arguments advanced by the parties, and produced a "reasoned and comprehensive"1054 analysis to 
support its causation findings.  Referring to US – Zeroing (EC) (Article 21.5 – EC) as support, the 
United States requests the Appellate Body to reject  the European Union's claims under Article 11 of 
the DSU as mere reiterations of its claims that th e Panel erred in interpreting and applying Articles 5 
and 6.3 of the SCM Agreement .1055  The United States further request s the Appellate Body to refrain 
from interfering with the Panel's discret ion to weigh the evidence before it.  
(b) Lost sales in the same market  
445. The United States argues that the Panel correctly  held that the use of the subsidies caused 
serious prejudice to the United States' interests under Ar ticle 5(c), in the form of significant lost sales 
in the same market within the meaning of Article 6.3(c) of the SCM Agreement.   Consistent with the 
Panel's bifurcated approach to the analysis of its  serious prejudice claims, and the structure of the 
                                                      
1051United States' appellee's submission, para. 631 (quoting European Union's appellant's submission, 
para. 401 (original emphasis omitted)).  
1052United States' appellee's submission, para. 634 (quoting Panel Report, para. 7.1984).  
1053United States' appellee's submission, paras. 636-638;  Panel Report, paras. 7.1717, 7.1749, 7.1750, 
7.1934, 7.1935, 7.1948, and 7.1976. 
1054United States' appellee's submission, para. 618.  
1055United States' appellee's submission, para. 620 (referring to Appellate Body Report, US – Zeroing 
(EC) (Article 21.5 – EC) , paras. 401 and 402).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 187  
 
  European Union's claims on appeal, the United States  presents separate claims of error in relation to 
the Panel's finding concerning the existence of a lost sale and the Panel's finding that the significant 
lost sales were caused by the subsidies.  
(i) Existence of a lost sale  
446. The United States argues that the Panel did not err in finding that the Emirates Airlines sale 
constituted a "significant lost sale" under Article 6.3(c) of the SCM Agreement .  The United States 
requests the Appellate Body to uphold this finding for the reasons set out below.  
447. The United States disagrees with the European Union that the Panel presumed that Boeing 
would have secured the Emirates Airlines sale had Ai rbus not won it.  According to the United States, 
the Panel relied on evidence contained in the A380 business case to come to th e conclusion that the 
Boeing 747 competed with the A380.  The United St ates further underscores the Panel's finding that 
customers in the LCA industry consider all availabl e aircraft to fulfil their purchasing requirements, 
and therefore LCA sales campaigns involve compe tition between Airbus and Boeing even in the 
absence of a "formal, binding proposal" by either manufacturer.
1056   
448. In addition, the United States emphasizes that  the European Union does not dispute the 
Panel's conclusion that "Boeing lost sales to Airbus , in the sense that the customer purchased Airbus 
rather than Boeing LCA."1057  Instead, in noting that seating capac ity was the deciding factor in the 
Emirates Airlines' sales campaign, the European  Union acknowledges that Emirates Airlines would 
have purchased a Boeing 747 had it  not purchased an Airbus A380. 
449. Finally, the United States maintains that the European Union has failed to establish that the 
Panel acted inconsistently with Article 11 of the DSU in reaching its findings.  The United States 
suggests that the evidence on the record supported the Panel's finding that Emirates Airlines would 
have turned to the Boeing 747 had it not purch ased the A380, because it was the only other aircraft 
that could fulfil its seating capacity needs.  The United States further dismisses the European Union's 
argument that Boeing was never "serious"1058 about launching a competitor to the A380.  For this 
argument to be relevant, the European Union woul d have had to demonstrate that Boeing's 747-X was 
the only aircraft that Emirates could have considered  if the A380 was not available.  However, the 
evidence before the Panel demonstrated that Emirat es itself purchased other Boeing aircraft to fulfil 
its needs.  Therefore, the United States maintain s that Boeing's decision not to launch the 747-X does 
                                                      
1056United States' appellee's submission, para. 642 (quoting Panel Report, para. 7.1722).  
1057United States' appellee's submission, para. 643 (quoting Panel Report, para. 7.1845).  
1058United States' appellee's submission, para. 646 (quoting European Union's appellant's submission, 
para. 591).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 188  
 
  not provide a basis for disturbing the Panel's finding that the sale to Emirates was a "lost sale" under 
Article 6.3(c).   
(ii) Causation – Single-aisle lost sales  
450. The United States submits that the Panel did not err in finding, with respect to sales by Airbus 
of single-aisle aircraft to Air Asia, Air Berlin, Czech Airlines, and easyJet, that the effect of the 
subsidies was significant "lost sales in the same mark et" within the meaning of Article 6.3(c) of the 
SCM Agreement .  On the basis of the same arguments artic ulated with respect to the Panel's finding 
that the effect of the subsidies was to disp lace Boeing LCA from the European Communities and 
certain third country markets, the United States requests the Appellate Body to uphold the Panel's 
finding that the effect of the subsidies was significant lost sales in the same market under 
Article 6.3(c), to the extent it covers  the lost sales in those campaigns.  
451. First, the United States disagrees with the Eur opean Union that the Panel presumed, rather 
than established, causation when it found that the pr esence of Airbus LCA in the market sufficiently 
established that the subsidies that enabled a partic ular Airbus product launch caused Boeing to lose 
sales.  The Panel, in essence, properly establishe d a "genuine and substantial" link between the 
subsidies and Boeing's lost sales on the basis of the nature and magnitude of the subsidies, the 
conclusions of the Dorman Report, the A380 business case, undisputed public statements of 
government and Airbus officials, and the "individual  and cumulative" effect of LA/MSF in terms of 
generating economies of scope and scale.
1059  The Panel correctly took into account the conditions of 
competition in the LCA industry, where aircraft availability is "the fundamental factor"1060 in winning 
sales, in coming to the conclusion that Airbus' ma rket presence resulted in Boeing's significant lost 
sales between 2001 and 2006.  In addition, th e Panel correctly considered—and rejected—non-
attribution factors, such as Boeing's alleged mism anagement of customer relationships, geopolitical 
considerations, the role of engine manufacturers, and the events of 9/11.  The Panel correctly held that 
these factors did not dilute the "genuine and substa ntial" link between the subsidies and Boeing's lost 
sales, insofar as the availability of the subsidized LC A in the market was a "fundamental cause" of the 
sales lost by Boeing.1061   
                                                      
1059United States' appellee's submission, paras. 596-60 0;  Panel Report, para. 7.1881, 7.1911, 7.1913-
7.1918, 7.1923, 7.1935, 7.1937 , 7.1939-7.1941, and 7.1948.  
1060United States' appellee's submission, para. 604 (referring to Panel Report, paras. 7.1720, 7.1722, 
and 7.1724).  
1061United States' appellee's submission, paras. 609 and 611 (quoting Panel Report, para. 7.1985).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 189  
 
  452. Second, the United States maintains that Articles 5 and 6.3 of the SCM Agreement did not 
require the Panel to engage in sp eculation about what the conditions of competition would have been 
in the LCA market in the absence of  the subsidies.  The possibility  that an unsubsidized competitor 
might have emerged in the place of a subsidized Airbus does not negate the actual effects of the 
subsidies.  In this sense, speculation about th e conditions of competition in the absence of the 
subsidies would not affect the Panel's finding that , but for the subsidies, Airbus would not have 
launched its LCA when and as it did, and that the presence of those aircraft in the market was the 
"fundamental cause" of Airbus' sales.
1062  According to the United States,  a "but for" analysis of the 
effects of the subsidies is limited to determining wh ether the subsidy recipient could have done what 
it actually did in the absence of the subsidies.  Therefore, Articles 5(c) and 6.3 do not require consideration of one or more counterfactuals sp eculating how the subsidy recipient might have 
evolved differently without the subsidies.   
453. In addition, the United States argues that the European Union mischaracterizes the Panel's 
findings when it claims that the Panel found th at "a non-subsidized Airbus would exist".
1063  T h e  
Panel merely speculated that Airbus might  have entered the LCA market without the subsidies in two 
"plausible scenarios" in "the unlikely event that Airb us would have been able to enter the LCA market 
as an unsubsidized competitor."1064  In addition, the European Union's counterfactual scenario that a 
non-subsidized Airbus could have launched a si ngle-aisle LCA by 1987 and a twin-aisle LCA by 
1991 is contradicted by the Panel's findings concerni ng:  (i) the existence of significant barriers to 
entry into the LCA market, and spillover and learni ng effects across models of LCA;  (ii) the 
significant proportion of the development costs of the A300 and A310 that were covered by the 
subsidies;  and (iii) the four-year lag between order and delivery of aircraft that suggested that Airbus 
could not have benefited from hi gh demand for single-aisle aircraft  during the late 1980s and early 
1990s.1065  
454. Finally, the United States contends that the Pane l did not act inconsistently with its duty under 
Article 11 of the DSU to conduct an  objective assessment of the matte r in reaching its finding that the 
effect of the subsidies was significant lost sales within the meaning of Article 6.3(c).  The Panel properly considered the evidence and arguments adva nced by the parties, and produced a "reasoned 
and comprehensive"
1066 analysis to support its causation findings.  Referring to US – Zeroing (EC) 
                                                      
1062United States' appellee's submission, para. 626.  
1063United States' appellee's submission, para. 631 (quoting European Union's appellant's submission, 
para. 401 (original emphasis omitted)).  
1064United States' appellee's submission, para. 634 (quoting Panel Report, para. 7.1984).  
1065United States' appellee's submission, paras. 636-638;  Panel Report, paras. 7.1717, 7.1934, 7.1935, 
7.1948-7.1750, and 7.1976.  
1066United States' appellee's submission, para. 618.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 190  
 
  (Article 21.5 – EC)  as support, the United States requests the Appellate Body to reject the 
European Union's claims under Article 11 of the DSU as mere reiterations of its claims that the Panel 
erred in interpreting and applying Articles 5 and 6.3 of the SCM Agreement .
1067  The United States 
further requests the Appellate Body to refrain from interfering with the Panel's discretion to weigh the 
evidence before it.  
(iii) Causation – A380 lost sales  
455. The United States argues that the Panel correctly found that the subsidies enabled Airbus to 
launch the A380, thus causing Boeing to lose the Em irates Airlines, Qantas Airways, and Singapore 
Airlines significant sales under Article 6.3(c) of the SCM Agreement .  The United States requests the 
Appellate Body to reject the European Union's cl aims of error and uphold the Panel's finding that the 
effect of the subsidies was to cau se significant lost sales in the same  market within the meaning of 
Article 6.3(c) of the SCM Agreement  for the reasons set out below. 
456. The United States considers that the European  Union seeks to re-litigate a factual question 
decided by the Panel in arguing that Airbus coul d have launched the A380 in the absence of the 
subsidies.  The United States considers that the Eur opean Union's appeal is directed at the Panel's 
weighing of the evidence, which, according to the A ppellate Body, falls within  a panel's discretion as 
the initial trier of facts in a serious prejudice claim.1068  Nonetheless, the United States underscores 
that the Panel's factual findings concerning Airbus ' inability to finance the A380 in the absence of 
LA/MSF are "sound".1069 
457. The United States maintains that the Panel's fi nding that Airbus could not have launched the 
A380 in the absence of LA/MSF was not based on its  assessment of the credibility of the delivery 
forecasts contained in the A380 business case.  Instea d, the Panel specifically observed that the A380 
business case did not examine the viability of a wo rst-case scenario in the absence of LA/MSF, and 
that the ex post  sensitivity analysis submitted by the Eur opean Communities for this purpose failed to 
demonstrate that the launch would have been possible in the absence of LA/MSF.1070  T h e  
United States adds that the Appellate Body need not consider this aspect of the European Union's 
appeal because, despite its concerns regarding the completeness and accuracy of the A380 business 
                                                      
1067United States' appellee's submission, para. 620 (referring to Appellate Body Report, US – Zeroing 
(EC) (Article 21.5 – EC) , paras. 401 and 402).  
1068United States' appellee's submission, para. 649 (referring to Appellate Body Report, US – Upland 
Cotton  (Article 21.5 – Brazil) , para. 357).  
1069United States' appellee's submission, para. 651.  
1070United States' appellee's submission, para. 652 (referring to Panel Report, para. 7.1922-7.1927).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 191  
 
  case, the Panel actually assumed that "the {A380} business case ... demonstrate{s} a positive {net 
present value} in a no-LA/MSF and Realistic Worse Case Scenario."
1071 
458. Second, the United States submits that the Panel objectively assessed and correctly rejected 
evidence concerning the availability of financing from EADS and BAE Systems for the development 
of the A380.  The Panel correctly found that EADS' Offering Memorandum1072 did not demonstrate 
how its corporate restructuring would have enabled the company to raise the funds that its constituent 
companies were unable to raise a few years earlier.  Similarly, the European Union's reference to BAE 
Systems' annual balance sheet does not sufficiently  establish that the company would have committed 
additional funds to the A380 project.  The United St ates adds that the UK Department of Trade and 
Industry specifically contradicted this assertion when it stated that "the fundamental rationale of {LA/MSF} is to address the apparent unwillingness of  the capital markets to fund projects with such 
high product development costs, high technological  and market risks and such long pay back 
periods."
1073   
459. In addition, the United States submits that the Panel took into account and correctly rejected 
the European Communities' argument that risk-sha ring suppliers would have been willing to put 
additional capital into the development of the A380.   The Panel correctly held that Boeing securing a 
larger share of risk-sharing supplier financing for the development of the 787 a few years later did not 
establish that Airbus would have been able to incr ease that modality of financing for the development 
of the A380.  The fact that the Panel reached a di fferent conclusion than the European Union in this 
respect does not provide a basis for a reversal of this finding. 
460. Finally, the United States argues that the Eu ropean Union seeks to avoid the financial and 
technical cumulative effects of the subsidies gran ted for the development of earlier Airbus LCA by 
invoking a counterfactual scenario in which Airbus could have launched a single-aisle aircraft in 
1987, a 200-300 seat LCA in 1991, and the A380 in 2000, without access to LA/MSF.  The Panel 
considered such a hypothetical scenario, but found it "unlikely" that Airbus would have achieved its 
market position, sales, and technical expertise in the absence of the subsidies.1074  The United States 
adds that the Panel's findings concerning the effect s of the subsidies would not be undermined by 
additional findings with respect to a "wholly sp eculative counterfactual under which an entirely 
                                                      
1071United States' appellee's submission, para. 653 (quoting Panel Report, para. 7.1943).  
1072EADS' Offering Memorandum, supra , footnote 163. 
1073United States' appellee's submission, para. 656 (quoting Panel Report, para. 7.1917;  and referring to 
paras. 7.1918 and 7.1920).  
1074United States' appellee's submi ssion, para. 660;  see also ibid., section IX.D.4.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 192  
 
  unsubsidized Airbus could have la unched fewer and different LCA at different times", and still have 
been able to launch the A380 in 2000.
1075 
(c) Non-LA/MSF subsidies  
461. The United States argues that the Panel correc tly held that non-LA/MSF subsidies caused 
displacement and lost sales within the meaning of Article 6.3 (a), (b), and (c) of the SCM Agreement .  
In particular, the Panel correctly held that equity  infusion and share transfer measures undertaken by 
the Governments of France and Germany, infrastru cture subsidies, and R&TD subsidies caused the 
displacement of Boeing LCA from the European Communities and third country markets under 
Article 6.3(a) and (b), and significant lost sales in the same market under Article 6.3(c), of the 
SCM Agreement .   
462. The United States submits that the Panel's decisi on to analyze the effect of all subsidies at 
issue on an aggregated basis is consistent with the SCM Agreement and with past panel and Appellate 
Body findings in this regard.  The United Stat es stresses that Article 6.3 does not provide a 
methodology for the establishment of causation, and simply requires demonstration that a subsidy causes serious prejudice.  According to the United Stat es, an aggregated analysis of the effects of the 
subsidies at issue satisfied the requirements of Article 6.3 because each of the subsidies at issue 
shared a common causal link, in that they "fac ilitated Airbus' development of its LCA family."
1076  
Referring to the panel and A ppellate Body reports in US – Upland Cotton , the United States recalls 
that a panel may assess the effects of subsidies coll ectively, provided those subsidies share a sufficient 
nexus with the subsidized product and their effects manifest themselves collectively.1077 
463. The United States maintains further that the European Union mischaracterizes the Panel's 
findings in arguing that the Panel established "causation by association".1078  In the United States' 
view, the Panel's aggregated analysis was based on its  finding that the nature and operation of each of 
the challenged subsidies enhanced Airbus' ability to develop and bring to the market its LCA family, 
consequently allowing Airbus to gain market shar e and significant sales at Boeing's expense.  Thus, 
the Panel's finding, that differences in "structure, operation, and design"1079 of the different subsidies 
                                                      
1075United States' appellee's submission, para. 660.  
1076United States' appellee's submission, para. 663.  
1077United States' appellee's submission, para. 664 (referring to Panel Report, US – Upland Cotton , 
para. 7.1192;  and Appellate Body Report, US – Upland Cotton , paras. 483 and 484).  
1078United States' appellee's submission, para. 666 (quoting European Union's appellant's submission, 
para. 656).  
1079United States' appellee's submission, para. 667 (quoting Panel Report, para. 7.1956).    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 193  
 
  did not preclude an aggregated analysis, was base d on a "shared nexus" between each of the subsidies 
and the demonstrated displacement and lost sales.
1080 
464. The United States emphasizes that the Panel's causation findings fo r non-LA/MSF subsidies 
were based on its review of an "exhaustive record " that led it to conclude that all non-LA/MSF 
subsidies "were granted during the period each  succeeding model of Airbus LCA was being 
developed and brought to market"1081 and that they "complemented and supplemented" the product 
effect of LA/MSF.1082  The United States emphasizes that, elsewhere in its appellant's submission, the 
European Union clearly acknowledges the nexus am ong the subsidies in explaining that the purpose 
of the French Government's capital contribut ions "was to fund expansion in LCA product 
development".1083 
465. The United States charges the Eur opean Union with trying to re-litigate factual issues decided 
by the Panel on the nature, magnitude, and timing of  each subsidy.  In addition, the United States 
contends that the European Union entirely overlooks the Panel's analysis of the timing of each subsidy 
in supporting the development of the Airbus product in respect of which the subsidies were provided.  
The United States opines further that the European  Union's argument that the Panel should have 
established that each subsidy was "necessary" to enab le a particular product launch implies too high 
of a standard for an aggregated analysis of causa tion under Article 6.3.  Su ch standard would permit 
circumvention of the disciplines of Article 6.3 by subdividing subsidy programmes into smaller 
measures that individually would not have been found to cause adverse effects, but which, in the 
aggregate, would negatively affect competition in a manner inconsistent with Articles 5 and 6.3.  
Thus, the Panel's decision to assess cumulatively the effects of measures operating the same causal mechanism was correct, even if certain subsidies, in isolation, would not have caused adverse effects.  
466. On this basis, the United States submits that th e Panel correctly applied the causation standard 
in Article 6.3 when it undertook an aggregated analysis of LA/MSF and non-LA/MSF measures based 
on its finding that these measures sh ared a sufficient nexus both with the subsidized product and the 
particular effects-related variable under consideration.  The Panel corr ectly held that each subsidy that 
was provided in respect of Airbus LCA was "granted during the period {that} each succeeding model 
                                                     
 
1080United States' appellee's submission, para. 667. 
1081United States' appellee's submission, para. 668 (quoting Panel Report, footnote 5692 to 
para. 7.1956).  
1082United States' appellee's submission, para. 668 (quoting Panel Report, para. 7.1956).  
1083United States' appellee's submission, para. 670 (quoting European Union's appellant's submission, 
para. 1094, in turn referring to European Communities'  first written submission to the Panel, paras. 1134 
and 1135 (original emphasis omitted)).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 194  
 
  of Airbus LCA was being deve loped and brought to market"
1084, and that each subsidy operated by the 
same causal mechanism—facilitating Airbus' ability to bring to market its full family of LCA.   
(d) The relevance of the 1992 Agreement  
467. Finally, the United States rejects the European  Union's claims that the Panel erred in its 
interpretation of Article 5(c) of the SCM Agreement , and acted inconsistently with Articles 11 
and 12.7 of the DSU, by failing to  address the European Communities' arguments with respect to the 
relevance of the 1992 Agreement in its assessment of  the United States' claims of serious prejudice. 
468. The United States argues that the European Union fails to explain why the Panel's failure to 
"make reference" to its arguments on the relevance of the 1992 Agreement in its serious prejudice 
analysis amounts to legal error under Articles 11 and 12.7 of the DSU.  These provisions require 
panels to make an "objective examination" and to set out "the basic rationale behind any findings and 
recommendations that it makes."  The Appellate Body has found that Article 11 of the DSU gives a 
panel the discretion to "address only those arguments  it deems necessary to resolve a particular 
claim."1085  The Appellate Body has also explained that Article 12.7 "establishes a minimum standard 
for the reasoning that panels must provide in supp ort of their findings and recommendations", one that 
"disclose{s} the essential, or fundamental, jus tification" for those findings and recommendations.1086  
The United States argues that the Panel's findings of violation under Article 5(c) of the 
SCM Agreement provided an objective assessment of the a pplicability of and conformity with the 
covered agreements under Article 11 and disclosed the "essential, or fundamental, justification for 
those findings" under Article 12.7 of the DSU. 
469. In the event the Appellate Body were to consid er that the European Union's arguments on the 
1992 Agreement were relevant for the Panel's anal ysis under Article 5(c), the United States submits 
that the European Union's arguments in this r espect would fail.  As the Panel correctly noted, 
Article 2 of the 1992 Agreement suggests that the par ties intended to preserve their right to challenge 
pre-1992 measures for consistency with the GATT/WTO subsidies disciplines.  This suggests that the 
1992 Agreement does not preclude a party from raisi ng claims of violati on in respect of WTO 
obligations.  In addition, contrary to the Eu ropean Union's suggestion, compliance with the 
                                                      
1084United States' appellee's submission, para. 673 (quoting Panel Report, footnote 5692 to 
para. 7.1956).  
1085United States' appellee's submission, para. 680 (quoting Appellate Body Report, EC – Poultry , 
para. 135). (emphasis added by the United States omitted) 
1086United States' appellee's submission, para. 679 (quoting Appellate Body Report, Chile – Price Band 
System (Article 21.5 – Argentina) , para. 243, in turn quoting Appellate Body Report, Mexico – Corn Syrup 
(Article 21.5 – US) , para. 106).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 195  
 
  1992 Agreement is not a "fact" that the Panel was re quired to take into account, but rather a "legal 
conclusion" that was not within the Panel's terms of  reference.  Thus, in the United States' view, it 
would have been improper for the Panel to take into account as a "fact" something that constitutes a 
legal conclusion that it was not entitled to make.  
C. Claims of the United States – Other Appellant 
1. The LA/MSF "Programme"
 
470. In its other appeal, the United States claims that the Panel erred in concluding that the 
United States had not demonstrated the existenc e of the alleged LA/MSF "Programme".  The 
United States requests the Appellate Body to rever se the Panel's finding and complete the analysis by 
ruling that the challenged measure "constitutes a sp ecific subsidy, provided by France, Germany, 
Spain and the United Kingdom to Airbus, that cau ses adverse effects to the interests of the 
United States."1087 
471. The United States emphasizes that it informed th e Panel on "multiple occasions" that its claim 
against the alleged LA/MSF Programme was not an "as such" challenge.1088  Rather, it challenged the 
LA/MSF Programme as "a measure that currently is breaching  EC obligations under the {SCM 
Agreement} by causing adverse effects to  the interests of the United States."1089  Yet the Panel applied 
the legal framework set out by the Appellate Body in US – Zeroing (EC)  for determining whether an 
alleged measure could be challenge d "as such" in WTO dispute settlement proceedings.  According to 
the United States, in so doing it "committed legal e rror and incorrectly inferred from the facts before it 
that the United States had not demonstrated  the existence of the {LA/MSF} Program."1090 
472. Referring to the Appellate Body report in US – Continued Zeroing , the United States suggests 
that "a Member's 'ongoing conduct' may itsel f be challengeable in WTO dispute settlement 
proceedings, separate from the specific applications of that conduct in particular circumstances."1091  
Rather than applying this approach in evaluati ng the United States' claim against the alleged LA/MSF 
Programme, the Panel began its analysis by re viewing the Appellate Body's findings in US – Zeroing 
(EC) , where one of the measures at issue was challenge d "as such".  In doing so the Panel erred by 
                                                      
1087United States' other appellant's submission, paras. 82 and 83(e).  
1088United States' other appellant's submission, para. 43 (referring to Panel Report, para. 7.518;  
United States' response to Panel Question  136, para. 4;  and United States' oral statement at the second Panel 
meeting, paras. 34-37). 
1089United States' other appellant's submission, para. 43 (quoting United States' response to Panel 
Question 136, para. 4 (original underlining)). 
1090United States' other appellant's submission, para. 42. 
1091United States' other appellant's submission, para. 44 (referring to Appellate Body Report, US – 
Continued Zeroing , paras. 180 and 181). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 196  
 
  requiring the United States to demonstrate the "gener al and prospective application" of the LA/MSF 
Programme, although such a requirement, according to the United States, "is uniquely related to 'as 
such' challenges", and the United States had explaine d to the Panel that it was not challenging the 
LA/MSF Programme "as such".
1092 
473. The United States also takes issue with the Pa nel's alternative finding that, even if the 
United States was not required to establish the gene ral and prospective application of the alleged 
unwritten LA/MSF Programme, the Panel would neverthe less have concluded that the United States 
had not demonstrated that an unwritten LA/MSF Progr amme exists.  In reaching this conclusion, the 
Panel effectively continued to require the Un ited States to establish general and prospective 
application, although the Panel had said it would not  do so.  The United States argues that the Panel 
appeared to have considered this characteristic to be inherent in any "programme" and therefore 
imposed a higher burden for complaining Members that  direct their challenge against a "programme" 
instead of "some other label"1093 for an unwritten measure.  Yet, for the United States, the standard for 
evaluating whether a measure exists should not depe nd on whether a complaining party describes the 
object of its challenge as a "programme", "po licy", "ongoing conduct", "continued use", or 
"moratorium".1094 
474. The United States requests the Appellate Body to  complete the legal analysis using the 
"proper legal framework" for evaluating the Unit ed States' claim against the alleged LA/MSF 
Programme and on the basis of the factual findings made by the Panel.  The United States suggests 
that, had the Panel followed the approach set out by the Appellate Body in US – Continued Zeroing , 
where the Appellate Body found that "'ongoing condu ct' itself may be challengeable in WTO dispute 
settlement proceedings", it would have found the existence of an unwritten LA/MSF Programme.1095 
475. The United States describes the alleged LA /MSF Programme as "ongoing conduct" or 
"repeated provision of {LA/MSF} to each and ever y major Airbus model, under the same four core 
conditions and benefiting the same subsidized product".1096  The United States further explains that its 
challenge before the Panel "was based on a demonstr ation that over the past four decades (since 
1969), the Airbus governments have consistently s ubsidized Airbus, in the form of {LA/MSF}, by 
underwriting the costs of developing each and every single model through long-term unsecured loans 
at zero or below-market rates of interest, with b ack-loaded repayment schedules that allow Airbus to 
                                                      
1092United States' other appellant's submission, paras. 42, 45, and 47. 
1093United States' other appellant's submission, para. 51. 
1094United States' other appellant's submission, para. 51. 
1095United States' other appellant's submission, paras. 53 and 58. 
1096United States' other appellant's submission, para. 61.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 197  
 
  repay the loans through a levy on each delivery of the financed aircraft."
1097  According to the 
United States, the Panel's factual findings, viewed in  the light of the Appellate Body's analysis in US – 
Continued Zeroing , demonstrate the existence of the LA/MSF Programme "as a measure subject to 
challenge in WTO dispute settlement proceedings".1098  The United States emphasizes that its 
complaint is not directed against a measure with "general and prospective application".  Instead, it 
refers to the alleged LA/MSF Programme as consis ting "of the repeated provision of {LA/MSF} on 
the same four 'core terms'" and argues that "{LA/M SF} had been provided in respect of every model 
of aircraft for which Airbus sought such assistance over four decades."1099  According to the 
United States, "the Panel's factual findings, viewed in  the light of the Appellate Body's analysis in 
US – Continued Zeroing , make clear that the United States had demonstrated the existence of the 
{LA/MSF} Program as a measure subject to ch allenge in WTO dispute settlement proceedings."1100  
Additional factual findings1101 by the Panel "indicate that the provision of {LA/MSF} in respect of 
each of the models challenged by the United States we re not 'one-off grant{s} of a single subsidy' for 
the development of that model"1102, but instead reflect "a concerted and coherent approach—that is, a 
'program' or 'ongoing conduct'—designed to cont ribute to the long-term competitiveness of 
Airbus".1103   
476. In conclusion, the United States submits that the facts found by the Panel demonstrate the 
existence of the measure challenged by the Unite d States as a repeated course of action by the 
responding Members.  Specifically, those facts show the consistent and repeated use of LA/MSF, "on 
the same four 'core terms', for all major models of  Airbus aircraft since 1969, together with the 
recognition by governments and Airbus that an LCA manufacturer needed to produce a range of 
aircraft models in order to be successful, which was the objective of establishing Airbus."1104  Thus 
"each individual grant of {LA/MSF} effectuated the broader scheme that the Airbus governments 
maintain to ensure that at least one of  the world's LCA producers will be European."1105  T a k e n  
collectively, the United States argues, "these fact s evince the {LA/MSF} Program, a specific course 
                                                      
1097United States' other appellant's submission, para. 60. 
1098United States' other appellant's submission, para. 64. 
1099United States' other appellant's submission, para. 64. 
1100United States' other appellant's submission, para. 64. 
1101United States' other appellant's submission, para. 69 (referring to Panel Report, paras. 7.1665-
7.1667, 7.1721, and 7.1726). 
1102United States' other appellant's submission, para. 70 (quoting Panel Report, para. 7.1975). 
1103United States' other appellant's submission, para. 70. 
1104United States' other appellant's submission, para. 71. 
1105United States' other appellant's submission, para. 71. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 198  
 
  of ongoing conduct comprising a 'measure', separate  from the individual instances of {LA/MSF}, that 
is the proper subject of challenge in  WTO dispute settlement proceedings."
1106  
477. The United States maintains that the alleged LA/MSF Programme constitutes a subsidy that 
causes adverse effects to the interest s of the United States.  In support of its position, the United States 
recalls that the Panel found the existence of a fi nancial contribution and a benefit for each of the 
individual instances of LA/MSF, and that the Panel agreed with the United States that each of these 
subsidies was "specific".1107  The Panel also found that the effect  of the subsidies in this dispute was 
displacement in the EC and third country market s and significant lost sales within the meaning of 
Article 6.3 of the SCM Agreement .1108  In addition, the United States points to the Panel's finding that 
the ability of Airbus "to launch, develop, and intr oduce to the market, each of its LCA models was 
dependent on subsidized LA/MSF."1109  On this basis, the United States submits that the Panel's 
findings and analysis provide the factual and legal basis for the Appellate Body to find that the 
LA/MSF Programme "caused serious prejudice to the interests of the United States in the form of 
displacement of United States' LCA from the EC an d certain third country markets and the significant 
lost sales during the period 2001-2006 found by th e Panel with respect to individual instances of 
{LA/MSF}".1110 
2. Export Subsidies  
478. The United States appeals the Panel's finding that the LA/MSF contracts by France for 
the A380 and the A330-2001111, and the LA/MSF contracts by France and Spain for the 
                                                      
1106United States' other appellant's submission, para. 71. 
1107United States' other appellant's submission, para. 73 (referring to Panel Report, paras. 7.377, 7.379, 
7.488-7.490, and 7.497). 
1108United States' other appellant's submission, paras. 77 and 78 (referring to Panel Report, 
para. 7.1993). 
1109United States' other appellant's submission, para. 80 (quoting Panel Report, para. 7.1949). 
1110United States' other appellant's submission, para. 81. 
1111The "French A380 contract" (Panel  Exhibit US-116 (BCI)) is the Agreement (of 20 March 2002) 
between the aeronautical programme service (SPAé) as signatory authority of the agreement acting on behalf and for the account of the State, on the one hand, and the company Airbus France, on the other hand, 
concerning the Airbus A380 repayable advance . 
The "French A330-200 contract" (Panel Exhibit US-78 (BCI)) is the Agreement (of 28  November 1996) 
between the signatory authority of the agreement acting on behalf and for the account of the State, on the one 
hand, and Aérospatiale, on the other hand, concerning the development of the Airbus A330-200 .  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 199  
 
  A340-500/600
1112, do not constitute subsidies contingent in fact upon anticipated export performance 
within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement .  Although the Panel also 
found that the United States failed to  establish that the subsidies at issue were contingent in law upon 
anticipated export performance, the United States has not appealed this finding. 
(a) The alleged requirement imposed by the Panel on evidence 
concerning motivation 
479. The United States submits that a de facto  contingent relationship between the granting of a 
subsidy and anticipated exportation, within the meani ng of footnote 4, must be inferred from the total 
configuration of the facts constituting and surrounding the granting of the subsidy.  According to the 
United States, "{n}othing in the text of Article 3.1 or footnote 4 compels an inquiry into the subjective 
intent of a Member in the context of the tie between the subsidy and anticipated exports."1113  Rather, 
the Appellate Body has emphasized that "this rela tionship of contingency, between the subsidy and 
export performance, must be inferred from the total configuration of the facts constituting and 
surrounding the granting of the subsi dy, none of which ... is likely to  be decisive in any given 
case."1114  Thus, the "subjective motivation of a granting authority may be one factor in that analysis, 
but is not in and of itself a necessary condition for a finding of contingency".1115  Furthermore, 
referring to the disputes in Australia – Automotive Leather II  and Canada – Aircraft , the 
United States maintains that "{p}revious A ppellate Body and pane l reports examining de facto  export 
subsidies make clear that the demonstration of the tie between a subsidy and anticipated exports does 
not require evidence of subjective motivation of the subsidizing Member."1116   
                                                      
1112The "French A340-500/600 contract" (Panel Exhibit US-36 (BCI)) is the Agreement (of 
29 December 1998) between the signatory authority of the agreement on behalf and for the account of the State, on the one hand, and Aérospatiale, on the other hand, concerning the development of the Airbus A340-500 and 
A340-600 .  We note that the Panel interchangeably referred to Panel Exhibits US-35 (BCI) and US-36 (BCI) as 
the French A340-500/600 contract , and at times it referred to Panel E xhibit US-36 (BCI)) as the French A340-
500/600 convention  (see Panel Report, footnotes 2259 and 3243).  In this Report, we refer to the agreement 
contained in Panel Exhibit US-36 (BCI) as the French A340-500/600 contract.   
The "Spanish A340-500/600 contract" (Panel Exhibits EC-87 (BCI) and US-37 (BCI)) is the 
Framework Cooperation Agreement (of 28 December 1998) between the Ministry of Industry and Energy and 
the company Construcciones Aeronáuticas S.A. on finan cing the participation of the said company in the 
development of the programme Airbus A340-500 and A340-600 .  
1113United States' other appellant's submission, para. 8. (original emphasis) 
1114United States' other appellant's submission, para. 8 (quoting Appellate Body Report, Canada – 
Aircraft , para. 167 (original emphasis)). 
1115United States' other appellant's submission, para. 8. 
1116United States' other appellant's submission, para. 9. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 200  
 
  480. The United States submits that the Panel "departed significantly"
1117 from the objective legal 
standard of contingency under Artic le 3.1(a) and footnote 4 in its analysis of the United States' export 
subsidy claims.  Instead, "the Panel effectively an d erroneously applied a standard, not found in the 
text of the SCM Agreement, that requires  evidence of specific member State 'motivation' to find 
export subsidization."1118 The United States recalls that, as the Panel found, each of the seven 
LA/MSF contracts at issue established repayment terms that required Airbus to make a substantial 
number of exports.1119  This finding led the Panel to conclude that the evidence supported the view 
that the provision of the seven LA/MSF contracts on sales-dependent repayment terms was, at least in 
part, "conditional" upon the LA/MSF governments'  anticipated exportation or export earnings.1120  
The Panel's recognition of "conditionality" or "depende nce" at this point "was sufficient to determine 
that the provision of all seven instances of {L A/MSF} contracts was tied to anticipated exports".1121  
For the United States, the Panel erroneously conclu ded that this demonstration was "{not} decisive" 
and, following a review of additional evidence provided by the United States, found that only the 
German, Spanish, and UK A380 LA/MSF constituted de facto  export subsidies.1122 
481. Quoting the Panel's finding in paragraph 7.690 of its Report, the United States argues that the 
Panel found the following four elements "critical" to its finding of de facto  export contingency with 
respect to the German, Spanish, and UK A380 LA /MSF:  (i) repayment terms that necessarily 
involved exportation;  (ii) anticipation of export pe rformance;  (iii) member  States' reliance on full 
repayment by Airbus;  and (iv) the motivation of the member States to promote exports through the 
LA/MSF contracts.  According to the United States, the Panel "found the first three of these factors to 
exist with respect to all seven challenged instances of {LA/MSF}"1123, and the "only element that the 
Panel did not find for the French A380, French  and Spanish A340-500/600 and French A330-200 
{LA/MSF} was the specific motivation of the respective member State to promote exports."1124  Thus, 
the Panel "effectively required  evidence of specific motivation in  order to find a tie between the 
subsidy and anticipated exports".1125   
                                                      
1117United States' other appellant's submission, para. 12. 
1118United States' other appellant's submission, para. 12. (original emphasis) 
1119United States' other appellant's submission, para. 13 (referring to Panel Report, para. 7.678).  The 
seven contracts include the four that are the subject of the United States' other appeal, as well as the German, 
Spanish, and UK LA/MSF contracts for th e A380 that were found by the Panel to be subsidies contingent in fact 
upon export performance. (See Panel Report, para. 7.690) 
1120United States' other appellant's submission, para. 13 (referring to Panel Report, para. 7.678). 
1121United States' other appellant's submission, para. 13. 
1122United States' other appellant's submission, para. 14 (quoting Panel Report, para. 7.678). 
1123United States' other appellant's submission, para. 16 (original emphasis) (referring to Panel Report, 
paras. 7.654, 7.657, 7.660, and 7.678). 
1124United States' other appellant's submission, para. 16. 
1125United States' other appellant's submission, para. 16. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 201  
 
  482. According to the United States, the Panel's "qu est for evidence of the subjective motivation of 
the member States is particularly apparent in its  analysis" with respect to the Spanish A340-500/600 
contract.
1126  As the Panel acknowledged, the preambul ar language in the Spanish A340-500/600 
contract was similar to the language contained in the Spanish A380 contract.1127  Further, the Panel 
had found that the Spanish A380 contract constituted a subsidy contingent in fact upon export 
performance.  However, the Pane l determined that the pream bular language in the Spanish 
A340-500/600 contract "did not reflect the motivati on of the Spanish government in entering into the 
{LA/MSF} contract" and was therefore "meaningful ly different" from the language in the Spanish 
A380 contract.1128  Thus, given that the Panel ultimately concluded that the Spanish A340-500/600 
contract did not constitute a s ubsidy contingent in fact upon export performance, the Panel 
"effectively concluded that what it considered to be the absence of direct evidence of ... specific 
motivation was dispositive and precluded a finding of de facto  export subsidization."1129   
483. The United States further submits that, "{a}s pa nels and the Appellate Body have recognized, 
divining the subjective motivation of a Member pur suing a particular policy may not always be 
possible, particularly given the multiple motiva tions that may underlie the adoption of a given 
measure."1130  Thus, if "subjective motivation were a necessary requirement for reaching a finding of 
de facto  export subsidization, a subsidizing Member c ould tie the grant of a subsidy to exports and 
still avoid a finding of WTO-inconsiste ncy, for example, simply by ensuring no public statements of 
motivation were made or included in the measure or discussion of it, or by publicly declaring 
additional motivations that did not rela te to the desire to increase exports."1131  As a result, the 
prohibition on export subsidies under Artic le 3.1(a) and footnote 4 of the SCM Agreement  "would be 
easily circumvented".1132 
                                                      
1126United States other appellant's submission, para. 17. 
1127United States' other appellant's submission, para. 17 and footnote 16 to para. 18 (referring to Panel 
Report, para. 7.681, in turn quoting the "Spanish A380 contract" (Panel Exhibits EC-88 (BCI) and US-73 
(BCI)), Cooperation Agreement between the Ministry of Science and Technology (MCYT) and the company 
EADS Airbus SL on financing the par ticipation of the said company in th e development of the Airbus A-380 
family programme , preamble, 7th recital, which is BCI).  
1128United States' other appellant's submission, para. 18. 
1129United States' other appellant's submission, para. 19.  
1130United States' other appellant's submission, para. 21 (referring to Panel Report, Japan – DRAMs 
(Korea) , para. 7.104;  Appellate Body Report, Japan – Alcoholic Beverages II , pp. 27-29, DSR 1996:I, 97, 
at 119-121;  GATT Panel Report, EEC – Parts and Components , para. 5.6;  Appellate Body Report, US – Offset 
Act (Byrd Amendment) , para. 259;  Panel Report, Japan – Film , para. 10.87;  Panel Report, EC – Approval and 
Marketing of Biotech Products , para. 7.2558;  and Appellate Body Report, Chile – Alcoholic Beverages , 
paras. 62 and 63). 
1131United States' other appellant's submission, para. 21. 
1132United States' other appellant's submission, para. 20. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 202  
 
  484. Moreover, the United States contends that the Panel derived evidence concerning the 
governments' motivation from contract language revea ling that the member Stat es' decisions to enter 
into these contracts were driven by, or in "contractual reliance"
1133 on, Airbus' assurance that a 
substantial amount of sales would be exports.  Accord ing to the United States, by explicitly making 
such contract language the determinative basis fo r finding that the subsidies were contingent upon 
export performance, "the Panel has essentially reduced  compliance with Article 3.1 and footnote 4 to 
a semantic matter of deleting a few phrases from future financing agreements."1134 
485. On this basis, the United States maintains that  the Panel introduced a subjective requirement 
that does not exist in Article 3.1(a) and footnote 4, and requests the Appellate Body to reverse the 
Panel's finding that the United States had not show n that the French A380 contract, the French and 
Spanish A340-500/600 contracts, and the French A330-200 contract were contingent in fact upon 
anticipated export performance. 
(b) The United States' request for completion of the analysis 
486. The United States requests the Appellate Body to  complete the analysis by applying the 
correct legal standard and by concluding, on the b asis of the Panel's factual findings or undisputed 
facts, that the French LA/MSF contracts for th e A380, the A340-500/600, and the A330-200, and the 
Spanish LA/MSF contract for the A340-500/600, constituted subsidies contingent in fact upon 
anticipated export performance w ithin the meaning of Article 3.1(a) and footnote 4 of the 
SCM Agreement .   
487. The United States maintains that, before the Pa nel, it established that the member States 
expected certain levels of export performance in re turn for the provision of LA/MSF, and that these 
expectations "were based not only on the significan t export-oriented nature of Airbus, but also on 
assurances provided by Airbus forecasts and existing or ders for certain models at the time the member 
States committed to provide {LA/MSF}."1135  The United States furt her argues that "{t}hese 
expectations, and Airbus' commitment to meet or  exceed them, were codified in the form of 
{LA/MSF} contracts signed by each member State for a particular model of aircraft" and that, 
"{w}ithout these contracts, {LA/MSF} would not have been provided."1136  Thus, each of the 
LA/MSF contracts reflects an "exchange of commi tments", whereby the governments committed to 
                                                      
1133United States' other appellant's submission, para. 22 (quoting Panel Report, para. 7.683). 
1134United States' other appellant's submission, para. 22. 
1135United States' other appellant's submission, para. 26. 
1136United States' other appellant's submission, para. 26.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 203  
 
  provide the loans in exchange for Airbus' commitment to repay the lo ans on the basis of a specified 
number of aircraft sales that could not be achieved without exports.   
488. The United States emphasizes that "it is the particular structure of the {LA/MSF} contracts 
that provides the 'conditionality' required under Article 3.1(a) and footnote 4".
1137  Specifically, the 
member States "could have structured these contracts in other ways", for example, "by establishing a repayment calendar based on specific dates without re gard to the deliveries made by Airbus" or by 
requiring "repayment over much smaller numbers of  deliveries" that "could be reached without 
necessarily exporting".
1138  Instead, "by tying repayment of ... loan s to a specific numb er of deliveries 
that required exportation"1139, the LA/MSF contracts reflect an exchange of commitments that "is the 
essence of 'conditionality'" between the granting of  a subsidy and export performance, within the 
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement .1140   
489. On this basis, the United States requests the Appellate Body to find that the French A380 
contract, the French and Spanish A340-500/600 contracts, and the French A330-200 contract 
constituted subsidies contingent in fact upon export performance within  the meaning of Article 3.1(a) 
and footnote 4 of the SCM Agreement .  The United States further requests the Appellate Body to 
clarify that the Panel's recommendation, pursuant to Article 4.7 of the SCM Agreement , that the 
measures found to constitute export subsidies in th is dispute be withdrawn within 90 days, also 
applies to these contracts. 
D. Arguments of the European Union – Appellee  
1. The LA/MSF "Programme"  
490. The European Union supports the Panel's finding that the United States failed to establish the 
existence of the alleged LA/MSF Programme.  As a preliminary matter, the European Union argues 
that the United States has failed, in its Notice of Ot her Appeal, to identify the legal provision alleged 
to be erroneously interpreted or  applied by the Panel, as require d under Rule 23(2)(c)(ii) of the 
Working Procedures for Appellate Review .  The European Union submits th at, even in the light of the 
United States' other appellant's submission, "it is s till not clear which legal provision(s) of the covered 
agreements the United States is alleging the Panel violated."1141 
                                                      
1137United States' other appellant's submission, para. 31. 
1138United States' other appellant's submission, para. 31. 
1139United States' other appellant's submission, para. 32. 
1140United States' other appellant's submission, para. 33. 
1141European Union's appellee's submission, para. 203. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 204  
 
  491. In addition, the European Union contends, a revi ew of the actual content of the United States' 
arguments on appeal reveals a focus on the Panel's factual determination regarding the existence of 
the alleged LA/MSF Programme, yet the United States has failed to properly raise this appeal under 
Article 11 of the DSU.  According to the European Union, the United States is confusing two distinct 
issues.  The first is whether a measure, as describ ed by the complaining Member, exists.  For the 
European Union, this issue is a matter of facts and evidence, "and would have to be appealed pursuant 
to Article 11 of the DSU ".
1142  The second issue relates to the legal question of whether a measure, 
assuming it exists, can be challenged under WTO disput e settlement.  This latter issue was addressed 
by the Appellate Body in US – Continued Zeroing , and serves as the core focus of the United States' 
other appellant's submission.  This issue is not  relevant to the present case, however, "because the 
Parties agree that a subsidy programme is capable  of being a measure for the purposes of dispute 
settlement."1143  Based on this reasoning, the European Uni on argues that, to the extent the Appellate 
Body finds that the United States is "lodging implicit challenges" under Article 11 of the DSU, "those challenges must be dismissed due to the US failure to include them in its Notice of Other Appeal, and 
the lack of due process that would result if the Appellate Body were to evaluate them."
1144 
492. In any event, the European Un ion argues that the Panel properl y relied on the Appellate Body 
report in US – Zeroing (EC)  for guidance, given that the United States describes the alleged LA/MSF 
Programme in terms of the measure at issue in that  dispute.  According to the European Union, the 
United States also failed in its attempt to identify any inconsistency between the Panel's findings and 
the Appellate Body report in US – Continued Zeroing , on which the United States asserts the Panel 
should have relied.  Moreover, wh ile "that Appellate Body Report  stands for the proposition that 
'ongoing conduct' might constitute an unwritten measu re that can be challenged in WTO dispute 
settlement, such 'ongoing conduct' must constitute more  than simply a 'repeated course of action'."1145  
The European Union recognizes, however, that a "'repeated course of action' can, in certain 
circumstances, be evidence  of an unwritten measure with prospective applicability", noting that, when 
completing the analysis and assessing the existence of the measures asserted by the European Communities in US – Continued Zeroing , the Appellate Body emphasized that "it was 
looking for evidence of future applicability."
1146  Thus, the Appellate Body assessed the "'repeated 
course of action' not as automatically constituting a measure, but simply as evidence of an unwritten 
                                                      
1142European Union's appellee's submission, para. 205. 
1143European Union's appellee's submission, para. 205. 
1144European Union's appellee's submission, para. 227. 
1145European Union's appellee's submission, para. 250 (original emphasis) (referring to United States' 
other appellant's submission, para. 58). 
1146European Union's appellee's submission, para. 250 (original emphasis) (referring to Appellate Body 
Report, US – Continued Zeroing , para. 191).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 205  
 
  measure that would 'likely continue to be applied'".
1147  According to the European Union, the 
United States has in this case disregarded this asp ect of the reasoning by the Appellate Body in US – 
Continued Zeroing . 
493. The European Union further argues that, in US – Continued Zeroing , "there was clearly an 
intermediate level between the zeroing methodolog y and the individual administrative reviews."1148  
According to the European Union, "{t}his intermedia te level was variously referred to as the duty, or 
the order, or the methodology as applied to a part icular product exported from the European Union to 
the United States."1149  This is why the European Union "w as able to explain that it was not 
challenging the methodology ('as such'), but that in addition to challenging th e administrative reviews 
it was also challenging the intermediate level that  implied the continued future use of the zeroing 
methodology."1150  The European Union emphasizes that "the  point about the intermediate level was 
that it was of prospective application."1151  By contrast, in the present dispute "there is no intermediate 
level:  there is only the alleged {LA/}MSF progr amme and the instances of its application."1152  The 
European Union concludes from this that the attemp ts by the United States to articulate an alleged 
legal error, based on a supposed distinction with US – Zeroing (EC)  and the assertion that the 
United States is not challenging the alleged LA/MSF Programme "as such", "must necessarily 
fail".1153  The European Union further ar gues that any finding by the A ppellate Body that the alleged 
LA/MSF Programme existed and cons tituted a subsidy that caused adverse effects would not extend 
the scope of the European Union's implementati on obligations, "as it does not add to the 'adverse 
effects' to be removed under Article 7.8 of the SCM Agreement  or those 'determined to exist', within 
the meaning of Articles 7.9 and 7.10 of the SCM Agreement " as a result of individual LA/MSF 
measures.1154 
494. The European Union argues that the United Stat es has changed the description of the measure 
it challenges on appeal, now simply combining into  a single measure all instances of past LA/MSF 
loans.  Under the United States' approach, "the whole is not greater than the sum of its constituent 
parts."1155  The European Union adds that, while it ass erts that the alleged LA/MSF Programme is a 
"broader scheme" than, and "separate from", th e individual instances of LA/MSF loans, "the 
                                                      
1147European Union's appellee's submission, para. 250.  
1148European Union's appellee's submission, para. 211. 
1149European Union's appellee's submission, para. 211. 
1150European Union's appellee's submission, para. 211. 
1151European Union's appellee's submission, para. 211. 
1152European Union's appellee's submission, para. 212. 
1153European Union's appellee's submission, para. 213. 
1154European Union's appellee's submission, footnote 237 to para. 214. 
1155European Union's appellee's submission, para. 209. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 206  
 
  United States fails to cite to any evidence other th an that relating to the individual {LA/}MSF loans 
for the proposition that the alleged programme c onstitutes a subsidy and causes adverse effects."
1156  
The European Union also emphasizes that th e present challenge against the alleged LA/MSF 
Programme is "markedly different than a challenge that the United States could have attempted to 
lodge, but did not—i.e., an 'as such' challenge to an {LA/}MSF programme, as a whole, where the programme was demonstrated to satisfy the characteristics of an ongoing programme."
1157 
495. Even assuming that the Appellate Body were to find that the Panel had applied an erroneous 
legal standard, the European Union submits that th e Appellate Body should nevertheless reject the 
United States' request to complete the legal analys is to find the existence of the alleged unwritten 
LA/MSF Programme.  First, the United States failed to notify, in its Notice of Other Appeal, its 
request that the Appellate Body complete the an alysis.  Second, completing the analysis is not 
expressly provided for in the DSU and "should, ther efore, be limited to exceptional circumstances 
only".1158  The European Union adds that the "Appellate  Body should be vigilant to preserve the due 
process rights of the European Union, including its ri ght to have facts assessed by a panel, and the 
option of having that assessment reviewed by the Appellate Body, under Article 11 of the DSU ."1159 
496. The European Union further argues that the A ppellate Body is precluded from completing the 
analysis regarding the existence of the allege d LA/MSF Programme "given that the United States 
relies on a set of facts and related factual finding s that it raises on appeal for the first time in 
connection with the question of the existence of the alleged {LA/}MSF programme."1160  In particular, 
the European Union asserts that, "in support of its request that the Appellate Body find that the 
alleged {LA/}MSF programme exists", the United Stat es refers "for the first time to various Panel 
findings suggesting that 'a successful LCA manufacturer requires a family  of aircraft' and the positive 
effects on its competitiveness of 'commonality' between its models."1161  According to the 
European Union, since "the United States did not refe r to that evidence in the context of its argument 
to the Panel about the existence of the {LA/MSF}  programme, the European Union had no reason to 
comment on the relevance ... for the proposition it is  currently being used to support—specifically 
whether France, Germany, Spain and the Un ited Kingdom operated {an LA/MSF programme}."1162  
The European Union maintains that, if, "in the cont ext of completing the analysis, the Appellate Body 
                                                      
1156European Union's appellee's submission, footnote 233 to para. 209. 
1157European Union's appellee's submission, para. 210. 
1158European Union's appellee's submission, para. 266. 
1159European Union's appellee's submission, para. 266. 
1160European Union's appellee's submission, para. 268. 
1161European Union's appellee's submission, para. 268 (quoting United States' other appellant's 
submission, para. 65 (original emphasis), and referring to para. 67).  
1162European Union's appellee's submission, para. 268.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 207  
 
  were to use these facts and related factual findings in an entirely new context, it would deprive the 
European Union of its due process rights to comment  on the relevance of those facts in that new 
context."
1163   
497. Finally, even if the Appellate Body were to  complete the analysis pursuant to any legal 
framework set out in US – Continued Zeroing , the European Union argues that the alleged LA/MSF 
Programme does not involve conduct that can be attri buted to France, Germany, Spain, and the United 
Kingdom.  Nor is there a clear definition of what the conduct entails.  In particular, the 
European Union argues that the "four core terms" to  which the United States alludes "are neither very 
specific, nor well defined, nor monolithic or automatic as was the zeroing methodology at issue in US – Continued Zeroing ."
1164  Rather, according to the European Union, such "core terms" "constitute 
generic descriptions of features in a financing agreement, and mask the significant differences 
between the various, individually negotiated {LA/}MSF loans that the Panel pointed out in its factual 
findings quoted above."1165  Moreover, and contrary to the measures at issue in US – Continued 
Zeroing , the European Union claims that the alle ged LA/MSF Programme is not prospectively 
applicable. 
2. Export Subsidies  
498. The European Union maintains that the Appellate  Body should reject the United States' claim 
that the Panel erred in finding that the French A380 contract, the French and Spanish A340-500/600 
contracts, and the French A330-200 contract were not  contingent in fact upon export performance.  As 
a preliminary matter, the European Union contends  that the Appellate Body should examine each of 
the four LA/MSF measures separately.  The Europ ean Union noted that, in its other appellant's 
submission, the United States does not "clearly separate and distinguish between" the above four 
measures.1166  According to the European Union, "it is appropriate and necessary" to examine each 
measure individually because "the United States makes 'in fact' claims and the facts of each case are 
different".1167  The European Union notes that, before the Panel, the United States identified the four 
measures separately, the European Communities struct ured its defence by reference to each measure 
separately, and the Panel structured its analysis in  the same way.  Thus, the European Union argues 
                                                      
1163European Union's appellee's submission, para. 269. 
1164European Union's appellee's submission, paras. 302 and 303 (referring to Panel Report, para. 7.525).  
1165European Union's appellee's submission, para. 303.  
1166European Union's appellee's submission, para. 20. 
1167European Union's appellee's submission, para. 21. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 208  
 
  that "the same approach should apply in these app eal proceedings, both with respect to the US 
requests for reversals and the US requests for 'completion of the analysis'".
1168 
499. The European Union submits that the United St ates' appeal "is precluded by the terms of 
Article 17.6 of the DSU and must be rejected", be cause it does not concern issues of law covered in 
the Panel Report or legal interp retations made by the Panel.1169  According to the European Union, the 
deficiency in the Panel's findings appealed by the United States relates to the weighing of the 
evidence and the Panel's failure to explain how the evidenced facts work together to demonstrate the 
existence and precise content of a subsidy contingent in fact upon anticipated exportation.  Therefore, 
the United States should have brought its other appeal under Article 11 of the DSU, but the 
United States failed to do so.  The European Un ion further argues that the United Sates neither 
claimed that the Panel erred in its interpretation of the legal standard, nor claimed that the Panel 
adopted an erroneous legal characterization of the facts.  Thus, in the European Union's view, the 
Appellate Body should reject the United States' appeal as outside the scope of its review.   
(a) The alleged requirement imposed by the Panel on evidence 
concerning motivation 
500. The European Union maintains that, contrary to  the United States' argument, the Panel neither 
established, nor applied, a standard that requi res evidence of motivation.  Instead, the Panel 
established a double standard for de termining export contingency by finding that the grant of the 
subsidy must be " conditional " upon actual or anticipated export perfo rmance, or, the subsidy must be 
granted " because " of actual or anticipated export performance.1170  To the European Union, the 
"double legal standard articulated and expressly a pplied by the Panel, and particularly the first 
element of it, manifestly does not require  any consideration of motivation."1171  Therefore, the 
European Union argues that the Panel applied the double standard it articulated and did not require 
evidence of motivation in reaching its conclusion.  Ra ther, the Panel merely stated that "it reached its 
finding on the basis of the total configuration of the facts ".1172  The European Union further noted 
that, although the United States referred to the Panel' s finding in paragraph 7.690 of the Panel Report 
                                                      
1168European Union's appellee's submission, para. 21. 
1169European Union's appellee's submission, paras. 22 and 23. 
1170European Union's appellee's submission, para. 38 (quoting Panel Report, para. 7.648 (original 
emphasis)). 
1171European Union's appellee's submission, para. 44. (original emphasis) 
1172European Union's appellee's submission, para. 45. (original emphasis)   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 209  
 
  in support of its assertion, the Panel did not stat e in that finding that motivation was "critical"
1173, but 
simply stated that "the evidence it considered included  evidence about motivation".1174   
501. Moreover, the European Union maintains that, with respect to the French LA/MSF contracts 
for the A380, the A340-500/600, and the A330-200, the United States provides no further evidence and develops no further legal ar gument in support of its assertion that the Panel applied a legal 
standard that requires evidence of motivation.  Wi th respect to the Spanish LA/MSF contract for the 
A340-500/600, the European Union submits that th e United States seeks to rely on the Panel's finding 
in paragraph 7.687, even though the Panel merely stated in that paragraph that "the evidence it 
considered included  evidence about motivation."
1175  In these circumstances, the European Union 
maintains, the Appellate Body must conclude that  there is simply no basis for the United States' 
appeal of the Panel's findings regarding these measures. 
502. The European Union thus submits that the A ppellate Body should reject the United States' 
appeal that the Panel erred in establishing and appl ying a standard requiring evidence of motivation in 
order to find that a subsidy is contingent in fact upon export performance.  The European Union further maintains that, in its Other Appeal, "the United States incidentally expressly agrees with the 
European Union that 'motivation' cannot be 'd ispositive' of a finding of export contingency."
1176  The 
European Union therefore submits that "there is  no disagreement between the Parties on this point" 
and that, consequently, the Appellate Body should acc ept the European Union's first set of grounds of 
appeal, that the Panel erred in interpreting Article 3.1(a) of the SCM Agreement  by imposing a 
dependent motivation standard.1177 
(b) The United States' request for completion of the analysis 
503. The European Union argues that the United States'  request that the Appellate Body complete 
the analysis should be rejected because the United St ates failed to include such a request in its Notice 
of Other Appeal.  The European Union submits that, consistent with the principle of due process, if a 
Notice of Other Appeal does not contain a statemen t of the nature of the other appeal, the other 
appellant is precluded from enlarging the scope of  appeal by raising that matter in its written 
submission.   
                                                      
1173European Union's appellee's submission, para. 46 (quoting United States' other appellant's 
submission, para. 16). 
1174European Union's appellee's submission, para. 46. (original emphasis)  
1175European Union's appellee's submission, para. 50. (original emphasis) 
1176European Union's appellee's submission, para. 54 (quoting United States' other appellant's 
submission, para. 19). 
1177European Union's appellee's submission, para. 54. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 210  
 
  504. Moreover, the European Union submits that, because completion of the analysis is not 
expressly provided for in the DSU and is c onsidered an "implied or inherent power"
1178, it should "be 
exercised with restraint".1179  The European Union sets out the following general principles that it 
considers should guide the Appellate Body's deci sion as to whether to complete the analysis:  
completion of the analysis should not take place for matters not subject to co nsultations pursuant to 
Article 4 of the DSU;  completion of the analysis should respect the rights of third parties;  
completion of the analysis should not take place in  relation to any matter with respect to which the 
complaining party failed to make a prima facie  case;  completion of the analysis should not extend to 
fact-finding;  completion of the analysis should r espect the "fundamental two-tier structure of WTO 
dispute settlement";  completion of the analysis may not be based on facts other than those submitted in the first written submission or in response to a pa nel's questions;  completion of the analysis should 
not be based on factual inferences unless the party concerned was given a full opportunity during the 
panel proceedings to rebut such inferences;  co mpletion of the analysis should not be based on 
disputed facts;  and completion of the analysis shou ld not be based on facts on the panel record that 
have not been referenced or discussed.
1180 
505. The European Union argues that the Appellate Body has typically "completed the analysis" 
where a panel had not ruled on a claim due to consid erations for judicial economy, or had erred with 
respect to its terms of reference.  However, ne ither situation exists in  this dispute.  The 
European Union further submits that completion of the analysis by the Appellate Body should not 
extend to fact-finding, either on the basis of direct  evidence or on the basis of inference drawn from 
the evidence on the panel record.  Acco rding to the European Union, in this appeal, "it is exactly such 
a process of fact finding, based on inference from othe r facts that are evidenced , that the United States 
is requesting the Appellate Body to undertake."1181  Specifically, the European Union notes that the 
United States has limited its other appeal to the Pa nel's findings on in fact export contingency.  The 
European Union maintains that, for an analysis of  in fact export contingency, "an adjudicator will 
have to first consider how the directly ev idenced facts, working together, imply that other facts  
(of which there is no direct evidence) may reasonably be found ."1182 
506. Moreover, the European Union contends that, in  past disputes, the Appellate Body completed 
the analysis only if there was sufficient factual b asis on which to do so.  Yet, the European Union 
argues, such a sufficient factual b asis is lacking in this dispute.  Specifically, although the issue of 
                                                      
1178European Union's appellee's submission, para. 62. 
1179European Union's appellee's submission, para. 63. 
1180European Union's appellee's submission, paras. 62-74.   
1181European Union's appellee's submission, para. 84. 
1182European Union's appellee's submission, para. 84. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 211  
 
  whether the LA/MSF contracts were consistent with  the terms of the 1992 Agreement was part of the 
total configuration of the facts surrounding the granting of the subsidies, the Panel Report contains no 
findings in this respect.  Moreover, the facts regardin g the following are in dispute:  (i) the meaning of 
"export" and "Europe";  (ii) the size of the Eur opean Union market;  (iii) the assertion that the 
LA/MSF contracts would be construed by a domestic  judge as imposing an obligation to export;  and 
(iv) the alleged "anticip ation" regarding exports.
1183  The European Union further contends that, in its 
request for completion of the analysis, the United St ates "completely failed" to set out the uncontested 
facts and evidence on which it might seek to rely.1184   
507. In addition, the European Uni on asserts that completion of the analysis would be "highly 
prejudicial" to the due process rights of the European Union.1185  Specifically, the United States 
introduced new claims and eviden ce in its second written submission to the Panel.  Moreover, the 
Panel erroneously made the case for the United States by imposing the "dependent motivation" 
standard1186, and erroneously transposed evidence rela ting to anticipated exportation into the 
assessment of contingency.1187  Thus, all of the relevant fact ual assertions and evidence "have not 
been subject to and tested and refined in th e proper procedural dialectic" before the Panel.1188  For 
these reasons, the European Union alleges, completion of  the analysis would also be prejudicial to the 
due process rights of the third parties to this dispute.   
508. The European Union also contends that "fundamental and irreconcilable internal 
contradictions" in the Panel Report preclude the Appellate Body from completing the analysis.  The 
European Union recalls the contradiction between the Panel's findings, reached on the basis of the 
same evidence, that the LA/MSF measures were not contingent in law upon export performance, but 
were contingent in fact upon export performance.  According to the European Union, should the Appellate Body complete the analysis, as request ed by the United States, and find all seven LA/MSF 
measures to be contingent in fact upon export pe rformance, the "fundamental" contradictions in the 
Panel's findings would remain in the final panel a nd Appellate Body reports to be adopted by the 
DSB.  In the European Union's view, the Appe llate Body should avoid such an outcome. 
                                                     
 
1183European Union's appellee's submission, paras. 88-92. 
1184European Union's appellee's submission, para. 109. 
1185European Union's appellee's submission, para. 93. 
1186European Union's appellee's submission, para. 97. 
1187European Union's appellee's submission, para. 100 (referring to European Union's appellant's 
submission, paras. 1471-1473). 
1188European Union's appellee's submission, paras. 96 and 99. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 212  
 
  509. In any event, the European Union argues, shoul d the Appellate Body decide to complete the 
analysis, it would find that the French and Spanish A340-500/600 contracts and the French A380 and 
A330-200 contracts do not constitute  subsidies contingent in fact upon export performance.  The 
European Union maintains that, if the Appella te Body accepts the United States' claim that 
motivation, alone, cannot be "dispositive" of a determ ination regarding export contingency, then the 
Appellate Body must also reject the legal standard  advanced by the United States for the purpose of 
completing the analysis.  Specifically, the United States has advanced a legal standard whereby a 
subsidy must be prohibited if the granting Member's  anticipation of exports motivates them to grant 
the subsidy.  Therefore, the Appellate Body will no t be able to complete the analysis, as requested, on 
the basis of the legal standard a dvanced by the United States.   
510. The European Union argues that, to complete the analysis, the Appellate Body must also 
consider whether the facts surrounding the granting of the four LA/MSF contracts demonstrate that, 
"in each case", the measure constitutes a subs idy contingent in fact upon export performance.
1189  For 
this purpose, the European Union maintains, th e Appellate Body should take into account all the 
relevant claims and arguments of the European  Union in its appellant's submission.  The 
European Union further maintains that, applying th e correct legal standard, the Appellate Body should 
find that none of the four LA/MSF contracts cons titutes an export subsidy.  In particular, the 
European Union submits that Airbus is under no ob ligation to export under these contracts, and none 
of the contracts provides any preference to exports over domestic sales.  Moreover, the 
European Union asserts that none of the contracts demonstrates that the member State granted a 
subsidy because it "anticipated" exports.1190  In addition, the European Union contends that the 
Appellate Body should find that sales-dependent repayment provisions were incorporated under the 
LA/MSF contracts because such repayment provisions  correspond to the allocation of risk between 
the relevant governments and Airbus.1191  Therefore, the fact that the market for LCA "might happen 
to extend beyond the territory of the granting Member (as most product markets do these days) does 
not lead to the conclusion that there is a subs idy contingent/conditional in fact upon anticipated 
export."1192   
511. On this basis, the European Un ion contends that the Appellate Body should not complete the 
analysis and find that the French A380 contract, th e French and Spanish A340-500/600 contracts, and 
the French A330-200 contract are contingent in  fact upon export performance, as requested by the 
                                                      
1189European Union's appellee's submission, para. 124. 
1190European Union's appellee's submission, paras. 130, 137, 144, and 151. 
1191European Union's appellee's submission, paras. 131, 138, 145, and 152. 
1192European Union's appellee's submission, paras. 132, 139, 146, and 153.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 213  
 
  United States.  Consequently, the European Union subm its that the Appellate Body should also reject 
the United States' request that the Appellate Body recommend that the seven LA/MSF measures 
found to constitute export subsidi es be withdrawn without delay. 
E. Arguments of the Third Participants 
1. Australia
 
(a) The temporal scope of Article 5 of the SCM Agreement  
512. Australia disagrees with the European Union's argument that the Panel erred by "concluding 
that all alleged actionable subsidies granted by th e European Union prior to 1 January 1995 were not 
excluded from the temporal scope of this dispute,  and thereby fall under the obligation contained in 
Article 5 of the SCM Agreement ."1193  According to Australia, the "ben efit" that is "thereby conferred" 
under Article 1.1(b) of the SCM Agreement , and the effect of the subsidies on the United States under 
Article 5 of the SCM Agreement , have not necessarily "ceased to exist" under Article 28 of the Vienna 
Convention  simply because the "act" or the "fact" of the provision of the "financial contribution" has 
already occurred under Article 1.1(a)(1) of the SCM Agreement .  Australia concludes that "{t}he 
provisions of Article 5 of the SCM Agreemen t (which are concerned with the effects  caused through 
the use  of a subsidy ) can thus apply with respect to a subsidy granted prior to 1 January 1995."1194  
Australia further submits that "the 'economic effe cts of government {conduct}' are precisely what is 
disciplined by Part III of the SCM Agreement."1195 
(b) The LA/MSF "Programme" 
513. For Australia, the Panel's conclusion that the United States had not demonstrated the 
existence of the alleged LA/MSF Programme appears to have "turned mainly" on the fact that the 
United States failed to prove that the alleged measure would necessarily be continued into the 
future.1196  However, according to Australia, such a s howing "is of less relevance" when considering 
an alleged measure that consists of  "ongoing conduct" as was the case in US – Continued Zeroing .1197  
To the extent that the Appellate Body shares the Panel's concern in this case that "future LA/MSF 
'would {not} necessarily involve the provision of loans … at below-market interest rates'"1198, 
                                                      
1193Australia's third participant's submission, para. 16 (quoting European Union's appellant's 
submission, para. 27). 
1194Australia's third participant's submission, para. 21. (original underlining) 
1195Australia's third participant's submission, para. 22 (quoting European Union's appellant's 
submission, para. 46). 
1196Australia's third participant's submission, para. 66. 
1197Australia's third participant's submission, para. 69. 
1198Australia's third participant's submission, para. 71 (quoting Panel Report, paragraph 7.531). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 214  
 
  Australia argues that if a future round of LA/MSF we re provided at market in terest rates then this 
would mean that the alleged LA/MSF Programme "had e ither not been used in that instance and/or no 
longer existed."
1199  According to Australia, "{a}ny dispute settlement action in respect of that round 
of funding that relied on the existence of the {LA/MSF Programme} would thus necessarily fail."1200 
(c) The 1992 Agreement  
514. Australia submits that the Appellate Body  must examine, "as a threshold issue"1201, whether 
the 1992 Agreement is a "relevant rule{} of internati onal law applicable in the relations between the 
parties" pursuant to Article 31(3)(c) of the Vienna Convention , given its importance to the present 
case, as well as the "significant systemic implic ations" for the WTO dispute settlement regime.1202   
515. Australia submits that "the parties" in Article 31(3)(c) of the Vienna Convention , must be 
understood as referring to all the parties to the treaty be ing interpreted.  In support, Australia refers to 
previous Appellate Body reports in which the A ppellate Body interpreted "the parties" in 
Article 31(3)(a) and (b) of the Vienna Convention  as meaning all WTO Members.1203  Australia 
asserts that, "{i}f all parties are required to have  entered into an agreement for the purposes of 
Article 31(3)(a) or to have accepted, albeit tacitly, a subsequent practice for Article 31(3)(b) to apply 
... it would be unlikely that the drafters of Article 31 would have intended, by the use of the identical 
term 'the parties' in Article 31(3)(c), that rul es of international law which are only applicable in 
relations between a subset of the parties to a treaty could be taken into account under that 
provision."1204  Turning to the context provided by Article 31(2) of the Vienna Convention , Australia 
supports the view of the panel in EC – Approval and Marketing of Biotech Products  that "all the 
parties" is used in Article 31(2)(a) to make clear  the difference between the class of documents at 
issues in that provision (namely agreements made be tween all the parties) and the class of documents 
at issue in Article 31(2)(b) (nam ely instruments made by some of the parties and accepted by all).1205  
Moreover, Australia submits that when the drafters of the Vienna Convention  intended to refer to a 
subset of the parties to a treaty, they did so expr essly, as evidenced in the reference to "one or more 
parties" in Article 31(2)(b) of the Vienna Convention .  Australia further argues that the 
                                                      
1199Australia's third participant's submission, para. 71. 
1200Australia's third participant's submission, para. 71. 
1201Australia's third participant's submission, para. 3. 
1202Australia's third participant's submission, para. 3.  
1203Australia's third participant's submission, paras.  8 and 9 (referring to Appellate Body Reports, EC – 
Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III (Article 21.5 – US) , para. 391;  and Appellate Body 
Report, EC – Chicken Cuts , footnote 515 to para. 272).   
1204Australia's third participant's submission, para. 10.  
1205Australia's third participant's submission,  para. 11 (referring to Panel Report, EC – Approval and 
Marketing of Biotech Products , footnote 242 to para. 7.68).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 215  
 
  European Union in its submission refers mistakenly  to the object and purpose of Article 31(3)(c) of 
the Vienna Convention , and not the object and purpose of the treaty overall, as mandated by 
Article 31(1) of the Vienna Convention , and as previously mandated by the Appellate Body.
1206 
(d) Export subsidies 
516. Australia submits that "the Panel placed undue em phasis on one fact in the 'total configuration 
of the facts'" constituting and surrounding the granting of the subsidy, that is, "the motivation of the 
grantor of the subsidy."1207  Australia argues that, contrary to the Panel's finding, a consideration of 
the "facts" should go beyond a consideration of whether or not "the subsidy was granted because  the 
granting authority anticipated export performance".1208  Australia maintains that the Panel, by using 
the term "because", "appears to be moving away fro m the interpretation of footnote 4 espoused by the 
Appellate Body in Canada – Aircraft ".1209  Furthermore, Australia contends that, although a 
government's motivations for granting a subsidy may be relevant, it will not, as the Panel found, 
necessarily be "highly relevant" to the question of contingency.1210   
517. In Australia's view, the facts examined by th e Panel regarding anticipated exportation and the 
sales-dependent repayment provision in the LA/MSF contracts "demonstrate a close relationship between the granting of the subs idy and anticipated exportation".
1211  Yet the Panel failed to 
"convincingly explain" why these facts were not sufficient and why the "additional evidence" in 
respect of the German, Spanish, and UK LA/MSF cont racts, together with these facts, demonstrated 
the relationship of contingency.1212   
518. Australia further submits that, contrary to the European Union's argument, the applicability of 
footnote 4 is not limited to "situations where there is  no 'direct evidence' of the granting of a subsidy 
made legally contingent upon export".1213  Rather, "footnote 4 comes into play where a complaining 
Member alleges that 'the granting of a subsidy,  without having been made legally contingent upon 
export performance, is in fact tied to actual or anticipated exportation or export earnings'."1214  I n  
addition, Australia disagrees with the European Union that a subsidy is contingent in fact upon export 
                                                      
1206Australia's third participant's submission, para. 15 (referring to Appellate Body Report, China – 
Publications and Audiovisual Products , para. 348). 
1207Australia's third participant's submission, para. 26. 
1208Australia's third participant's submission, para. 27 (quoting Panel Report, para. 7.644 (original 
italics)). (underlining added by Australia) 
1209Australia's third participant's submission, para. 31. 
1210Australia's third participant's submission, para. 29 (quoting Panel Report, para. 7.675). 
1211Australia's third participant's submission, para. 34. 
1212Australia's third participant's submission, para. 34. 
1213Australia's third participant's submission, para. 36. 
1214Australia's third participant's submission, para. 36. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 216  
 
  performance only if it was granted "because of" an export that has occurred, or only if the subsidy 
must be repaid should the anticipated export fail to occur.
1215  According to Australia, "the granting of 
the subsidies may be found to be tied to the grantor' s anticipation that exports would occur" even if "a 
grantee does not subsequently export".1216  Moreover, consistent with the panel's and the Appellate 
Body's approach in Canada – Aircraft , "{t}here was no requirement that the assistance be repaid if the 
exportation or export earnings did not, in fact, eventuate."1217 
519. Finally, Australia requests that the Appellate Body "be mindful of"1218 the European Union's 
concerns regarding potential discrimination created by the Panel's findings "against small or export 
dependent economies".1219  Australia submits that the Appellate Body should consider the second 
sentence of footnote 4 to be relevant in this regard .  In Australia's view, although export propensity of 
the recipient of a subsidy is one element in the total configuration of facts surrounding the granting of 
a subsidy, it must not be conf used with export contingency. 
(e) Infrastructure measures 
520. Australia submits that the Panel correctly an alyzed whether a government had provided goods 
or services other than general infrastructure to Air bus, and whether a benefit was thereby conferred.  
Australia argues that it is artificial to separate the "creation" and "provision" of infrastructure because 
the infrastructure in this case was "created" sp ecifically for Airbus, to which it was to be 
"provided".1220  Australia asserts that the Mühlenberger Lo ch site, the extension of the runway at the 
Bremen airport and the associated noise reduction m easures, and the Aéroconstellation site and EIG 
facilities were "goods or services" provided by "a go vernment", and that each was specifically created 
for Airbus.1221   
521. In respect of benefit, Australia summarizes th e Panel's assessment of the provision of the 
Mühlenberger Loch site, the extension of the runw ay at the Bremen airport and the associated noise 
reduction measures, and the development of the Aéro constellation site and the construction of the EIG 
facilities, and argues that the Panel correctly assesse d whether a benefit was conferred by focusing on 
whether the financial contribution was received "on te rms more favourable than those available to the 
                                                      
1215Australia's third participant's submission, paras. 37-42. 
1216Australia's third participant's submission, para. 44.   
1217Australia's third participant's submission, para. 45 (referring to Panel Report, Canada – Aircraft , 
para. 9.343). 
1218Australia's third participant's submission, para. 47. 
1219Australia's third participant's submission, para. 46 (quoting European Union's appellant's 
submission, para. 1359). 
1220Australia's third participant's submission, para. 74. 
1221Australia's third participant's submission, para. 75.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 217  
 
  recipient in the market", as required by Article 1.1 of the SCM Agreement and the Canada – Aircraft  
decisions.
1222 
(f) The subsidized product and product market 
522. Referring to the Panel report in Korea – Commercial Vessels , Australia argues that "in this 
dispute, it was for the United States to determine th e basis and nature of its complaint and then to 
establish the required causal relationship."1223  According to Australia, in the context of a claim under 
Part III of the SCM Agreement , if the complaining Member frames its  complaint in such a way that it 
is unable to show that the other Member has caused  "through the use of any subsidy" adverse effects 
to its interests—either because of its choice of th e "subsidized product" or otherwise—then its claim 
will fail.1224  Australia adds that "{t}here is no requireme nt in the SCM Agreement that a panel 'make 
the case' for the complainant."1225 
(g) Adverse effects 
523. Australia agrees with the European Union that the Panel should have completed its 
counterfactual analysis in order to determine the conditions of competition in the LCA market in the 
absence of the subsidies.  Austra lia asserts that in order for a subsidy to cause serious prejudice under 
Article 6.3 of the SCM Agreement , there must be a "genuine and su bstantial relationship of cause and 
effect" between the subsidy and the effect.1226  Australia argues that a panel's consideration of a 
hypothetical situation that would have exis ted in the absence of the contested subsidy 
—a "counterfactual"—is a legitimate tool to use to determine the effect of a subsidy.1227  Australia 
points out that "the Panel found 'that there ar e multiple possibilities for the LCA industry in the 
counterfactual world that would exist in the absence of subsidies to Airbus'".1228  Australia maintains 
that the Panel made multiple findings regarding causa tion that allowed for the possibility that Airbus 
could have sold LCA in competition with LCA produced by United States' manufacturers even 
without subsidies.1229  Australia notes that the Panel did not address the fundamental question of 
                                                      
1222Australia's third participant's submission, paras. 78-81 (referring to Panel Report, paras. 7.1093, 
7.1096, 7.1133, 7.1182, 7.1188, and 7.1190;  and Appellate Body Report, Canada – Aircraft , para. 157). 
1223Australia's third participant's submission,  para. 50 (referring to Panel Report, Korea – Commercial 
Vessels , paras. 7.559 and 7.560). 
1224Australia's third participant's submission, para. 51. 
1225Australia's third participant's submission, para. 51. 
1226Australia's third participant's submission, para. 55 (referring to Appellate Body Report, US – 
Upland Cotton (Article 21.5 – Brazil) , para. 374, in turn quoting Appellate Body Report, US – Wheat Gluten , 
para. 69). 
1227Australia's third participant's submission, para. 56. 
1228Australia's third participant's submission, para. 56 (quoting Panel Report, para. 7.1984). 
1229Australia's third participant's submission, paras. 55-61 (referring to Panel Report, paras. 7.1967, 
7.1972, 7.1984, 7.1986, and 7.1993, and footnote 5758 to para. 7.1985). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 218  
 
  whether a non-subsidized Airbus c ould have launched, sold, and deliv ered any particular LCA that 
Airbus actually launched, sold, and delivered afte r finding that subsidies to Airbus resulted in 
"different" competition.
1230  Australia stresses that the Appellate Body should carefully assess whether 
the Panel should have considered  counterfactual situations as part of its causation analysis.  
2. Brazil  
(a) The LA/MSF "Programme" 
524. Brazil submits that, in finding that the LA /MSF Programme could not be challenged as an 
actionable subsidy, the Panel incorrectly requi red the United States to demonstrate that the 
programme existed as an unwritten norm that had "general and pr ospective application".  Brazil 
emphasizes that "it would not be proper to require a demonstration of the 'general and prospective 
application' of measures that are not ch allenged on an 'as such' basis as a 'norm'."1231 
525. According to Brazil, the approach followed by the Appellate Body in US – Continued Zeroing 
when examining "ongoing conduct" was the more a ppropriate framework given that this dispute 
"essentially concerns the question of continuous {L A/MSF} as a prohibited or actionable subsidy, 
rather than specific inst ances of past {LA/MSF}".1232  While Brazil does not express a view on the 
factual findings of the Panel in this case, it suggests that the Panel's misguided approach to analyzing 
the LA/MSF Programme as a "norm" that required "g eneral and prospective application" may have 
had an impact on its factual assessment of the evidence presented by the United States. 
(b) Export subsidies 
526. Brazil contends that the Panel "appears to ha ve treated the subjective motivation of the 
subsidizing Member as expressed through the text of  the {LA/MSF} contracts and public statements 
as a necessary element of proof of de facto  export contingency."1233  According to Brazil, the Panel's 
approach seems inconsistent with the Appellate Body's finding, in Canada – Aircraft , that the 
elements required to show de facto contingency "must be inferred from the total configuration of facts  
constituting and surrounding the granting of the subsid y, none of which on its own is likely to be 
decisive in any given case."1234  Brazil recalls that the Panel found de facto  export contingency if there 
                                                      
1230Australia's third participant's submission, paras. 61 (quoting European Union's appellant's 
submission, para. 399) and 62. 
1231Brazil's third participant's submi ssion, para. 26 (referring to Panel Report, para. 7.518 and quoting 
para. 7.519). 
1232Brazil's third participant' s submission, para. 31. 
1233Brazil's third participant's submission, para. 3 (referring to Panel Report, para. 7.690). 
1234Brazil's third participant's submission, para. 4 (quoting Appellate Body Report,  Canada – Aircraft , 
para. 167 (original italics)). (underlining added by Brazil)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 219  
 
  was an "exchange of commitments" and if th ere was sufficient evidence of the respective 
government's motivation.  Furthermore, Brazil argues,  the Panel reached its conclusion in relation to 
motivation in large part by considering public statements, and by dissecting the language of the 
LA/MSF contracts, with certain text being sufficien t to show motivation and certain other text being 
insufficient.  In Brazil's view, this amounts to a very narrow approach in analyzing the "total 
configuration of the facts".  Brazil expresses c oncern that, if the most probative evidence of 
motivation is the inclusion of certain key words or  phrases in a contract or in public statements, a 
Member could escape applicable disciplines by simply avoiding such references.  According to Brazil, 
therefore, the Panel's approach could easily lead to  circumvention of the disciplines under Article 3 of 
the SCM Agreement .  Brazil thus submits that "{t}he 'motivation' of a government should remain only 
one element in the total configuration of the facts—not the decisive factor."
1235 
527. Moreover, Brazil argues that the Appellate Body should continue to fo llow the "precedent set 
out in Canada – Aircraft " by finding de facto export contingency when the three elements set out in 
footnote 4 of the SCM Agreement  are present—that is:  (i) the "granting" of a subsidy;  (ii) is "tied to";  
and (iii) "actual or anticipated  exportation or export earnings".1236  Based on this approach, Brazil 
submits that "it would be sufficient to demonstrate the existence of a relationship of conditionality, to 
be inferred from the facts, between the granting of the subsidy, on the one hand, and expected 
exportation or export earnings, possibly as one among several conditions, on the other hand."1237  
Brazil further submits that "{d}emonstrating that a subsidy was granted because of anticipated export 
performance (in the form of expected export sales or earnings) may satisfy the requirements for 
demonstrating de facto export contingency."1238  Nonetheless, "{t}he 'anticipated' (or 'expected') 
export performance" need not "act ually occur in order to find de facto contingency" and need not 
"necessarily ... be expressed in the form  of a future performance obligation."1239 
528. With respect to the specific m easures at issue, Brazil contends  that the European Union's 
statements that "{the LA/}MSF measures unconditionally  advance the funds" and that such "{an} 
unconditional subsidy is, by its express terms,  not a subsidy contingent upon export"1240, do not 
accord with certain factual findings of the Panel.  Brazil highlights the Panel's findings that "the 
per-aircraft levies expressly called for under each of the challenged contracts are mandatory and 
                                                      
1235Brazil's third participant' s submission, para. 8. 
1236Brazil's third participant's submission, pa ra. 13 (quoting Appellate Body Report, Canada – Aircraft , 
para. 169.) 
1237Brazil's third participant' s submission, para. 15. 
1238Brazil's third participant's submissi on, para. 12. (original emphasis) 
1239Brazil's third participant' s submission, para. 12.  
1240Brazil's third participant's submission, para. 16 (quoting European Union's appellant submission, 
paras. 1310 and 1312). (emphasis added by Brazil) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 220  
 
  therefore must be complied with after each and ever y relevant aircraft sale" and that "under each of 
the seven LA/MSF contracts at issue, Airbus was required to repay the loaned principal plus any 
interest from the proceeds of the sale of a specifi ed number of LCA developed with the financing 
provided by the EC member States."
1241  Brazil further notes that the Panel found that "{a}lthough the 
text of the repayment provisions is neutral as to the origin of the required sales, it is clear from various 
pieces of information that achieving the level of sal es needed to fully repay each loan would require 
Airbus to make a substa ntial number of exports."1242  Brazil thus contends that the evidence before the 
Panel "indicated that the {LA/MSF} contracts were  concluded on the basis of an explicit commitment 
that could only be met through sales that neces sarily would imply exportation of subsidized 
products."1243  Moreover, Brazil asserts that "this pattern clearly fits into the standard whereby the 
'granting of a subsidy' is 'tied to' 'anticipated exportation or export earnings,' because the conditions 
for the granting of the subsidy—the commitments undertaken by Airbus—involved expected export 
earnings."1244 
(c) The subsidized product and product market  
529. Brazil argues that, in finding that there is a single subsidized product in this dispute, 
consisting of all Airbus LCA, the Panel deferred to the United States' formulation of the subsidized 
product, noting that it is for the complaining Member , not the panel, to formulate its complaint.  
Brazil considers that this approach is consistent w ith the Panel's obligation to remain within its terms 
of reference for the particular dispute.  In particul ar, Brazil argues that by virtue of Article 11 of the 
DSU, a panel is limited to the "matter" within its terms of reference, "which are based on the complainant's request for establishment of a panel and include the measures (i.e., the subsidies) and 
the products to which the measures appl y (i.e., the 'subsidized products')."
1245  According to Brazil, if 
a panel disregards "the complainant's formulation of  its claim, it would be acting outside of its terms 
of reference."1246  Brazil underscores, however, that the co mplaining Member must still demonstrate 
the remaining elements of proving an actionable subsidy.   
530. Brazil further notes that, in assessing displacement , the Panel determined that all Boeing LCA 
sufficiently resembled all Airbus LCA such that all Boeing LCA constituted the like product.  Brazil 
does not take a position regarding whether the entir e Boeing family of LCA is the appropriate like 
                                                      
1241Brazil's third participant's submission, para. 16 (quoting Panel Report, paras. 7.668 and 7.678). 
1242Brazil's third participant's submission, para . 17 (quoting Panel Report, para. 7.678). 
1243Brazil's third participant' s submission, para. 18. 
1244Brazil's third participant' s submission, para. 18. 
1245Brazil's third participant' s submission, para. 41.  
1246Brazil's third participant' s submission, para. 41.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 221  
 
  product or products, but agrees with the Pa nel's interpretation of "like product".
1247  Brazil adds that 
the like product should be determined with reference to the scope of the "subsidized product".  If, as 
was the case here, the subsidized product is defi ned broadly, Brazil considers that "the like product 
can also cover a broad range of products."1248  
(d) Adverse effects 
531. Brazil argues that the Panel correctly held that the effect of the subsidies was the 
displacement of Boeing LCA from the EC and third country markets, under Article 6.3(a) and (b);  and significant lost sales, under Article 6.3(c) of the SCM Agreement .  Brazil submits that a panel 
should examine whether a group of subsidies as a whole causes adverse effects to a Member's 
interests "if such subsidies manifest themselves collectively."
1249  The central question in Brazil's view 
is whether LA/MSF and non-LA/MSF subsidies "concer n the same product and whether there exists a 
sufficient nexus with the subsidized product an d the particular effects-related variable under 
examination".1250  According to Brazil, the Panel was not required to determine that each of the non-
LA/MSF subsidies were necessary for a specific product launch because the SCM Agreement does not 
stipulate that each specific subsidy must be found to  cause adverse effects in isolation.  Brazil asserts 
that, in this case, LA/MSF was often combined with ot her types of subsidies to the same recipient for 
the same purposes, and, therefore, the Panel co rrectly did not require that adverse effects be 
demonstrated with respect to each subsidy individuall y, in line with the approach adopted by the panel 
in US – Upland Cotton .1251   
3. Canada  
(a) The life of a subsidy and intervening events 
532. Canada submits that the Panel improperl y interpreted Articles 5 and 6 of the SCM Agreement  
when it concluded that there is no need for a subsidy to confer a present benefit for it to be found to 
cause adverse effects under the SCM Agreement .  Canada asserts that Articles 5, 6, and 7 of the 
SCM Agreement , read together, demonstrate that, in assessing the effect of subsidies, a panel can only 
consider the subsidies that are still conferring a be nefit at the time serious prejudice must be found.  
                                                      
1247Brazil's third participant' s submission, para. 47.  
1248Brazil's third participant' s submission, para. 47.  
1249Brazil's third participant' s submission, para. 68. 
1250Brazil's third participant's submi ssion, para. 70. (footnote omitted) 
1251Brazil's third participant's submission, para. 68 (referring to Panel Report, US – Upland Cotton , 
paras. 7.1191 and 7.1192).   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 222  
 
  533. Canada cites to a number of provisions in s upport of its argument.  Canada observes that 
Article 6.3(a) refers to the prejudicial effect of th e subsidy in the market of the "subsidizing" Member.  
In Canada's view, the use of the present participle  "subsidizing" shows that a Member must still be 
providing a subsidy at the time when serious prej udice must be found.  Moreover, in the French 
version of that provision, the use of the present tens e of the verb "accorder" confirms that a Member 
must still be providing a subsidy at the time the effe ct of the subsidy is assessed.  Canada considers 
that the requirement for a current benefit is furthe r demonstrated by the multiple references to the 
"subsidized product" in Articles 6.3 and 6.4.  Referri ng in particular to Articles 6.3(c), Canada notes 
that the effect of the subsidy cannot be a significan t price undercutting by the subsidized product if the 
subsidy no longer confers a benefit with respect to that product.
1252 
534. Canada submits that Article 7 confirms the re quirement for a current benefit.  Article 7.8 
refers to the actions that must be taken by  a Member granting or maintaining a subsidy1253 that has 
resulted in adverse effects.  Article 7.8 is only con cerned with those subsidies that are still conferring 
a benefit after they have caused serious prejudice.  Canada asserts that, in its serious prejudice analysis, a panel should similarly only consider subs idies that are currently conferring a benefit.  
Otherwise, a panel could analyze a nd make findings with respect to subsidies for which there are no 
available remedies. 
535. For these reasons, Canada disagrees with the Pane l that there is no need for a subsidy to 
confer a "present" or "continuing" benefit to find th at it causes serious prejudice.  In Canada's view, 
the Panel's approach has "unacceptable systemic consequences"
1254, since, irrespective of whether the 
benefit expires, a cause of action would remain once effects of the subsidy subsist.  Canada submits 
that such an approach could give rise to "endless potential liability" under the SCM Agreement , and 
would be contrary to the objectives of "security and predictability" that lie at the core of the WTO 
dispute settlement system.1255  
                                                      
1252Canada refers to the Appellate Body's statement in US – Upland Cotton : "{W}e acknowledge that 
the 'subsidized product' must be properly identified for purposes of significant price suppression under Article 6.3(c) of the SCM Ag reement.  And if the challenged payments do  not, in fact, subsidize that product, 
this may undermine the conclusion that the effect of the subsidy is significant suppression of prices of that 
product in the relevant market". (Canada's third participant's submission, footnote 28 to para. 53 (quoting Appellate Body Report, US – Upland Cotton , para. 472)) 
1253Canada notes that the French version of Article 7.8 refers to " le Membre qui accorde ou maintient 
cette subvention ". (Canada's third participant's submission, footnote 29 to para. 54) 
1254Canada's third participant's submission, para. 56.   
1255Canada's third participant's submission, para. 59.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 223  
 
  (b) Export subsidies 
536. Canada submits that the Panel improperly in terpreted and applied Article 3.1(a) and 
footnote 4 of the SCM Agreement when it found that the LA/MSF provided by Germany, Spain, and 
the United Kingdom for the A380 constituted prohib ited export subsidies.  Moreover, Canada 
maintains that the absence of reasoning in the Panel Report to support the Panel's findings is 
inconsistent with Article 12.7 of the DSU. 
537. Canada recalls the Appellate B ody's finding that establishing de facto  export contingency 
under Article 3.1(a) and footnote 4 requires proof of three elements:  (i) the granting of a subsidy; 
(ii) is tied to;  and (iii) actual or an ticipated exportation or export earnings.
1256  According to Canada, 
"establishing that a subsidy is 'tied to' or 'continge nt' on exportation requires the complaining party to 
establish that actual or anticipated exports were  a necessary or determinative condition for the 
granting of the subsidy."1257  Canada emphasizes that "{t}he references in Article 3.1(a) and 
footnote 4 to 'export performance', 'exportation' and 'export earnings' must not be conflated with the 
term 'sales'", because "'{s}ales' covers both domestic and export transactions while 'exportation', 
'export performance' and 'export earnings ' cover export transactions only."1258  Thus, in this dispute, 
"no export contingency would exist if the EC member States would have provided the subsidy 
regardless of whether anticipated sales were domestic or export sales."1259 
538. Canada maintains that the Panel set  out an incorrect standard for de facto  export contingency 
by finding that the element of conditionality or cont ingency is satisfied by a finding that subsidization 
occurred at least in part "because of" the anticipation of export performance or when the anticipation 
of export performance is at least one of the 'reasons for' the subsidization.1260  According to Canada, 
"{t}he ordinary meaning of 'by reason of' or 'becau se of' denotes a motive or explanation for a course 
of action".1261  In contrast, the words "conditionality" a nd "contingency" "go further" in that "they 
describe a situation where a decision or action depends  for its existence on something; that something 
                                                      
1256Canada's third participant's submission, para. 11 (referring to Appellate Body  Report,  Canada – 
Aircraft , para. 169). 
1257Canada's third participant's submission, para. 13 (referring to Appellate Body  Report,  Canada – 
Aircraft , para. 167). 
1258Canada's third participant's submission, para. 15. 
1259Canada's third participant's submission, para. 14. 
1260Canada's third participant's submission, para. 18 (referring to Panel Report, para. 7.677). 
1261Canada's third participant's submission, para. 20 (referring to Shorter Oxford English Dictionary , 
5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2002), Vol. 1, p. 205 "because", and 
Vol. 2, p. 2483 "reason" (Appellate Exhibit CDA-1)). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 224  
 
  is a prerequisite for the decision or action."
1262  Canada argues, therefore, that "anticipation of exports 
may be a reason for the grant of a subsidy, but unless that anticipation is a necessary or determinative 
condition or a prerequisite for the granting of the subsidy, there is no export contingency."1263 
539. Canada further argues that "{n}one of the ev idence cited by the Panel, whether considered 
individually or in its totality, indicates that the EC member States' anticipation of export sales played 
any role in their decision to enter into the LA/MSF contracts with Airbus, let alone a determinative  
role."1264  Canada recalls that the Panel first assessed  evidence that was common to all seven LA/MSF 
contracts at issue and reached "a preliminary conclusion"1265 when it stated that, "without being 
decisive, this evidence supports the view that th e provision of LA/MSF on sales-dependent repayment 
terms was, at least in part, 'conditional' or 'dependent for its existence' upon the EC member States' anticipated exportation or export earnings."
1266  Canada further recalls that the Panel referred to 
"additional" evidence that was specific to each LA /MSF contract, and found the "additional" evidence 
to be decisive in its findings that the German , Spanish, and UK A380 LA/MSF constituted prohibited 
export subsidies while the French A380, A 340-500/600, and A330-200 and the Spanish 
A340-500/600 LA/MSF did not.1267  In Canada's view, "{a}ll of this evidence simply shows that the 
EC member States anticipated that Airbus would export."1268  Yet, "as noted by the Panel itself, the 
anticipation of exportation is not e nough to show that the granting of a subsidy is contingent on export 
performance."1269  
540. Finally, Canada submits that, in examining th e additional evidence specific to each contract, 
"the Panel did not satisfy its ob ligation under Article 12.7 of the DS U to provide a 'basic rationale' 
with respect to its findings that the German, Spanish, and UK A380 LA/MSF constituted prohibited 
export subsidies."1270  Canada maintains that the Panel "simpl y set out this 'additional' evidence and 
then, without any explanation, immediately concluded that this evidence, toge ther with the evidence 
supporting its preliminary view, de monstrated export contingency."1271  In Canada's view, "this lack 
of a basic rationale" is "particularly problematic" because the additional evidence "was decisive " in 
                                                      
1262Canada's third participant's submission, para. 20 (referring to Shorter Oxford English Dictionary , 
5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University Press, 2002), Vol. 1, p. 480 "conditional", p. 501 "contingent", and pp. 479-480 "condition" (Appellate Exhibit CDA-1)). 
1263Canada's third participant's submission, para. 20. 
1264Canada's third participant's submission, para. 29. (original emphasis) 
1265Canada's third participant's submission, para. 24. 
1266Canada's third participant's submission, para. 24 (quoting Panel Report, para. 7.678). 
1267Canada's third participant's submission, para. 27 (referring to Panel Report, paras. 7.685-7.689). 
1268Canada's third participant's submission, para. 28. 
1269Canada's third participant's submission, para. 28 (referring to Panel Report, para. 7.641;  and 
Appellate Body Report, Canada – Aircraft , para. 172). 
1270Canada's third participant's submission, para. 38. 
1271Canada's third participant's submission, para. 36.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 225  
 
  the Panel's finding concerning de facto  export contingency.
1272  Therefore, Canada argues, "the Panel 
should have provided at least some explanation or justification for its conclusions" because, without 
such explanation, "WTO Members are left to guess  at how the 'additional' evidence" to which the 
Panel referred supported its overa ll finding of export contingency.1273 
(c) The EC Framework Programmes 
541. Canada argues that the Panel improperly inte rpreted and applied Article 2.1(a) of the 
SCM Agreement  by focusing on particular segments of th e EC Framework Programmes to find that 
they were de jure  specific.  Canada contends that "{s}p ecificity in law must be determined by 
considering a subsidy programme as an integrated w hole rather than focusing on particular segments 
of the programme, such as a segm ent defined by budget allocation."1274  Analysing Article 2.1(c) of 
the SCM Agreement , Canada argues that the benchmark of comparison for de jure  specificity should 
be the same as that for de facto  specificity.  Canada asserts that, although the Panel identified each 
Framework Programme as a "single legal regime", the Panel nevertheless "failed to consider each 
Framework Programme as a whole when determining whether that regime explicitly limits access to a 
subsidy to certain enterprises."1275 
542. Canada notes, however, that a panel is not "oblig ed to adhere formalistically to the definition 
of the subsidy programme provided by the subsid izing Member when assessing whether a subsidy 
programme is specific."1276  Rather, a proper analysis "should consider factors such as whether the 
programme has separate sets of objectives for diffe rent sectors or whether separate sets of criteria 
determine programme eligibility".1277  If such factors are present, Canada maintains, "an umbrella 
programme may be broken up into two or mo re programmes for purposes of the specificity 
analysis."1278 
(d) Infrastructure measures 
543. Canada argues that the Panel's conclusion as to th e scope of "general infrastructure" might be 
interpreted to exclude infrastructure "the use of whic h is limited by external circumstances instead of 
government action".1279  Canada notes that, because "{e}ntities located near infrastructure are most 
                                                      
1272Canada's third participant's submission, para. 37. (original emphasis) 
1273Canada's third participant's submission, para. 37. 
1274Canada's third participant's submission, para. 101. 
1275Canada's third participant's submission, para. 103. 
1276Canada's third participant's submission, para. 104. 
1277Canada's third participant's submission, para. 104. 
1278Canada's third participant's submission, para. 104. 
1279Canada's third participant's submission, para. 88. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 226  
 
  likely to access or use it ... infrastru cture located in remote or rural ar eas may be accessed or used by a 
limited number of entities."
1280  Canada submits, however, that infrastructure should not be considered 
as provided to or for the advantage of only a singl e entity or limited group of entities, and thus as 
"'other than general' infrastructure", "simply b ecause it is used by a small number of entities".1281  
Rather, infrastructure is "general infrastructure" when it is available for access or use by all entities 
that could potentially access or use it, and theref ore only limitations on access or use by government 
action should be considered to  be "other than general".1282  
544. Canada argues that the ordinary meaning of  the word "general" supports this position, 
suggesting an interpretative focus on "the area surro unding a particular piece of infrastructure where 
potential users may be located".1283  In Canada's view, "if access to or use of a particular piece of 
infrastructure is available to all potential users in this area, this infrastructure should be considered 
'general' infrastructure even though there is  only a small number of potential users."1284  C a n a d a  
further submits that, if limitations due to external  circumstances are not distinguished from limitations 
due to government action, "infrastructure built in ru ral or remote areas may be more susceptible to 
being considered 'other than general' than when  that same infrastructure is built in urban areas."1285 
(e) Adverse effects 
545. Canada argues that the Panel improperly interpre ted and applied Articles 5(c) and 6.3 of the 
SCM Agreement  by basing its findings on serious prejudice and threat of serious prejudice on the 
effects of benefits conferred by the subsidies before the time when serious prejudice was assessed.  According to Canada, when examining present seri ous prejudice under Article 6.3, the Panel should 
have limited its analysis to the present benefit that is  conferred by the subsidies at issue.  Thus, the 
Panel should have evaluated the na ture of the subsidies and the magnitude of the benefit that was 
being conferred by the subsidies at the time in wh ich serious prejudice had to be found.  Canada 
maintains further that the Panel improperly appl ied Articles 5(c) and 6.3(a) and (b) of the 
SCM Agreement  in finding that the effect of the subs idies would cause displacement of Boeing LCA 
from the European Communities, Australian, and Chin ese markets.  In Canada's view, in finding that 
"but for the subsidies Boeing 'would have had a la rger market share in the {European Communities} 
and certain third country markets than it actua lly did over {the 2001-2006 reference} period'"
1286, the 
                                                      
1280Canada's third participant's submission, para. 89. 
1281Canada's third participant's submission, para. 90. 
1282Canada's third participant's submission, para. 90. (footnote omitted) 
1283Canada's third participant's submission, para. 93.  
1284Canada's third participant's submission, para. 93. 
1285Canada's third participant's submission, para. 94. 
1286Canada's third participant's submission, para. 83 (quoting Panel Report, para. 7.1993).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 227  
 
  Panel failed to establish a "genui ne and substantial causal link" between the subsidies and the 
decrease in Boeing's share of those markets.
1287   
4. China  
(a) The life of a subsidy and intervening events 
546. China notes that the Panel reached negative conclu sions to the two relevant legal questions to 
be answered in this dispute:  (i) whether an arm's-le ngth, fair market value sale of part of a subsidized 
producer by a government presumptively extinguishes a corresponding portion of the benefit conferred by prior financial contri butions provided to that producer;  and (ii) whether an arm's-length, 
fair market value sale of part of a subsidized pr oducer by a private owner presumptively extinguishes 
a portion of the benefit conferred by prior financia l contributions provided to that producer.  While 
China expresses no view with respect to the second qu estion, China submits that the Panel erred in 
answering the first question in the negative.   
547. With respect to the question of whether a privatized firm and its owner together should be 
considered the recipient of the benefit,  China notes that the Appellate Body in US – Countervailing 
Measures on Certain EC Products did not preclude the possibility that the "no distinction" approach 
could be applied to situations other than full privatization.  China notes that the Panel applied an "alignment of economic interests" test
1288 to find that, because a firm's general economic interests can 
be aligned with its owner and its  creditors, and because it cannot be right to assess the benefit to the 
firm and the creditor together, it is inappropriate to consider the firm and its owner together in 
assessing benefit.  China disagrees with the Panel's reasoning and conclusion which it considers to be 
"in sharp contrast" to the conclusion drawn by the Appellate Body in US – Countervailing Measures 
on Certain EC Products , namely that "the legal distinction be tween firms and their owners … is not 
necessarily relevant, and certainly not conclusive, for the purpose of determining whether a "benefit" 
exists under the SCM Agreement ".1289   
548. On the question of whether the fact that the pur chaser of a subsidized producer pays fair 
market value to acquire that producer has any re levance to the continued existence of a benefit 
conferred by the original provision of a financ ial contribution to the subsidized producer, China 
asserts that the Panel manifestly failed to recognize th e relevance of a subsequent privatization to the 
                                                      
1287Canada's third participant's submission, para. 85 (quoting Appellate Body Report, US – Upland 
Cotton , para. 438).  
1288China's third participant's submission, para. 14 (referring to Panel Report, para. 7.241). 
1289China's third participant's submission, para. 18 (quoting Appellate Body Report,  US – 
Countervailing Measures on Certain EC Products , para. 115). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 228  
 
  benefit conferred by a previously granted financial contribution.  China notes that, for the Appellate 
Body in US – Countervailing Measures on Certain EC Products , the fact that the privatization was 
effected at arm's length and for fair market value wa s relevant to the continue d existence of a previous 
benefit, but for the Panel in this dispute, it was not.
1290  China asserts that, accord ing to the Panel, if 
the sale by a government of a state-owned company to a private actor is made on terms better than market benchmark, this would involve the gran ting of a new subsidy, which is tantamount to 
"ask{ing} a panel or an investigating authority to turn a blind eye on the specific situation surrounding 
a privatization and to rule that no privatization would extinguish a previously conferred benefit".
1291 
549. Finally, China claims that the Appellate Body in US – Countervailing Measures on Certain 
EC Products clearly reached a conclusion that "privatization at arm's length and for fair market value 
presumptively results in the extinguishment of benef its conferred by a prior financial contribution to 
such producer."1292  China notes that, in reaching this conc lusion, the Appellate Body distinguished 
between the concepts of "utility value" and "market value", finding that, although the utility value  of 
equipment acquired as a result of a financial contribut ion is not extinguished following a privatization, 
its market value is redeemed.1293  Moreover, China highlights that  following a privatization there 
would be a change to the cost of capital of the company.1294  Therefore, China submits, a private 
investor who purchases a state-owned company (either in full or in part) at fair market value repays the subsidy received by the company back to the government and extinguishes the corresponding 
benefits. 
(b) Export subsidies 
550. China maintains that the following two aspect s should be noted for the interpretation and 
application of the legal standard of in fact  export contingency under Article 3.1(a) of the 
SCM Agreement :  "(i) {p}rohibition on in fact export c ontingent subsidies only applies when it has 
been demonstrated that the granting of a subsidy is contingent upon export  performance ;  and 
(ii) {t}he SCM Agreement should not be interpreted in a way that discriminate small economies or 
global industries".
1295   
                                                      
1290China's third participant's submission, para . 21 (referring to Appellate Body Report,  US – 
Countervailing Measures on Certain EC Products , para. 102). 
1291China's third participant' s submission, para. 24. 
1292China's third participant's submission, para . 25 (referring to Appellate Body Report,  US – 
Countervailing Measures on Certain EC Products , para. 126). 
 1293China's third participant's submission, para . 26 (referring to Appellate Body Report,  US – 
Countervailing Measures on Certain EC Products , para. 102). 
1294China's third participant's submission, para . 27 (referring to Appellate Body Report,  US – 
Countervailing Measures on Certain EC Products , para. 103).  
1295China's third participant's submissi on, para. 36. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 229  
 
  551. China submits that, for a determination on export c ontingency in fact, "Article 3.1(a) must be 
interpreted together with footnote 4."
1296  China recalls the Appellate Body's finding in Canada – 
Aircraft  that "{t}he second sentence of footnote 4 precludes a panel from making a finding of de facto  
export contingency for the sole reason that the s ubsidy is 'granted to enterprises which export'."1297  In 
China's view, the second sentence of footnote 4, as in terpreted by the Appellate Body, clarifies the 
meaning of Article 3.1(a) by ensuring that "o nly subsidies 'tied to export' and thus favoring export  
over domestic sales  should be deemed as export subsidies under Article 3.1(a);  otherwise, the 
subsidies should be 'export-neutral' and not subject to the prohibition."1298 
552. China recalls that Article 3.1(b) of the SCM Agreement , which provides context to 
Article 3.1(a), prohibits subsidies contingent on th e use of domestic over imported goods.  In China's 
view, subsidies prohibited under Article 3.1(b) tr eat "imported goods in a discriminatory manner", 
thereby distorting trade.1299  Given the "adjacent and close-related" relationship between Article 3.1(a) 
and Article 3.1(b), China argues, "Article 3.1(a) should be interpreted as something of {a} similar 
nature and of a similar distortion level to interna tional trade as that of import substitution subsidies" 
under Article 3.1(b).1300  Thus, "an appropriate understanding of Article 3.1(a) should be that it deals 
with a subsidy that favors export  sales over domestic  sales, which is also a {discriminatory} treatment 
in international trade and thus should be prohibited."1301  China further submits that the items provided 
under the Illustrative List of Export Subsidies in Annex I to the SCM Agreement , which also 
constitute context for the interpretation of Ar ticle 3.1(a), all refer to "subsidies favoring export  sales 
over domestic  sales."1302  Finally, turning to the negotiating history of Article 3.1, China highlights the 
view expressed by some negotiators during the Ur uguay Round negotiations that "the rationale for 
prohibiting subsidies had always been that these subsidies aimed at distorting trade by favouring 
exports ".1303  China therefore argues that "the rationale for prohibiting export subsidies is to prohibit 
those subsidies aimed at distorting trade by favoring  exports ."1304  In contrast, "domestic subsidies ... 
aimed at achieving 'important domestic objectiv es of socio-economic policy' … should not be 
                                                      
1296China's third participant' s submission, para. 39. 
1297China's third participant's submission, para. 41 (quoting Appellate Body Report, Canada – Aircraft , 
para. 173). 
1298China's third participant's submissi on, para. 42. (original emphasis) 
1299China's third participant' s submission, para. 44. 
1300China's third participant' s submission, para. 45. 
1301China's third participant's submissi on, para. 45. (original emphasis) 
1302China's third participant's submissi on, para. 48. (original emphasis) 
 1303China's third participant's submission, para. 50 (quoting Negotiating Group on Subsidies and 
Countervailing Measur es, Meeting of 30 November-1 Decembe r 1989, Note by the Secretariat, 
MTN.GNG/NG10/15, para. 4). (underlining added by China) 
1304China's third participant's submissi on, para. 52. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 230  
 
  prohibited ex ante "
1305 but "should be subject to remedial action only when they have some 
'demonstrably negative effects on trade'".1306  On this basis, China submits that "a  performance 
requirement per se on an export-oriented  enterprise by the granting authority for the granting of a 
subsidy shall not, by that reason alone, prove that the subsidy is contingent upon export 
performance."1307 
553. Turning to the issue of export contingency in  the context of global industries and small 
economies, China submits that the legal standard for export contingency has important implications 
for small economies, as well as for "global industr {ies}" in which products are sold on the global 
market.1308  According to China, the LCA industry is a global industry in which returns from both 
domestic and export sales are needed to cover the "huge investment cost{s}".1309  Moreover, in 
China's view, "the whole world needs {LCA} from two or even more producers" because competition 
among producers would give LCA purchasers more choice and enable consumers to enjoy long-
distance transportation at an affordable price.1310  China argues that the export-orientation of the LCA 
industry "is not, by itself, sufficient to preclude that sector from being expressly identified as an 
eligible or privileged recipient of subsidies."1311 
554. In addition, China contends that "{t}he sma ller the WTO Member in which {a} producer is 
based, the greater the proportion of {the producer's} sales is likely to be for export".1312  
Consequently, China argues, "it is very probable" that the WTO Member, when granting a subsidy to the producer, "is aware of the fact that its domestic market is too small to absorb its domestic 
production and thus anticipates … exportation or export earnings" by the producer.
1313  However, 
China emphasizes, such anticipation "alone is not proof that the granting of the subsidy is  tied to  the 
anticipation of exportation" within the mean ing of the footnote 4 to Article 3.1(a).1314  Otherwise, the 
                                                      
1305China's third participant's submission, para. 52 (quoting Negotiating Group on Subsidies and 
Countervailing Measures, Elements of the Framework for Negotiations, Communication from the Republic of 
Korea, MTN.GNG/NG10/W/34, p. 1). 
1306China's third participant's submission, para. 52 (quoting Negotiating Group on Subsidies and 
Countervailing Measur es, Meeting of 30 November-1 Decembe r 1989, Note by the Secretariat, 
MTN.GNG/NG10/15, para. 4). 
1307China's third participant's submissi on, para. 53. (original emphasis) 
1308China's third participant' s submission, para. 55. 
1309China's third participant' s submission, para. 56. 
1310China's third participant' s submission, para. 56. 
1311China's third participant's submissi on, para. 57. (original emphasis) 
1312China's third participant' s submission, para. 60. 
1313China's third participant' s submission, para. 60. 
1314China's third participant's submission, para. 61 (referring to Panel Report, Canada – Aircraft 
Credits and Guarantees , paras. 7.371-7.378, in turn quoting Appellate Body Report, Canada – Aircraft , 
para. 172 (original emphasis)).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 231  
 
  prohibition on export subsidies could be "more easily invoked with respect to some  Members over 
{the} others", making the same rule mo re "burdensome" for some WTO Members.
1315 
555. Finally, China recalls that the object and pur pose for establishing the WTO, as provided in the 
preamble of the Marrakesh Agreement Establishi ng the World Trade Organization  (the " WTO 
Agreement "), states that "relations in the field of trade and economic endea vor should be conducted 
with a view to raising standards of living, ensu ring full employment and a large and steadily growing 
volume of real income and effective demand, and expanding the production of and trade in goods and 
services ."1316  In China's view, "if subsidies to global in dustries (such as the LCA industry) were more 
likely to be found as in fact export con tingent subsidies and thus be prohibited ex ante , the 
development of such global industries—which are us ually of critical importance to the whole world 
and the products of which could even be re garded as a kind of quasi-public goods—will be 
influenced."1317  Moreover, "if subsidies granted or mainta ined in a small economy were more likely 
to be captured by the in fact export subsidy rul es and thus be prohibited from the outset, the socio-
economic development of that WTO member would be discriminatorily affected."1318  Therefore, 
China submits, "the legal standard of in fact e xport contingency should be interpreted consistently 
with the object and purpose" of the covered Agre ements and global industries or small economies 
should not be adversely discriminated against.1319 
(c) Infrastructure measures 
556. China considers that the Panel's interpretation of "general infrastructure" is "problematic" 
because the Panel "failed to see that 'general' could be defined as 'all or nearly all the parts of a ... 
community, organization, etc.'".1320  China also submits that the "cr eation" of infrastructure should be 
distinguished from the "provision" of infrastructure, as the "creation" of infrastructure "is not a kind 
of 'financial contribution' for the purpose of Article 1.1 of the SCM Agreement ".1321  In China's view, 
it is clear from the text of Article 1.1(a)(1)(iii) that "only the 'provision' of goods or services is relevant in establishing a financial contribution", a nd that the two points of concern are "the act of 
provision " and " what  is being provided".
1322  China notes, by way of example, that although Hamburg 
built the flood protection dykes for the Mühlenberger  Loch, those dykes were not provided to Airbus 
                                                      
1315China's third participant's submissi on, para. 62. (original emphasis) 
1316China's third participant's submissi on, para. 64. (original emphasis) 
1317China's third participant' s submission, para. 66. 
1318China's third participant' s submission, para. 67. 
1319China's third participant' s submission, para. 68. 
1320China's third participant' s submission, para. 74. 
1321China's third participant' s submission, para. 75. 
1322China's third participant's submissi on, para. 77. (original emphasis)  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 232  
 
  and therefore were not the subject of the financial contribution.  China submits, rather, that what was 
provided to Airbus was "the use rights to the in dustrial land and the special purpose facilities for a 
definitive period of time".
1323   
557. China also argues that, in distinguishing the "cr eation" from the "provision" of infrastructure, 
the "creation" of infrastructure "bears unique consid erations by a government in discharging its public 
policy duties", including the pursuit of social benef its such as employment, re gional development, and 
government revenue.1324  China contends that the SCM Agreement  does not interfere with legitimate 
government choices.  It adds that, "to drag the 'creat ion' of infrastructure into the scope of financial 
contribution would amount to requiring a government  to act in a manner consistent with a private 
actor when creating  infrastructures", which would "deprive a government of its inherent right to 
implement public policy."1325  China notes that the negotiating history of the SCM Agreement  
highlights that several delegations expressed the vi ew that certain subsidies such as infrastructure 
"should be acceptable, because they merely contri bute to setting the terms and conditions of a 
country's economic and business environment, but do not alter the competitive position of firms."1326 
558. China also considers that the problem with the Panel's comparison of the actual rental or fees 
paid by Airbus, with the market rate of return on  the investment of the granting authorities, "flows 
from its previous decision to consider creation and provision of infrastructures together".1327  B y  
doing so, "the Panel failed to consider the legitimat e functions and considerations of a government in 
its capacity as an authority serving the general interests of the people, in creating  infrastructure."1328  
In China's view, a private investor will presumptivel y look for the market return for its investments, 
but a government will often create infrastructure for public policy reasons, "and therefore may not 
expect to recover its investment costs solely  from the direct economic return".1329  The Panel's 
conclusion is based on the assumption that any investment by a government in creating infrastructure is to be recovered by rent or other financial in come directly accrued, but this "ignores the public 
functions of a government and prevents a government  from considering any public policies or social 
benefit objectives in its decision-making process."
1330  Referring again to the example of the 
Mühlenberger Loch, China submits that "the inqui ry of the benefit issue should be conducted by 
comparing the price at which Airbus obtained use ri ghts of the lands and facilities at issue with the 
                                                      
1323China's third participant' s submission, para. 80. 
1324China's third participant' s submission, para. 83.  
1325China's third participant's submissi on, para. 83. (original emphasis) 
1326China's third participant's submi ssion, para. 84. (footnote omitted) 
1327China's third participant' s submission, para. 88. 
1328China's third participant's submissi on, para. 89. (original emphasis)  
1329China's third participant's submissi on, para. 91. (original emphasis) 
1330China's third participant' s submission, para. 92.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 233  
 
  prevailing market price of obtaining the use rights to  the same or similar lands and facilities."  China 
finds support for this position in Article 14(d) of the SCM Agreement .
1331  
5. Japan  
(a) The life of a subsidy and intervening events 
559. Japan agrees with the Panel's rejection of  the European Union's argument that the 
presumption of extinction of benefits "always applies" in circumstances where of all or part of a 
subsidized state-owned enterprise is sold at ar m's length for fair market value to a private 
purchaser.1332  Japan notes that the Appellate Body in US – Countervailing Measures on Certain EC 
Products  rejected the original panel's determination th at the presumption of extinction must apply to 
sales of a subsidized state-owned enterprise at arm's length for fair market value, and further stated 
that "the actual exchange value of the continuing be nefit of past non-recurring financial contributions 
bestowed on the state-owned enterprise will be  fairly reflected in the market price."1333  Given that the 
"issue turns on whether the sales price of the subs idized state-owned enterprise to private entities 
reflected the actual exchange value of the continui ng benefit" conferred on the subsidized producer, 
Japan "requests that the Appellate Body, taking in to account this perspective, examine the Panel's 
findings on {the} question of whether there is a presumption of extinction of subsidy benefits."1334   
(b) Export subsidies 
560. Japan contends that the Panel failed to conduct "a rigorous and fact-intensive application of 
Article 3.1(a) and Footnote 4 of the SCM Agreemen t", and instead "applied an 'inherently subjective' 
standard".1335  Japan argues that "the Pane l determined the existence of de facto  export subsidization 
in the absence of any implicit export requireme nts in the LA/MSF A380 contracts analyzed."1336  In 
Japan's view, "the Panel determined that the commer cial or effective need for Airbus to export ... 
LCAs ... to meet sales targets was not only decisi ve, but determinative as to the issue of export 
subsidization."1337  In addition, Japan recalls that the Panel considered " other 'additional' evidence "1338 
                                                      
1331China's third participant's submission, para . 95 (referring to Appellate Body Report, Canada – 
Aircraft , para. 155).  
1332Japan's third participant's submission, para. 50.  
1333Japan's third participant's submission, para. 51 (quoting Appellate Body Report,  US – 
Countervailing Measures on Certain EC Products , para. 122). (emphasis added by Japan omitted) 
1334Japan's third participant's submission, para. 51. 
1335Japan's third participant's submission, para. 14 (quoting European Union's appellant's submission, 
para. 1371). 
1336Japan's third participant's submission, para. 15. 
1337Japan's third participant's submission, para. 16. 
1338Japan's third participant's submission, para. 17 (quoting Panel Report, subheading to paras. 7.679-
7.688). (emphasis added by Japan) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 234  
 
  when it discerned "government's motivation ... that alluded to the need for Airbus to improve its 
export competitiveness."
1339  Japan contends that "{m}otivation is  therefore an inappropriate tool to 
determine the WTO-permissibility" because it "risks being over-inclusive, in that an otherwise WTO-
consistent subsidy may be deemed  an export subsidy owing to overzealous drafting on the part of a 
government."1340 
561. Moreover, Japan submits that the wording of footnote 4 of the SCM Agreement  "renders clear 
that mere anticipation of exportation, in and of it self, is insufficient to warrant a finding of export 
subsidization."1341  Japan therefore argues that "a tension" exists between, on the one hand, the Panel's 
conclusion that a subsidy contract containing sal es targets at levels that cannot be met without 
exportation constitutes an export subsidy and, on the other hand,  the "explicit requirement" under 
footnote 4 that possible exportation, alone, shoul d not be determinative of a finding of export 
subsidization.1342   
562. Japan further maintains that the Panel's above conclusion has a "critical logical flaw", which 
"places small economies at risk of having any su bsidy granted to domestic producers be deemed 
export subsidies."1343  Japan illustrates its argument with an  example, where Member A has a small 
domestic market and wants to offer production subsidies to domestic producers in a given industry.  In 
Japan's view, according to the Panel's finding on ex port contingency, "{u}nless the size of Member 
A's relevant domestic market exceeds the minimum size of efficient produ ction, the viability of 
pertinent domestic producers to meet sales targ ets will necessarily rely on the foreign markets"1344, 
and thus it runs a greater risk that a "given pro duction subsidy conferred by  it to domestic producers 
be found ' export contingent '".1345  Japan thus contends that the Pane l's interpretation of Article 3.1 and 
footnote 4 "risks arbitrarily discriminating against economies such as that of Member A, in a manner that 'adds to or diminishes' the rights of WTO Members under the WTO Agreements."
1346  Therefore, 
Japan requests that the Appellate Body re-examine th e Panel's standard for export contingency, so as 
to avoid the misinterpretation that "production subsidies granted by a government whose domestic 
market is relatively small would more likely be found as ' export contingent '".1347 
                                                      
1339Japan's third participant's submission, para. 17.  
1340Japan's third participant's submission, para. 19. 
1341Japan's third participant's submission, para. 21. 
1342Japan's third participant's submission, para. 22. 
1343Japan's third participant's submission, para. 23. 
1344Japan's third participant's submission, para. 26. 
1345Japan's third participant's submission, para. 25. (original emphasis) 
1346Japan's third participant's submission, para. 26. 
1347Japan's third participant's submission, para. 27. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 235  
 
  (c) Infrastructure measures 
563. Japan agrees with the Panel that a case-by- case analysis "is more appropriate towards 
evaluating what constitutes 'general' and 'other  than general' infrastructure than sweeping 
characterizations, which may otherwise unduly constrain WTO Members' sovereign prerogatives to 
provide constituents with a broa d range of public infrastructure."
1348  Japan contends that the Panel 
rightly dismissed the European Communities'  approach to distinguishing between the creation  and 
provision  of infrastructure "as it leads to a presumption that any infrastructure is general in nature."1349  
Japan also considers that "there is no textual basi s" for the distinctions the European Union seeks to 
draw.1350  Japan submits that reading the word "creat e" and the phrase "limit use or access" into the 
word "provides" in Article 1.1(a)(1)(iii) "is contrary  to the customary rules of treaty interpretation and 
would unduly narrow the intended scope of this provision."1351  Japan therefore agrees with the Panel's 
conclusion that certain infrastructure may be constructed for non-general purposes. 
(d) Adverse effects 
564. Japan notes that there is not a single test that  a panel must apply when analyzing causation, 
but maintains that causation under Article 6.3 of the SCM Agreement  always requires a finding that 
there is a "genuine and substantia l relationship of cause and effect".1352  Japan asserts that the Panel 
held that the requirement to find a "genuine and s ubstantial relationship of cause and effect" applies to 
the "entire universe of claims of adverse effects".1353  Japan argues that the Panel failed to establish a 
"genuine and substantial" link between the subs idies at issue and serious prejudice to the 
United States' interests because the Panel failed to engage in a meaningful non-attribution analysis, 
instead merely citing and summarily discar ding intervening factors pleaded by the 
European Communities.  Japan notes that the Pa nel found that Airbus would still exist without 
subsidization, albeit with one less launched LCA mo del, and therefore argues that the Panel should 
                                                      
1348Japan's third participant's submission, para. 52.  
1349Japan's third participant's submission, para. 53 (referring to Panel Report, para. 7.1043).   
1350Japan's third participant's submission, para. 55.   
1351Japan's third participant's submission, para. 56. 
1352Japan's third participant's submission, para. 30 (quoting Appellate Body Report, US – Upland 
Cotton , para. 438, in turn quoting Appellate Body Report, US – Wheat Gluten , para. 69). (emphasis added by 
Japan omitted) 
1353Japan's third participant's submission, para. 34 (quoting Panel Report, para. 7.1967). (emphasis 
added by Japan omitted)  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 236  
 
  have conducted a non-attribution analysis, focusing on the difference in serious prejudice caused by a 
subsidized Airbus and a non-subsidized Airbus
1354, as required by Appellate Body jurisprudence.1355  
Japan is concerned that the Appellate Body upholdi ng the Panel's causation analysis will imply that a 
causal link will near-automatically be inferred despite  the existence of other factors that may have 
affected the level of serious prejudice.  Japan ther efore requests that the Appellate Body clarify that a 
panel should clearly examine and identify the effe cts of other, non-subsidy factors when finding 
causation under Articles 5 and 6.3 of the SCM Agreement . 
6. Korea  
(a) Export subsidies 
565. Korea submits that, in the light of the findings in Canada – Aircraft , "in order to establish that 
the challenged program is 'tied to' export performance, the questio n is whether the subsidy would not 
have been granted to Airbus if the Airbus G overnments had known that no export sales may ensue 
from the subsidy to be provided under the program."1356  Korea argues that the Panel seemed "to have 
adopted a looser threshold" and "apparently focuse{ d} on the motivation of the granting government", 
as opposed to "the demonstration of {'a re lationship of} conditionality or dependence'."1357   
566. Korea argues that, under the standard adopted by  the Panel, "when it is demonstrated that 
there is the anticipating of exports by the granting authority, and that because  of such anticipating of 
exports a subsidy is granted, that is also in consistent with Article 3.1(a) and footnote 4."1358  
Moreover, Korea recalls the Panel's finding that a government's motivation for granting a subsidy is 
"highly relevant" to an examination of export c ontingency under Article 3.1(a) and footnote 4.1359  
Korea argues that the Panel's approach focused on the motivation of the granting government, as 
opposed to the demonstration of conditionality or dependence between the programme and actual or 
anticipated export performance.  Kore a also argues that the Panel, in exploring a correct standard for 
determining de facto  export contingency, has adopted a "tota lity of circumstances" test in which all 
                                                      
1354Japan's third participant's submission, para. 36 (referring to Panel Report, paras. 7.1985-7.1987 
and 7.1993). 
1355Japan's third participant's submission, paras. 37-42 (referring to Appellate Body Report, US – 
Upland Cotton (Article 21.5 – Brazil) , para. 374;  Appellate Body Report, US – Upland Cotton , paras. 437 
and 438;  Appellate Body Report, US – Line Pipe , para. 215;  Appellate Body Report, US – Hot-Rolled Steel , 
para. 223;  and Appellate Body Report, US – Lamb , para. 179).  
1356Korea's third participant's submission, para. 28. (original emphasis) 
1357Korea's third participant's submi ssion, para. 29 (quoting Panel Report, para. 7.640, in turn quoting 
Appellate Body Report, Canada – Aircraft , para. 171). 
1358Korea's third participant's submission, para. 29 (referring to Panel Report, para. 7.636 (original 
emphasis)). 
1359Korea's third participant's submission, para . 29 (quoting Panel Report, para. 7.675).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 237  
 
  relevant elements are taken into account.
1360  Korea is of the view that such a "totality of 
circumstances" test would require caution, as it "see ms always vulnerable to the selective adoption of 
information and evidence from a wide range of sources, including sometimes unsubstantiated press 
reports or government officials' statements."1361  
567. Korea contends that, consistent with the a pproach adopted by the Appellate Body in 
Canada – Aircraft ,  a determination of de facto  contingency requires a panel to "look into the very 
nature of {a subsidy} to confirm the existence of the 'tied to' requirement as opposed to merely 
speculating on 'motivation' of a granting government."1362  Korea notes that the Panel's approach "has 
its own merit", because "this approach may be ab le to deter a circumvention attempt by certain 
Members."1363  Nonetheless, Korea contends that the appr oach "would have the potential of creating a 
situation where findings of export contingency b ecomes more likely in the case of small or export 
dependent economies in the global markets."1364 
(b) Infrastructure measures 
568. Korea argues that the explicit exclusion of "gener al infrastructure" in Article 1.1(a)(1)(iii) of 
the SCM Agreement  ensures certain "maneuvering room" for WTO Members to pursue legitimate 
public objectives.1365  Thus, "to the extent the infrastructure ta kes the form of 'general infrastructure' 
which benefits the population as a whole, the SCM Agreement simply excludes it from the reach of 
the agreement."1366  Korea considers, however, that the Pane l's analysis in this case may in certain 
respects unduly restrict WTO Members' ability to carry out the important socio-economic function of providing "general infrastructure".   
569. Korea considers that "the provision of infrastru cture to a specific recipient, which, by 
reference to its technical requirements and use, is only suitable to the needs of that recipient, would 
fall outside the scope of 'general infrastructure'".
1367  Korea therefore agrees with the Panel's reasoning 
that "where the relevant infrastructure is not  accessible by the public at large or where the 
infrastructure is not for the common good of the public ... these facilities simply do not fall under the category of the general infrastructure within the meaning of Article 1.1(a)(1)(iii)."
1368   
                                                      
1360Korea's third participant' s submission, para. 30. 
1361Korea's third participant' s submission, para. 30. 
1362Korea's third participant' s submission, para. 32. 
1363Korea's third participant's submission, para. 33. (footnote omitted) 
1364Korea's third participant' s submission, para. 34. 
1365Korea's third participant' s submission, para. 13.  
1366Korea's third participant' s submission, para. 13.  
1367Korea's third participant's submission, para. 14.   
1368Korea's third participant's submission, para. 15.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 238  
 
  570. Korea expresses concern, however, about the Pane l's finding that infrastructure can be general 
at certain points of time but not at others.  Korea argues that "the overly broad reference of the Panel 
regarding the amorphous nature of the general infrastructure may cause an unintended problem in the 
long run as it may carry the potential of undermining the concept of 'general infrastructure'."
1369  
Korea suggests that the term "gen eral infrastructure" may have been understood as a single term, as 
opposed to the combination of two different words of "general" and "infrastructure".  Korea adds that, 
in its view, it is "difficult to read into Article 1.1(a)(1)(iii) a term which qualifies 'provision of 
"general infrastructure"' with a temporal element".1370  Korea thus contends that, by holding that 
"general infrastructure" is a mall eable concept that does not exist on  its own, the Panel's finding "may 
offer an erroneous signal that sometimes legitimate  general infrastructure projects (such as airports, 
railroads, highways, harbours, etc.) may constitute financial contribution{s} by a government ... 
simply because of the disproportionate utilization ra te by some companies at some point in time."1371 
III. Issues Raised in This Appeal 
571. The following issues are raised on appeal by the European Union: 
(a) Whether the Panel erred in finding that me asures consisting of R&TD grants by the 
French Government, and R&TD loans by th e Spanish Government under the PROFIT 
programme, had been properly identified in the United States' panel request in 
accordance with Article 6.2 of the DSU; 
(b) Whether the Panel erred in its interpreta tion and application of Article 5 of the 
SCM Agreement  by rejecting the European Comm unities' request to exclude all 
alleged actionable subsidies granted prior to 1 January 1995 from the temporal scope 
of the dispute;   
(c) Whether the Panel erred in its interpretation of Articles 1, 4.7, 5, 6, and 7.8 of the 
SCM Agreement  and their application to a number of transactions involving certain 
Airbus companies.  In particular: 
(i) whether the Panel erred in finding that Articles 5 and 6 do not require that a 
complainant demonstrate that a benefit "continues" or is "present" during the 
reference period for purposes of an adverse effects analysis; 
                                                      
1369Korea's third participant' s submission, para. 18. 
1370Korea's third participant' s submission, para. 20.  
1371Korea's third participant' s submission, para. 22.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 239  
 
  (ii) whether the Panel erred by failing to take  into account and find that a number 
of transactions involving certain Airbus companies resulted in the 
"extinction" and/or "extraction" of subsidies;  and  
(iii) whether the Panel erred in failing to fi nd that, as a result of these transactions, 
subsidies were "withdrawn" within the meaning of Articles 4.7 and 7.8 of the 
SCM Agreement ; 
(iv) whether, in its treatment of th e European Communities' arguments 
concerning the "extinction", "extraction" , and "withdrawal" of subsidies, the 
Panel failed to make an objective assessment and thereby acted inconsistently with Article 11 of the DSU;  and 
(v) whether the Panel erred in finding that the United States was not required to 
demonstrate, as part of its prima facie case under Article 5 of the 
SCM Agreement , that subsidies provided to the Airbus Industrie consortium 
"passed through" to the current producer of Airbus LCA; 
(d) Whether the Panel erred in assessing if LA/MSF support provided a "benefit" under 
Article 1.1(b) of the SCM Agreement .  More specifically:  
(i) whether, in interpreting and applying the notion of "benefit" under 
Article 1.1(b) of the SCM Agreement , the Panel erred by failing to take into 
account Article 4 of the 1992 Agreement as a relevant rule of international 
law applicable in the relations between  the parties, within the meaning of 
Article 31(3)(c) of the Vienna Convention , or as part of the facts in 
establishing the relevant market benchmark;  or, in the alternative 
(ii) whether the Panel erred by improperl y applying Article 1.1(b) of the 
SCM Agreement , and failed to make an objec tive assessment of the matter 
under Article 11 of the DSU, in its assessment of the project-specific risk 
premium proposed by the United States for purposes of constructing the market benchmark used to compare agains t the rates of return obtained by the 
member States under the challenged LA/MSF measures;   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 240  
 
  (iii) whether the Panel erred by incorrectly interpreting and applying 
Article 1.1(b) of the SCM Agreement , and failed to make an objective 
assessment of the matter under Article 11 of the DSU, in its assessment of the 
project-specific risk premium proposed  by the European  Communities for 
purposes of constructing the market benchmark used to compare against the rates of return obtained by the memb er States under the challenged LA/MSF 
measures;  and   
(iv) whether the Panel erred under Article 1.1(b) of the SCM Agreement  in 
stating, in paragraph 7.397 of the Panel Report, that "the number of sales over 
which full repayment is expected says little, if anything, about the appropriateness of the rate of return that will be achieved by that lender"; 
(e) Whether the Panel erred in its interpretati on and application of Article 2.1 of the 
SCM Agreement  in finding that R&TD funding granted to Airbus under the 
EC Framework Programmes constituted "speci fic" subsidies within the meaning of 
Article 2.1(a) of the SCM Agreement ; 
(f) Whether the Panel erred in its interpreta tion and application of Article 1 of the 
SCM Agreement in finding that infrastructure me asures concerning the Mühlenberger 
Loch industrial site in Hamburg, the air port runway extension in Bremen, and the 
Aéroconstellation industrial site in Toulouse,  constitute financial contributions within 
the meaning of Article 1.1(a)(1)(iii), and c onferred a benefit within the meaning of 
Article 1.1(b), of the SCM Agreement ;  
(g) Whether the Panel erred in its interpretation and application of Article 1.1(b) of the 
SCM Agreement , and failed to make an objective assessment of the matter under 
Article 11 of the DSU, in finding that a be nefit was conferred by each of four capital 
investments by the French Government in Aérospatiale between 1987 and 1994; 
(h) Whether the Panel erred in its interpretation and application of Article 1.1(b) of the 
SCM Agreement , and failed to make an objec tive assessment of the matter under 
Article 11 of the DSU, in finding that a benefit was conferred by the 1998 transfer by 
the French Government to Aérospatia le of its shares in Dassault Aviation;  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 241  
 
  (i) Whether the Panel erred in finding that th e United States had demonstrated that the 
German, Spanish, and UK A380 contracts amount to prohibited export subsidies 
within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement .  More 
specifically: 
(i) whether the Panel erred in the interpretation of Article 3.1(a) and footnote 4 
of the SCM Agreement , in particular the terms "con tingent", "tied to", "actual 
or anticipated", and "export performance",  in finding that, in order to qualify 
as a prohibited export subsidy, a subsidy must be granted because  of actual or 
anticipated export performance;   
(ii) whether the Panel erred in the applicati on of Article 3.1(a) and footnote 4 of 
the SCM Agreement  in finding that, together with the evidence the 
United States advanced concerning the exchange of commitments between 
Airbus and the German, Spanish, and UK Governments, the additional 
evidence submitted by the United Stat es demonstrated that the German, 
Spanish, and UK A380 contracts were in fact concluded, at least in part, on 
the condition or because  of the three LA/MSF governments' anticipation of 
exportation;  and 
(iii) whether the Panel acted inconsistently w ith Articles 7.2, 11, and 12.7 of the 
DSU in making the above findings by (1) failing to address the relevant 
provisions cited by the parties, (2) failing to make an objective assessment of 
the matter before it, and (3) failing to state the basic rationale for its findings; 
(j) Whether the Panel erred in its interpre tation and application of Articles 5(c) 
and 6.3(a) and (b) of the SCM Agreement , in particular the term "market" read in the 
context of the terms "subsidized" and "like product", and acted inconsistently with its 
obligations under Article 11 of the DSU, when it found that it did not need 
independently and objectively to make a determination regarding the "subsidized 
product";  and consequently in assessing "displacement" on the basis of a single subsidized product and a single market for LCA; 
(k) Whether the Panel erred in finding, under the first step of its two-step approach 
pursuant to Article 6.3(a) of the SCM Agreement , that Boeing LCA were displaced 
from the European Communities market; WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 242  
 
  (l) Whether the Panel erred in finding, under the first step of its two-step approach 
pursuant to Article 6.3(b) of the SCM Agreement , that Boeing LCA were displaced 
from the markets of Australia, Brazil, Chin a, Korea, Mexico, Singapore, and Chinese 
Taipei, and acted inconsistently with its obligations under Article 11 of the DSU in 
finding that Boeing LCA were displaced from the markets of Brazil and Mexico; 
(m) Whether the Panel erred in finding, under the first step of its two-step approach 
pursuant to Article 6.3(b) of the SCM Agreement , that there was a threat of 
displacement of Boeing LCA from the market of India; 
(n) Whether the Panel erred in finding, under the first step of its two-step approach 
pursuant to Article 6.3(c) of the SCM Agreement , that the sale to Emirates Airlines of 
A380 aircraft constituted a "lost sale", and failed to make an objective assessment of 
the matter under Article 11 of the DSU in reaching this finding
1372; 
(o) Whether the Panel erred in finding, pursuant to Article 6.3 of the SCM Agreement , 
that the following market phenomena were "the effect" of the subsidies provided to Airbus and thus gave rise to "serious prej udice" to the interests of the United States 
within the meaning of Article 5(c) of the SCM Agreement : 
(i) "displacement" of Boeing LCA from the markets of the European 
Communities, Australia, Brazil, China, Korea, Mexico, Singapore, and Chinese Taipei, and threat of displacement from the market of India;   
(ii) significant "lost sales" in the A320 sales to Air Asia, Air Berlin, Czech 
Airlines, and easyJet;   
(iii) significant "lost sales" in the A380 sales to Emirates Airlines, Qantas, and 
Singapore Airlines;  and  
(iv) whether, in reaching these findings, th e Panel failed to make an objective 
assessment of the matter under Article 11 of the DSU;   
                                                     
 
1372Although the European Union alleges an inconsiste ncy under Article 12.7 of the DSU in its Notice 
of Appeal in respect of subparagraphs (j) through (p) above, it has not pursued these claims in its appellant's 
submission.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 243  
 
  (p) Whether the Panel erred in its interp retation and application of Articles 5 
and 6.3(a), (b), and (c) of the SCM Agreement , and failed to make an objective 
assessment of the matter under Article 11 of the DSU, in failing to distinguish the 
effects of the subsidies other than LA/MSF from the LA/MSF measures in assessing 
adverse effects, and in failing to provide  a reasoned and adequate explanation as to 
how the non-LA/MSF measures could cause or contribute to causing adverse effects;  
and 
(q) Whether the Panel erred in its interpretati on and application of Article 5(c) of the 
SCM Agreement , and acted inconsistently with Articles 12.7 and 11 of the DSU, in 
failing to take into account the 1992 Agre ement in its adverse effects analysis. 
572. The following issues are raised by th e United States in its other appeal: 
(a) Whether the Panel erred in finding that the United States has not established the 
existence of an unwritten LA/MSF "Progra mme" that constitutes a specific subsidy 
within the meaning of Articles 1 and 2 of the SCM Agreement ;  and 
(b) Whether the Panel erred in finding that the United States had not shown that the 
granting of the French LA/MSF for the A380 and A330-200, and the French and 
Spanish LA/MSF for the A340-500/600, were  contingent in fact upon anticipated 
exportation, within the meaning of Ar ticle 3.1(a) and footnote 4 of the 
SCM Agreement , including whether the Panel e ffectively required evidence of 
specific motivation in order to find a tie  between the subsidies and anticipated 
exports. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 244  
 
  IV. Overview of the Measures at Issue  
A. Introduction 
573. This dispute concerns a challenge brought by  the United States against numerous alleged  
instances of subsidization to Airbus companies
1373 over the course of four decades by the 
European Communities1374 and four of its member States—France, Germany, Spain, and the 
United Kingdom (herein the "member States")—with  respect to large civil aircraft ("LCA").1375  
574. The measures that were the subject of the Unite d States' complaint may be grouped into five 
general categories:  (a) "launch ai d" or "member State financing" ("LA/MSF") for the development of 
various Airbus LCA, consisting of the A300, A310, A320, A330/A340 (including the A330-200 and 
A340-500/600 variants), A350, and A380;  (b) loans from the European Investment Bank ("EIB") to 
                                                      
1373By this term, we mean the Airbus companies described by the United States in its panel request, 
namely:  
Airbus SAS, its predecessor Airbus GIE and current and predecessor 
affiliated companies, including each person or entity that directly, or 
indirectly through one or more intermed iaries or relationships, controls or 
controlled, or is or was controlled by, or is or was under common control 
with Airbus SAS or Airbus GIE, such as parent companies, sibling 
companies and subsidiaries, including Airbus Deutschland GmbH, Airbus España SL, Airbus France S.A.S., Airbus UK Limited, European Defence 
and Space Company ("EADS"), and BAE Systems.   
(Request for the Establishment of a Panel by the United States, WT/DS316/2, footnote 1) 
1374This dispute began before th e entry into force of the Treaty of Lisbon amending the Treaty on 
European Union  and the  Treaty establishing the European Community  (done at Lisbon, 13 December 2007) on 
1 December 2009.  On 29 November 2009, the World Tr ade Organization received a Verbal Note (WT/L/779) 
from the Council of the European Union and the Commission of the European Communities stating that, by 
virtue of the Treaty of Lisbon , as of 1 December 2009, the "Europ ean Union" replaces and succeeds the 
"European Community".  On 13 Ju ly 2010, the World Trade Organiza tion received a second Verbal Note 
(WT/Let/679) from the Council of the European Union confirming that, with  effect from 1 December 2009, the 
European Union replaced the European Community and assumed all the rights and obligations of the European Community in re spect of all Agreements for which the Director-Gen eral of the World Trade 
Organization is the depositary and to which the European Community is a signatory or a contracting party.  We 
understand the reference in the Verbal Notes to the "European Community" to  be a reference to the 
"European Communities".  Thus, although the European Communities was a party in the Panel proceedings, and 
the Panel referred to the European Communities in its Report, it is the European Union that filed a Notice of 
Appeal in this dispute after the entry into force of the Treaty of Lisbon , and we will thus refer to the 
European Union in this Report in its capacity as appellant  (and as appellee).  However,  when referring to events 
that took place during the Panel proceedings, or quoting from the Panel Report, we refer to the 
European Communities.  
1375In paragraph 2.1 of its Report, the Panel defi ned "large civil aircraft" ("LCA") as follows: 
{L}arge (weighing over 15,000 kilograms) "tube and wing" aircraft, with 
turbofan engines carried under low-set wings, designed for subsonic flight.  LCA are designed for transporting 100 or more passengers and/or a 
proportionate amount of cargo across a range of distances serviced by 
airlines and air freight carriers.  LC A are covered by tariff classification 
heading 8802.40 of the Harmonized Syst em ("Airplanes and other aircraft, 
of an unladen weight exceeding 15,000 kg").   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 245  
 
  Airbus companies;  (c) research and technological  development ("R&TD") funding granted to Airbus 
companies by the European Commun ities and the member State governments at central and regional 
levels;  (d) infrastructure and infrastructure-relate d grants by the member State governments;  and 
(e) corporate restructuring measures undertaken by the French and German Governments.   
575. The United States claimed before the Panel that  each challenged measure is a specific subsidy 
within the meaning of Articles 1 and 2 of the SCM Agreement , and that the European Communities 
and the member States, through the use of these subsid ies, caused adverse effect s to the United States' 
interests within the meaning of Articles 5 and 6 of the SCM Agreement .  In addition, the United States 
claimed that certain LA/MSF measures are prohib ited export subsidies within the meaning of 
Article 3 of the SCM Agreement . 
576. The Panel's findings that are subject to appeal  are identified in Part III of this Report.  
Because of the large number of claims made and me asures challenged, and in order to provide some 
background to and context for our findings, we cons ider it useful first to explain the corporate 
evolution of the Airbus companies to form Airbus SAS, the company that today develops and manufactures Airbus LCA.  We then set out an overvie w of the measures at issue in this dispute.  We 
note that the following overview  places specific emphasis on those findings of the Panel that are 
relevant to this appeal.  For a complete account  of the background to the evolution of the Airbus 
companies as well as the measures at issue and the Panel's reasoning and findings, direct reference 
should be had to the Panel Report.  
B. Background to the Creation of Airbus SAS 
577. Prior to 2001, Airbus LCA were produced by a consortium of French, German, Spanish, and 
UK aerospace companies (the Airbus partners), operating in a partnershi p arrangement through the 
French entity, Airbus GIE.
1376  We use the term "Airbus Industrie " to refer to the Airbus consortium 
as it operated between 1970 and 2001;  that is, each  of the four Airbus partners and Airbus GIE 
collectively .  In contrast, reference to Airbus GIE as an entity distinct from the Airbus partners will be 
made through use of the term "Airbus GIE".1377  
                                                      
1376Airbus Industrie GIE was regist ered under French law as a " groupement d'intérêt économique " 
("GIE"), which is a French legal fr amework that allows its members to carry out collectively certain economic 
activities while maintaining their separate legal identities, and which does not have as its goal the retaining of 
profits.  A GIE has a separate legal personality from its members, although, in other respects, it resembles a 
partnership. (Panel Report, footnote 2053 to paragraph 7.183)   
1377See, similarly, Panel Report, para. 7.184. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 246  
 
  578. Airbus Industrie was founded in 1970.  At the time, it included the French aerospace 
manufacturer, Aérospatiale  Société Nationale Industrielle ("Aérospatiale")
1378 and the German 
aerospace manufacturer, Deutsche Airbus GmbH.1379  The Spanish aerospace manufacturer, 
Construcciones Aeronáuticas SA ("CASA")—which  was 99% owned by a Spanish Government 
holding company, Sociedad Estatal de Particip aciones Industriales ("SEPI")—became a member of 
the consortium in 19711380;  and British Aerospace Corporati on, a UK aerospace manufacturer, 
subsequently joined the consortium in 1979.1381  Between 1979 and 2000, there were a number of 
corporate restructurings involving three of the four  Airbus partners:  in 1998, Aérospatiale merged 
with Matra Hautes Technologies ("MHT") to form Aérospatiale-Matra SA1382;  in 1992, pursuant to a 
restructuring plan by the German Government, De utsche Airbus became a wholly owned subsidiary 
of Deutsche Aerospace AG ("Dasa"), which was in turn owned by Daimler-Benz Aérospace AG 
("Daimler-Benz")1383;  and in 1999, British Aerospace Corpora tion, through a series of transactions, 
became BAE Systems PLC.1384  In spite of these changes to the Airbus partners, their membership 
                                                      
1378Aérospatiale was founded in 1970 through the merger of thr ee French aerospace 
companies:  Sud Aviation, Nord Aviation, and Société d'études et de réalisation d'engins balistiques.  
Aérospatiale was owned directly and indirectly by the French Government until 1998. (Panel Report, 
footnote 2054 to para. 7.183)  
137960% of the interest in Deutsche Airbus was held by Messerschmitt-Bölkow-Blohm GmbH  
("MBB"), a merger of three German companies, and the remaining 40% was held equally by two other  
German companies, Dornier and Vereinigte Flugtechnische Werke ("VFW").  MBB took over VFW in 1981. (See Panel Report, footnote 2055 to para. 7.183) 
1380CASA was founded in 1923 and was Spain's larg est aerospace and defence manufacturer.  SEPI was 
entrusted with the management and privatization of cer tain Spanish Government-controlled companies. (Panel 
Report, para. 7.183 and footnote 2056 thereto) 
1381British Aerospace Corporation was formed in 1977 as  a Crown corporation w ithout shares, wholly 
owned by the UK Government.  It was formed as a result of the me rger of the UK aerospace companies, 
Hawker Siddeley Aviation Ltd, Hawker Siddeley Dynamics Ltd, Scottish Aviation Ltd, and British Aircraft 
Corporation (Holdings) Ltd. (Panel Report, footnote 2057 to para. 7.183) 
1382The French Government sold a portion of its shar es in Aérospatiale-Matra in a public offering 
in 1999.  As a result, 48% of Aérospatiale-Matra was owned by the French Government and 2% by employees.  
The rest was acquired by a private company (33%) and the public (17%). (European Union's appellant's submission, paras. 131-133 (referring to, inter alia , Aérospatiale-Matra, Offering Memorandum (25 May 1999) 
(Panel Exhibit EC-53), pp. 3, 13-14, and 30)).  See also Panel Report, para. 4.20 and footnote 2054 to 
para. 7.183.   
1383See Panel Report, footnote 2055 to para. 7.183.  The Panel explained that "Deutsche Airbus AG 
was a subsidiary of MBB until MBB's merger with Daim ler Benz's subsidiary Deutsche Aerospace AG (Dasa) 
in 1992, after which it was an indirect subsidiary of Daimler-Benz. Although Dasa was originally founded as 
Deutsche Aerospace AG in 1989, its name was changed to Daimler-Benz Aerospace AG  in 1995, and then to 
DaimlerChrysler Aerospace AG in 1998 (following the merger of Daimler-Benz AG with Chrysler 
Corporation).  We refer to this entity as 'Dasa' thro ughout this report." (Panel Report, footnote 2061 to 
paragraph 7.184;  see also footnote 2055 to para. 7.183)  Similarly, our references to Dasa in this Report are to 
this entity.  
1384Panel Report, footnote 2057 to para. 7.183.  In 1981, the assets and business of the British 
Aerospace Corporation were tr ansferred to the newly in corporated British Aerospace PLC, a UK public limited 
company.  The UK Government sold 51. 57% of its shares in British Aerospace in a public offering in 1981 and, 
subject to retaining a share to ensure that the company remained under UK control, sold the remainder of its shares in 1985.  In 1999, British Aerospace PLC merg ed with Marconi Electronic Systems to become BAE 
Systems PLC. ( Ibid. (referring to European Communities' first written submission to the Panel, paras. 59-61))  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 247  
 
  interests in Airbus GIE between 1979-2000 remain ed as follows:  Aérospatiale (subsequently 
Aérospatiale-Matra) (37.9%);  Deutsche Airbus (37.9%);  CASA (4.2%);  and British Aerospace 
(subsequently BAE Systems) (20%).
1385   
579. The Airbus partners in France, Germany, Spain, and the United Kingdom produced specific 
parts of Airbus LCA, which were then assembled in France by Aérospatiale.1386  Airbus GIE did not 
carry out any production activities;  rather, it coordina ted the production efforts of the Airbus partners, 
allocated revenues and profits to each of the pa rtners, and assumed responsibility for areas such as 
marketing, sales, aircraft delivery, and customer service.1387   
580. In July 2000, the French, German, and Spanish Airbus partners merged their activities in the 
aeronautics, space, and defence sectors by contri buting all of the shares of the subsidiaries of 
Aérospatiale-Matra and Dasa, and all of the shares of CASA1388, to the newly formed 
European Aeronautic Defence and Space Company NV ("EADS"), a public limited liability company 
(naamloze vennootschap ) organized under the laws of the Netherlands.1389  Prior to these 
contributions, Aérospatiale-Matra  and Dasa had each conducted in ternal reorganizations of the 
subsidiaries in which they held the assets and liabilities related to thei r Airbus-related and non-
Airbus-related activities.1390  The contributions were made in exch ange for shares in EADS issued in 
                                                      
 1385See Panel Report, section VII.E.1 (attachment), para. 3, p. 361.  The Panel noted that two other 
European aerospace companies, Fokker an d Belairbus, participated in certai n Airbus programmes as associated 
manufacturers, although they did not become partners in Airbus GIE. ( Ibid., footnote 2238 to para. 3, p. 361). 
1386For a description of the activities of each of  the Airbus GIE partners, see Panel Report, 
footnote 2058 to para. 7.183. 
1387Panel Report, para. 7.183.  
1388Panel Report, section VII.E.1 (attachment), para. 4, p. 362, and footnote 2214 to para. 7.274.   
1389Panel Report, section VII.E.1 (attachment), para. 4, p. 362. 
1390Panel Report, section VII.E.1 (attachment), para. 4, p. 362 and footnote 2241 thereto, which states: 
Aérospatiale Matra Airbus was the Aérospatiale-Matra subsidiary which 
held Aérospatiale Matra's  Airbus-related assets and liabilities, including its 37.9 percent membership interest in Airbus GIE.  Other Aérospatiale-
Matra subsidiaries held assets that were not related to Aérospatiale-Matra's 
LCA activities, such as Aérospatiale-Matra's helicopter, defence, space transport, satellite and telecommunica tions businesses.  Dasa's Airbus-
related activities had been grouped into a subsidiary called DaimlerChrysler 
Aerospace Airbus Beteiligungs GmbH, wh ich held a 99.99 percent of the 
shares of DaimlerChrysler Aerospace Ai rbus GmbH, which in turn held a 
37.9 percent membership interest in Airbus GIE.  Dasa separately held a 
direct 0.71 percent interest in CASA, which it also contributed to EADS pursuant to the combination transactions.  Assets and liabilities relating to 
activities other than the Airbus-related activities were grouped into other 
Dasa subsidiaries, with the exception of (i) liabilities relating to Dornier aircraft;  (ii) all claims and liabilities re lating to the Fokker group;  (iii) Dasa 
AG's participating interests in MTU, Temic Telefunken microelectronic 
GmbH and debis AirFinance B.V.;  and (iv) a cash amount of Euro 3,133 million;  EADS Offering Memorandum, 9 July 2000, Exhibit EC-24, 
pp. 140-144.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 248  
 
  proportion to the relative values of the resp ective contributions of Aérospatiale-Matra
1391, Dasa, and 
SEPI.1392  EADS thereafter owned all of the subsidiaries of Aérospatiale-Matra and Dasa that had 
previously conducted the Airbus-related design, engi neering, manufacturing, and production activities 
located in France and Germany, and all of the sh ares of former Spanish Airbus partner, CASA.  
EADS also held the membership interests in Ai rbus GIE that had previously been held by 
Aérospatiale-Matra, Dasa, and CASA.1393  BAE Systems continued to hold its 20% interest in Airbus 
GIE.1394 
581. Following these transactions, DaimlerChrysler1395 and Société de gestion de l'a éronautique, de 
la défense et de l'espace  ("SOGEADE")—a French partnership limited by shares to which the French 
Government and other French companies belong1396—each held approximately 30% of the share 
capital of EADS, while SEPI held 5.48% of EADS shares.1397 DaimlerChrysler, SOGEADE, and 
SEPI entered into a contractual partnership under Du tch law (the "Contractual Partnership") in which 
they agreed that a Dutch company, EADS Participations BV1398, would exercise the voting rights 
attached to the 65.48% shares held among them.1399   
582. In 2001, EADS and BAE Systems placed their Airbus-related assets a nd operations and their 
membership rights in Airbus GIE under the comm on control of a newly created holding company, 
                                                      
1391Aérospatiale-Matra was subsequently wound up, so that the EADS shares issued to Aérospatiale-
Matra were distributed by Aérospatiale-Matra to its ow n shareholders simultaneously with the liquidation of 
Aérospatiale-Matra on the basis of one EADS share fo r every one Aérospatiale-Mat ra share.  Simultaneously 
with these transactions, EADS issued  shares and the French Government, Lagardère, and the French financial 
institutions, BNP PARIBAS and AXA, sold EADS shares in a public offering. (Panel Report, section VII.E.1 
(attachment), footnote 2242 to para. 4, p. 362  (referring to EADS' Offering Memorandum, supra , footnote 163, 
pp. 140-144))  
1392Panel Report, section VII.E.1 (attachment), para . 4, p. 362.  See EADS' Offering Memorandum, 
supra , footnote 163, pp. 140-144. 
1393Panel Report, section VII.E.1 (attachment), para. 5, p. 362.  
1394Panel Report, section VII.E.1 (attachment), para. 4, p. 362. 
1395DaimlerChrysler Aerospace AG ("DaimlerChrysler") was formed in 1998 following the merger of 
Daimler-Benz with the Chrysler Co rporation. (See Panel Report, footnote 2061 to para. 7.184) 
1396SOGEADE (Société de gestion de  l'aéronautique, de la défense et de l'éspace) is a French 
partnership limited by shares ( société en commandite par actions ). SOGEADE is 50% owned by the French 
Government (through a French Government-owned holding company, Société de gestion de participations aéronautique (SOGEPA)) and 50% owned by Désirade, which comprises Lagardère as well as the French 
financial institutions, BNP PARIBAS and AXA. (Panel Report, section VII.E.1 (attachment), footnotes 2242 
and 2243 to para. 4, p. 362, and para. 6, p. 363 (referring to EADS' Offering Memorandum, supra , footnote 163, 
pp. 38, 65, 74, 132, 137-138, and 141-142)) 
1397Panel Report, section VII.E.1 (attachment), para. 4, p. 362, and para. 6, p. 363.   
1398EADS Participations BV is a Dutch private comp any with limited liability and is the managing 
partner of the Contractual Partnership. (EADS' Offering Memorandum, supra , footnote 163, p. 133)   
1399See EADS' Offering Memorandum, supra , footnote 163, pp. 132-133.  With the "indirect shares" 
pledged to it, EADS Participations BV was granted the ex clusive power to exercise th e voting rights attaching to 
these shares (including the right to attend and speak at shareholders' meetings) in accordance with a Contractual 
Partnership agreement. ( Ibid., p. 132)    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 249  
 
  Airbus SAS, a société par actions simplifiée  under French law.
1400  The LCA-related assets located in 
France, Germany, Spain, and the United Kingdom were transferred to Airbus SAS subsidiaries:  those 
previously held by Aérospatiale-Matra were transfer red to Airbus France SAS;  those previously held 
by Dasa were transferred to Airbus Deutschland GmbH;  and those previously held by CASA were transferred to Airbus España.  BAE Systems tran sferred its LCA-related assets to Airbus SAS in 
exchange for a 20% stake in Airbus SAS, assets which were later transferred to Airbus UK Ltd.
1401  
EADS held an 80% interest in Airbus SAS (and ha d effective control over its operations), while BAE 
Systems, with the remaining 20% inte rest, enjoyed specific minority rights.1402  I n  2 0 0 6 ,  E A D S  
purchased BAE Systems' 20% interest in Airbus SAS, so that Airbus SAS became a wholly owned subsidiary of EADS.
1403 
C. Launch Aid/Member State Financing 
583. A significant part of the United States' case concerns a form of financing for LCA design and 
development provided by France, Germany, Spain,  and the United Kingdom to Airbus over a period 
of approximately 40 years beginning in 1969.  Th e United States refers to all such financing as 
"launch aid".  The European Union uses different te rms to describe such financing, including "MSF" 
(member State financing), "member St ate loans", and "launch investment".1404  In this Report, we 
refer to these measures as "LA/MSF".1405 
584. Before the Panel, the United States argued that  the Governments of France, Germany, Spain, 
and the United Kingdom provided LA/MSF to Airbus for each new model and variant1406 of Airbus 
LCA—in particular the A300, A310, A320, A330/A3401407, A330-200, A340-500/6001408, A350, and 
                                                      
1400Panel Report, section VII.E.1 (attachment), para. 7, p. 364.   
1401European Union's response to questioning at the oral hearing;  Panel Report, section VII.E.1 
(attachment), para. 7, p. 364. 
1402Panel Report, section VII.E.1 (attachment), para. 7, p. 364.   
1403Panel Report, section VII.E.1 (attachment), para. 7, p. 364.  
1404The European Union also refers to avances remboursables (repayable advances), rückzahlbare 
Zuwendungen  (repayable aid), Entwicklungsbeihilfen  (development aid), Zuschüsse zur Entwicklung von zivilen 
Flugzeugen  (contributions for the development of civil aircraft), anticipo reembolsable  (repayable advance), and 
prestamo reembolsable  (repayable loan).  The United States refers to  all such types of financing as "launch aid", 
regardless of the specific term or terms used by the en tity providing the financing. (See Panel Report, para. 4.87) 
1405See also Panel Report, para. 7.291.  
1406The Panel and the parties used the terms "variant" and "derivative" interchangeably and we should 
be understood to do the same. 
1407The European Communities explained that, notw ithstanding the different characteristics and 
market profile of the A330 and A340, the basic versio ns of these LCA models are sometimes referred to 
collectively as the "A330/A340 basic", reflecting the fact  that they were launched at the same time. (See 
European Communities' first written submission to the Panel, footnote 53 to para. 84) 
1408The A340-500 and A340-600 are two different variants of the A340.  However, because of their 
similarities, they are often referred to collectively as the "A340-500/600". (See European Communities' first 
written submission to the Panel, footnote 53 to para. 84) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 250  
 
  A380.
1409  According to the United States, each one of  the challenged grants of LA/MSF evidences a 
"financial contribution" that conferred a "benefit" on Airbus, and therefore amounted to a subsidy 
within the meaning of Article 1.1 of the SCM Agreement .1410 
585. The European Communities contested the United States' claim that each of the disputed 
LA/MSF measures amounted to a subsidy within the meaning of Article 1 of the SCM Agreement .  
However, in doing so, it did not contest the United States' allegations in respect of LA/MSF being a 
"financial contribution" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement .  Instead, the 
European Communities focused on arguing that th e challenged LA/MSF measures did not confer a 
"benefit" upon their recipient within the meaning of Article 1.1(b) of the SCM Agreement .1411  The 
European Communities did not contest the United St ates' submission that the LA/MSF measures were 
"specific" within the meaning of Article 2 of the SCM Agreement .1412 
586. We identify below each of the specific instances of LA/MSF financing at issue in this appeal, 
describe the contractual framework for LA/MSF, and examine key features of LA/MSF based on the contracts submitted by the parties to the Panel.   
1. The Individual LA/MSF Measures
 
587. Before the Panel, the United States challenge d multiple instances of development funding 
provided by the four member States to Airbus.  In addition, the United States challenged what it 
referred to as the LA/MSF "Programme" as a measure distinct from individual LA/MSF measures. 
588. We begin by describing the specific LA/MSF measures challenged by the United States.  We 
understand that no LA/MSF was sought from any of the member States for the A318, A319, and A321 models.
1413  We further understand that:  (i) the UK Government did not provide LA/MSF for 
                                                      
1409The Airbus LCA variants that ar e not the subject of the United St ates' complaint against LA/MSF 
are the A318, A319, and A321. (Panel Report, footnote 2430 to para. 7.369)  We understand that no LA/MSF 
was provided for the development of these variants. ( Ibid., para. 7.526;  see also footnote 2430 to para. 7.369)  
Further details regarding LA/MSF, including alleged amounts of funding per model, is provided below in 
subsection C.3 at page 257 of this Report. 
1410Further detail is provided below at paragraph 589 of this Report.  The United States also argued that 
the French, German, Spanish, and UK Governments had each individually agreed to support the development of 
the A350 by lending Airbus "at least" US$1.7 billion in the form of LA/MSF.  The Panel rejected this claim, 
finding that the United States had failed to demonstrate that the A350 LA/MSF measur e existed at the time of 
the establishment of the Panel. (See Panel Report, paras. 7.297 and 7.314)  The United States has not challenged 
this finding on appeal. 
1411Panel Report, para. 7.335.  
1412Panel Report, para. 7.497.  
1413Panel Report, para. 7.526;  see also footnote 2430 to para. 7.369.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 251  
 
  the A300 or the A310
1414;  (ii) no German, Spanish, or UK Government LA/MSF was requested for 
the A330-2001415;  (iii) no German Government LA /MSF was requested to develop the 
A340-500/6001416;  and (iv) the UK Government did not conclude a LA/MSF contract with British 
Aerospace for the purpose of developing the A340-500/600, even though British Aerospace had 
initially requested LA/MSF from the UK Government.1417 
589. The challenged LA/MSF measures, as well as approximate amounts, are set out in Table 1. 
Table 1.  Alleged LA/MSF 
Alleged amount (millions) 
Aircraft model France Germany Spain United Kingdom 
A300 FF 3,012 Ptas 3,829 - 
A310 FF 3,180 DM 2,400 
Ptas 7,808 - 
A320 FF 4,133 DM 1,330 Ptas 10,800 £250 
A330/A340 FF 7,800 DM 2,930 Ptas 29,400 £447 
A330-200 FF 330 - - - 
A340-500/600 FF 2,110 - Ptas 11,348 - 
A380 [***] [***] [***] [***] 
Source :  Panel Report, para. 7.380. 
 
2. The Contractual Framework for LA/MSF  
590. The contractual framework of each of the ch allenged LA/MSF measures usually takes one of 
two forms:  (i) general agreemen ts between participating member State governments, implemented at 
the national level through separate contracts betw een each participating member State government 
and the Airbus entity located within its territory;  or  (ii) individual contracts between each relevant 
member State government and the Airbus entity located in its territory.   
591. Participating member State governments contracted  funding for Airbus' first LCA models (the 
A300 and A310) through a series of agreem ents at the intergovernmental level.1418  These agreements 
expressed the relevant member State's commitment to fund the development of the A300 and A310;  
they also set out, to varying degrees, some of the ke y terms and conditions attached to the provision of 
                                                      
1414See Panel Report, para. 7.369 and footnote 2431 thereto;  see also para. 7.1975 and footnote 2810 to 
para. 7.526. 
1415Panel Report, para. 7.526. 
1416Panel Report, para. 7.526. 
1417Panel Report, para. 7.527. 
1418These are the "1969 A300 Agreem ent" (Panel Exhibit US-11), infra , footnote 1421;  the "1971 
A300 Agreement" (Panel Exhibit EC-992 (BCI)),  infra , footnote 1427;  and the "198 1 A310 Agreement" (Panel 
Exhibit EC-942 (BCI)),  infra , footnote 1429.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 252  
 
  financing, such as the schedules for specific amount s of funds to be disbursed and the mode of 
repayment.
1419  Separate contracts implementing the inter governmental agreements, in the context of 
one or more different aspects or phases of the first two Airbus LCA projects, were entered into at the 
national level between each financing member Stat e government and the Airbus entity located within 
its territory.1420 
592. The "1969 A300 Agreement"1421 envisaged in general terms that the French and German 
Governments would provide a spec ified amount of funding for the development of the A300 in the 
form of loans to be repaid through a series of gra duated levies on the sale of each aircraft, the value of 
which was expressly identified.1422  Both the development and production of the A300 were to be 
divided between the two "Associated Manufacturers"1423 involved, in proportion to each government's 
respective contribution to development costs of that model.1424  However, the costs of production of 
the A300 series were not financed under the 1969 A 300 Agreement, which explicitly provided that 
these costs would be the responsibility of  each of the Associated Manufacturers.1425   
593. The 1969 A300 Agreement was extended to th e Government of the Netherlands on 
28 December 1970 (the "1970 A300 Agreement"1426), and to the Government of Spain on 
23 December 1971 (the "1971 A300 Agreement"1427).  In terms of substance, the 1971 A300 
Agreement declared, inter alia , CASA to be an Associated Manufacturer, and conferred upon it a 
portion of A300 series production.1428 
                                                      
1419Panel Report, para. 7.370. 
1420Panel Report, para. 7.370. 
1421Agreement (of 29 May 1969) between the Government of the Republic of France and the 
Government of the Federal Republic of Germany regarding the realization of the Airbus A-300-B  (Panel Exhibit 
US-11). 
1422Panel Report, para. 7.534 (referring to 1969 A300 Agreement, Articles 6 and 7).  The total amount 
of funding identified in the Agreement was set on the basis of conditions de prix  (price conditions) existing on 
1 January 1968, and was subject to revision in the light of any evolution in the conditions économiques 
générales  (general economic conditions) since 1 January 1968. ( Ibid. (referring to 1969 A300 Agreement, 
Article 6)) 
1423The two "Associated Manufacturers" were Sud-Aviation and Deutsche Airbus GmbH. (Panel 
Report, para. 7.534;  1969 A300 Agreement, preamble) 
1424Panel Report, para. 7.534 (referring to 1969 A300 Agreement, Articles 3.1 and 4.2). 
1425Panel Report, para. 7.534 (referring to 1969 A300 Agreement, Article 9).   
1426Agreement between the Governments of the Kingdom of the Netherlands, the Federal Republic of 
Germany, and the French Republic concerning the realization of the Airbus A-300 B  (1970) .  The parties did not 
submit a copy of this Agreement to the Panel. 
1427Agreement (of 23 December 1971) between the Governments of the French Republic, the Federal 
Republic of Germany, the Kingdom of the Netherlands and the Spanish State regarding the realization of the Airbus A-300 B  (Panel Exhibit EC-992 (BCI)). 
1428Panel Report, para. 7.537.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 253  
 
  594. By virtue of the "1981 A310 Agreement"
1429, the Governments of France, Germany, Spain, 
and the United Kingdom extended some key principles of the 1969, 1970, and 1971 A300 
Agreements to the development of the A310.1430  The 1981 A310 Agreement addressed matters 
similar to those contained in the 1969 A300 Agreem ent.  As with the financing provided for the 
development of the A300, the 1981 A310 Agreement envisaged that certain specified amounts of funding would be made available for the development of the A310 in the form of loans to be repaid 
through a series of graduated levies on sales of each aircraft, the value of which was expressly 
identified.
1431  It also provided that a specified amount of  the development costs of the A310 would be 
assumed by the Governments of Belgium and the Neth erlands (for development work to be carried 
out respectively by Belairbus and Fokker), and th at an agreement would be signed with the two 
governments in due course.1432  An agreement was concluded with  the Governments of Belgium and 
the Netherlands in 1982.1433 
595. Development work was divided in proportion to  each government's respective contribution to 
development costs through avances remboursables  (repayable advances).1434  The Associated 
Manufacturers (which now included British Aerospace1435) were given responsibility for series 
production of the elements of  the A310 each had developed.1436  However, again, the costs of 
production of the A310 series were not financed unde r the Agreement, which explicitly provided that 
these costs would be the responsibility of  each of the Associated Manufacturers.1437   
596. The contractual framework for the A320 and A330/A340 projects contained elements similar 
to those of the A300 and A310 projects:  funding w as agreed between the part icipating member State 
governments, and implemented at th e national level through specific c ontracts between each relevant 
member State government and the Airbus entity located  within its territory.  However, compared to 
the intergovernmental agreements for the A300 and A310, the intergovernmental agreements for the 
                                                      
1429Agreement (of 28 September 1981) between the Governments of the Federal Republic of Germany, 
the French Republic, the United Kingdom of Great Britain and Northern Ireland, and Spain concerning the 
Airbus programme  (Panel Exhibit EC-942 (BCI)). 
1430Panel Report, para. 7.538. 
1431Panel Report, para. 7.538 (referring to 1981 A310 Agreement, Articles 8-10).   
1432Panel Report, para. 7.538 (referring to 1981 A310 Agreement, Article 8.6). 
1433Agreement between the Governments of the Kingdo m of Belgium, the Federal Republic of Germany, 
Spain, the French Republic, the Kingdom of the Neth erlands, and the United Kingdom of Great Britain and 
Northern Ireland concerning the programme Airbus (1982) ).  See Panel Report, para. 7.538.  The parties have 
not submitted a copy of this agreement. 
1434Panel Report, para. 7.539 (referring to 1981 A310 Agreement, Article 8.2). 
1435Panel Report, para. 7.539 (referring to 1981 A310 Agreement, preamble).   
1436Panel Report, para. 7.539 (referring to 1981 A310 Agreement, Article 5.1). 
1437Panel Report, para. 7.539 (referring to 1981 A310 Agreement, Article 10.1).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 254  
 
  A320 and A330/A340 were less precise.  For instan ce, they did not specify the repayment terms, 
leaving these to be determined through the indivi dual contracts negotiated at the national level.
1438 
597. The "1991 A320 Agreement"1439 was concluded between the Governments of France, 
Germany, Spain, the United Kingdom, and Belgiu m.  Each government's expected financial 
contribution to the Associated Manuf acturers (which now included Belairbus1440) for the purpose of 
developing the A320 was identified, and it was pr escribed that repayments would be made from 
aircraft sales revenues.1441  However, unlike the previous ag reements, the 1991 A320 Agreement did 
not specify the form or value of such repayments.   
598. Development work and production was divided betw een the five national actors, in proportion 
with the work undertaken in each territory and each government's respective contribution to 
development costs.1442  However, again, the costs of production of the A320 were not financed under 
the agreement, but left to the Associated Manufacturers.1443   
599. The Belgian, French, German, Spanish, and UK Governments subsequently concluded the 
"1994 A330/A340 Agreement"1444 concerning the development, produc tion, and sales financing of the 
A330/A340 LCA models.  It stipulated that repaym ents of the amounts advanced by the governments 
would be made from aircraft sales revenues.1445  However, it did not specify the form, value, or timing 
of such repayments. 
600. Production was divided between the five national industries, to the extent possible, in 
proportion with each government's respective contribution to development costs.1446  However, as in 
the case of the other agreements, the costs of production of the A330/A340 were not financed under 
the agreement, but left to the Associated Manufacturers.1447  The 1994 A330/A340 Agreement also 
                                                      
1438Panel Report, para. 7.370.  
1439Agreement (of 6 February 1991) between the Governments of the French Republic, the Federal 
Republic of Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and 
the Kingdom of Belgium, concerning the Airbus A320  programme (Panel Exhibit US-16).  See Panel Report, 
footnote 2867 to para. 7.542. 
1440Panel Report, para. 7.542 (referring to 1991 A320 Agreement, preamble). 
1441Panel Report, para. 7.542 (referring to 1991 A320 Agreement, Article 8). 
1442Panel Report, para. 7.543 (referring to 1991 A320 Agreement, Article 5.2, 5.3, and 11). 
1443Panel Report, para. 7.543 (referring to 1991 A320 Agreement, Article 12). 
1444Agreement (of 25/26 April 1994) between the Governments of the French Republic, the Federal 
Republic of Germany, the United Kingdom of Great Britain and Northern Ireland, the Kingdom of Spain and 
the Kingdom of Belgium concerning the Airbus A330/A340 programme (Panel Exhibit US-28)). See Panel 
Report, para. 7.546. 
14451994 A330/A340 Agreement, Article 8:  "The respective national contributions to development 
costs shall be reimbursed by Airbus Industrie from aircraft sales revenues". (Panel Report, footnote 2888 to 
para. 7.546) 
1446Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 10). 
1447Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 11).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 255  
 
  provided that the Governments of France, German y, Spain, and the United Kingdom would support 
A330/A340 export financing (the Sp anish Government's obligation being limited to purchases made 
by Spanish airlines).
1448  The Agreement explained that consulta tions would be undertaken to decide 
the modalities for extending its provisions to variants of the A330/A340.1449   
601. In June 2003, the Governments of France, Ge rmany, Spain, and the United Kingdom entered 
into the "2003 Agreement"1450 with Airbus SAS setting out certain principles and obligations 
applicable to the four governments' continued support for Airbus LCA programmes.  The 2003 
Agreement does not concern any particul ar Airbus LCA development project.1451  Its main focus is the 
A380, but other unspecified projects launched on or  after the date of the agreement and their 
derivatives are also covered.1452   
602. No intergovernmental agreemen ts were concluded with rega rd to the LA/MSF provided by 
the Governments of France and Spain for the A330-200 and A340-500/600 projects.  Nor was any 
such agreement (expressing a commitment to provide funding) concluded with respect to the A380.  
Instead, for these projects, the member State gove rnments entered into separate national-level 
contracts, setting forth various relevant terms a nd conditions, with the French aerospace manufacturer, 
Aérospatiale, and the Spanish aerospace manufact urer, CASA (in respect of the A330-200 and 
A340-500/600  projects), and with Airbus France, Air bus Deutschland GmbH, EADS Airbus SL 
(Spain), BAE Systems (Operations) Ltd, and Br itish Aerospace PLC (in respect of the A380).1453 
603. The legal instruments making up the contract ual framework of the challenged LA/MSF 
measures are described in Table 2.1454 
                                                      
1448Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 12). 
1449Panel Report, para. 7.547 (referring to 1994 A330/A340 Agreement, Article 13). 
1450Agreement (of 16 June 2003) signed at Paris-Le Bourget between the Ministers of the Four 
Principal Airbus Countries and Airbus  (Panel Exhibit US-122 (BCI))).  See Panel Report, para. 7.549. 
1451Panel Report, para. 7.551.  
1452Panel Report, para. 7.551.  
1453Panel Report, para. 7.371.  
1454See also Panel Report, paras. 7.549-7.551.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 256  
 
  Table 2.  Contra cts for LA/MSF 
Contractual Framework 
Aircraft model France Germany Spain United Kingdom 
1969 and 1971 A300 Agreements 
A300  
launched  
in 1969   29 separate 
agreements, 
protocols and 
conventions between 
the French 
Government and 
Aérospatiale* "Model contract" 
representing 
LA/MSF contracts 
between the German 
Government and 
Deutsche Airbus for 
the A300* 16 separate contracts 
and amendments 
thereto, between the 
Spanish Government 
and CASA* None 
1981 Airbus A310 Agreement 
A310  
launched  
in 1978 10 separate protocols 
and conventions 
between the French 
Government and 
Aérospatiale**  "Model contract" 
representing German 
LA/MSF contracts 
for the A300** 8 separate contracts 
and amendments 
thereto, between the 
Spanish Government 
and CASA** None 
1991 A320 Agreement A320  
launched  in 1984 French A320 
contract German A320 
contract Spanish 1992 A320  
     contract*** UK A320 contract 
1995 A330/A340 Agreement A330/A340 
launched  
in 1987 French A330/A340 
contract German A330/A340 
contract¬ Spanish 1988 
A330/A340 
   contract¬¬ UK A330/A340 
contract 
A330-200 launched  in 1995 French A330-200  
 contract
 None None None 
A340-500/600 
launched  in 1997 French  
A340-500/600 
     convention
 None Spanish  
A340-500/600 
contract None 
A380  
launched  
in 2000 French A380 
contract German A380 
contract Spanish A380 
contract UK A380 
contract 
* See Panel Report, footnote 2247 to para. 7.290. 
** See Panel Report, footnote 2248 to para. 7.290. 
*** Final contract (of 1 September 1992) for the termination and liquidation of the cooperation agreements between the 
Ministry of Industry, Trade and Tourism and Construcciones Aeronáuticas SA relating to the provision of repayable funds 
for the financing of development costs for the Airbus A320 .  One of several earlier contracts entered into for the same 
purpose was the Spanish 1984 A320 contract. (See  Panel Report, footnote 2249 to para. 7.290) 
¬ The Panel noted that, although asked to provide a copy of the German LA/MSF contr act for the A330/A340, the 
European Communities did not do so.  The European Communiti es instead referred the Panel to another document, Panel 
Exhibit EC-887 (HSBI), which it a sserted incorporated the same "repayment prov isions" as the requeste d contract.  Thus, for 
the Panel, the European Communities did "not contest" that th e German Government entered into a LA/MSF contract with 
Deutsche Airbus GmbH for the A330/A340. (S ee Panel Report, footnote 2257 to para. 7.290) 
¬¬ Cooperation Agreement (of 1 June 1988)  between the Ministry of Industry and C onstrucciones Aeronáuticas SA, relating 
to the provision of a repayable, intere st-free advance for the financing of development costs for the Airbus A330/A340 .  This 
contract was supplemented by th e Spanish 1990 A330/A340 contract, Agreement (of 30 July 1990) between the Ministry of 
Industry and Energy and Construcciones Aeronáuticas SA, for the provision of  a refundable deposit without interest, 
intended to finance development costs for the Airbus A330/A340 . (See Panel Report, foot note 2254 to para. 7.290) 
 The Panel also noted the existence of the Memorandum of Understanding (of 23 December 1996) between the State and 
Aérospatiale relating to the Airbus A330-200 programme  (Panel Exhibit EC-90). (See Panel Report, footnote 2258 to 
para. 7.290) 
 The Panel also noted the existence of the Agreement (of 29 December 1998) betw een the signatory authority of the 
agreement on behalf and for the account of the State, on the one hand, and Aérospa tiale, on the other hand, concerning the 
development of the Airbus A340-500 and A340-600  (the "French A340-500/600 contract")  (Panel Exhibit US-36 (BCI)). 
(See Panel Report, footnote 2259 to para. 7.290)  See also supra , footnote 1112. 
  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 257  
 
  3. The Features of Individual LA/MSF Contracts
 
604. The Panel noted that the terms and conditions of each of the legal instruments making up the 
contractual framework of the challenged LA/MSF measures could "vary significantly".1455  
Nonetheless, the Panel considered that "numerous similarities"1456 in the type and form of financing 
could be found.  The Panel referred to the Unite d States' characterization of the challenged LA/MSF 
contracts "as unsecured loans granted to Airbus on back-loaded and success-dependent repayment 
terms, at below-market interest rates, for the purpose of developing various new models of LCA."1457  
We set out below certain elements of individual LA/MSF contracts, which exemplify key features of 
these contracts.  After highlighting the relative proportion of development costs associated with 
particular aircraft projects, and the manner of  disbursement of LA/MSF funds, we identify key 
features of the repayment terms (including paymen t structure, conditions of repayment, royalties, 
interest rates, guarantees, etc.).  
605. The proportion of development costs financed  through LA/MSF contracts has diminished 
over time.  For the earlier projects (the A300 and A 310), close to 100% of the development costs were 
financed through LA/MSF.1458  More specifically, the French and Spanish Governments funded 
approximately 100%, and the Germ an Government 90%, of the development costs of the A300 and 
A310 (basic versions).1459  The same three governments funded between 64% and 85% of the 
development costs of the derivatives of the basic versions of the A300/A310.1460  For LCA projects 
financed after the entry into force of the "1992 Agreement"1461 (the A330-200, A340-500/600, and 
A380), the proportion of LA/MSF has represented a maximum of 33% of total development costs.1462 
606. In terms of the disbursement of funds, some  LA/MSF contracts provide for a disbursement 
mechanism whereby funds are tran sferred in advance of actual development costs being incurred, 
usually on the basis of projected expenditure.  Sub sequently, when costs are actually incurred, they 
are reviewed by the governments, and the funding am ounts adjusted to ensure that total borrowing 
                                                      
1455Panel Report, para. 7.372.  
1456Panel Report, para. 7.372.  
1457Panel Report, para. 7.525.  
1458See Panel Report, footnote 2432 to para. 7.369 (referring to French A330-200 contract, Article 3;  
French A340-500/600 contract, Article 3;  French A380 contract, Article 3;  German A380 contract, Article 5.3;  
Spanish A340-500/600 contract, preamble, recital 9, clause 2;  Spanish A380 contract, preamble, recital 4, clause 2;  and UK A380  contract, Article 5.6). 
1459Panel Report, footnote 2431 to para. 7.369.  
1460Panel Report, footnote 2431 to para. 7.369.   
1461Supra , footnote 28. 
1462Panel Report, para. 7.369.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 258  
 
  does not exceed the level of development costs it was agreed would be financed.
1463  Other LA/MSF 
contracts provide for a somewhat different dis bursement mechanism whereby payments up to the 
agreed amounts are made only after actual costs have been incurred.1464  In at least one case, it would 
seem that funding was provided to Airbus for work before the relevant model was actually launched and prior to the conclusion of the relevant intergovernmental agreement.
1465   
607. In terms of repayment, most LA/MSF contr acts require that Airbus reimburse all funding 
contributions, plus any interest at the agreed ra te, exclusively from revenues generated by deliveries 
of the LCA model that is financed.1466  Such repayments are made in the form of per-aircraft levies 
and follow a pre-established repayment schedule.  Repa yments may start with the delivery of the first 
aircraft.  In other instances, repayment begins onl y after Airbus has made a specified number of 
aircraft deliveries.  Once repayment begins, it is generally graduated on varying ascending scales, 
meaning that repayments on the first aircraft  deliveries are lower than repayments on later 
deliveries.1467  Accelerated repayment provisions are expressly provided for under the German, 
Spanish, and UK A380 LA/MSF contracts and the Spanish A340-500/600 LA/MSF contract.1468  
While most of the LA/MSF contracts require th e payment of royalties on revenues generated from 
LCA deliveries made in excess of the number needed to secure repayment, some do not.  When 
royalties are called for, they are envisaged in diffe rent forms and over varyi ng periods of time.  For 
example, one LA/MSF contract calls for graduall y increasing royalty payments on deliveries made 
                                                      
1463See Panel Report, para. 7.373 and footnote 2445 thereto.  The Panel refers, in particular, to the 
French A380 contract, Article 3 and Annex 4;  German A380 contract, Articles 4.2, 4.3, and 5.3;  Spanish A380 
contract, 3rd and 4th clauses;  French A340-500/600 contract, Article 4 and Annex 4;  Spanish A340-500/600 
contract, 2nd and 3rd clauses;  French A330-200 contract, Article 4 and Annex 4;  French A330/A340 contract, Article 4;  Spanish 1988 A330/A340 contract, clause 4;  French A320 contract, Article 3;  and Spanish 1992 
A320 contract, 1st clause.  The Panel further noted the European Communities' assertion that the same 
disbursement mechanism was applied in respect of the French A300 and A310 contr acts;  German A330/A340, 
A320, A310, and A300 contracts;  and Spanish A300 and A310 contracts.  
1464See Panel Report, para. 7.373 and footnote 2446 thereto.  The Panel referred to the UK A380 
contract, Article 5;  UK A330/A340 contract, Article 2.2;  and UK A320 contract, Article 2.2.   
1465Panel Report, footnote 2439 to para. 7.370 (referring to French LA/MSF for the A320). 
1466Panel Report, para. 7.374 and footnote 2448 thereto.  The Panel also referred to the French A380 
contract, Annex 2, Article 6;  Spanish A380 contract, 7th clause;  UK A380 contract, Article 8, Schedule 3;  
French A340-500/600 contract, Article 6;  Spanish A340-500/600 contract, 5th clause;  French A330-200 
contract, Article 6;  1994 A330/A340 Agreement, Article  8;  1991 A320 Agreement, Article 8;  1981 A310 
Agreement, Article 9;  and 1969 A300 Agreement, Article 7.   
1467See Panel Report, para. 7.374 and footnote 2451 thereto.  The Panel referred to the French A380 
contract, Annex 2, Article 6;  Spanish A380 contract, 7th clause;  UK A380 contract, Schedule 3;  French A340-500/600 contract, Article 6;  French A330-200 contract, Article 6;  French A330/A340 contract, Article 6;  
UK A330/A340 contract, Article 2.4;  French A320 contract, Article 5;  German A320 contract, Article 18;  
1981 A310 Agreement, Article 9;  and 1969 A300 Agr eement, Article 7.  The European Communities asserted 
that a similar graduated repayment structure was applied in respect of the Spanish A340-500/600, A330/A340, 
and A320 LA/MSF contracts.   
1468Panel Report, para. 7.667 (referring to German A380 contract (Panel Exhibit US-72 (BCI)), 
section 8;  Spanish A380 contract (Panel Exhibit US-73 (BCI)), 7th clause;  UK A380 contract (Panel Exhibit 
US-79 (BCI)), Article 5.9;  and Spanish A340-500/600 contract (Panel Exhibit US-37 (BCI)), 5th clause).    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 259  
 
  after a certain number of sales.  Another contract calls for royalty payments of a specified percentage 
of the price of the aircraft sold on deliveries after a certain number. 
608. Some LA/MSF contributions were provided to Airbus at no interest cost.  In other cases, 
LA/MSF contracts required the payment of interest.  These were set at different levels, at times through the application of different formulas.
1469  
4. The Alleged LA/MSF Programme  
609. Before the Panel, the United States also challenged what it referred to as a "Launch Aid 
Programme" as a "measure" distinct from individual grants of LA/MSF.  The United States described 
the content of the alleged LA/MSF Programme as cons isting of "the consistent , up-front provision by 
the Airbus governments of a significant portion of the capital that Airbus needs to develop each new 
LCA model through loans that are (a) unsecured, (b) repayable on a success-dependent basis (i.e., 
through per sale levies), (c) with the levy amounts gr eater for later sales than earlier sales (i.e., back-
loaded), and (d) with interest accruing at rat es below what the market would demand for the 
assumption of similar risk."1470  For the United States, differences in the elements contained in one 
LA/MSF contract from another do not prevent the "Launch Aid Programme" from being sufficiently 
precise to constitute a measure in its own right.1471   
D. The EIB Loans 
610. The United States challenged 12 loans provided by the EIB.  These measures consisted of:  
(i) a 2002 loan to EADS for research and development activities related to the A380;  (ii) three loans 
to Aérospatiale for the production of the Super Tr ansporteurs (1993), and for facilities and equipment 
related to the A330/A340 (1988 and 1992);  (iii) four loans to British Aerospace and/or BAE Systems 
for the design, development, and manufacture of  wing boxes for the A330/A340 (1990 and 1991), and 
for the design and development of wings for the A320  (1988 and 1989);  (iv) three loans to CASA for 
the design and productions of various parts of th e A320 and A330/A340 (one in 1989, and two in 
1990);  and (v) a 1990 loan to Airbus GIE for research, design, and development of the A321.1472  
                                                      
1469Panel Report, para. 7.525.  
1470Panel Report, para. 7.501 (referring to United States' response to Panel Question 3).  
1471Panel Report, para. 7.501. 
1472Panel Report, para. 7.717.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 260  
 
  E. Research and Technological Development Funding 
611. The United States challenged numerous instances of research and technological development 
("R&TD") funding provided or committed to Airb us by:  the European Communities (under the 
Second, Third, Fourth, Fifth, and Sixth EC Fr amework Programmes);  the French Government 
(between 1986 and 2005);  the German Government (under the Luftfahrtforschungsprogramm  
(Aviation Research Programme) ("LuFo programme "));  the Spanish Government (under the Plan 
Tecnológico Aeronáutico  (Technological Plan for Aviation) ("PTA programme") and the Programa 
de Fomento de la Investigación Técnica  (Funding Programme for Technological Research) ("PROFIT 
programme"));  the UK Government (under the Civil Aircraft Research and Development Program 
("CARAD programme"), which was later renamed the Aeronautics Research Programme ("ARP 
programme"), and subsequently the Technology Pr ogramme);  and three programmes run by the 
Bavarian, Bremen, and Hamburg authorities.  In mo st cases, the challenged funding measures took the 
form of grants.  However, in respect of the funding provided by the Spanish Government, the 
challenged measures consisted of loans.
1473   
1. The EC Framework Programmes  
612. The relevant measures challenged by the United States consist of grants issued under five 
successive programmes for R&TD funding by the European Communities, covering specific 
four-year periods as follows:  the Second EC Framework Programme (1987-1991);  the Third 
EC Framework Programme (1990-1994);  the F ourth EC Framework Programme (1994-1998);  the 
Fifth EC Framework Programme (1998-2002);  and the Sixth EC Framework Programme (2002-
2006).  In respect of these Framework Programmes, th e Panel reviewed a series of Decisions of the 
European Parliament and/or the Council of the European Union (previously, the Council of the 
European Communities) ("EC Decisions").  The EC Decision establishing each Framework 
Programme set out the programme's objectives but di d not indicate how funds authorized under the 
programme could be accessed by individual applican ts.  Instead, for each EC Framework Programme, 
the detailed rules and methodologies for the distri bution of funds were left to the "specific 
programmes" that were to be adopted for the purpo se of implementation.  The "specific programmes" 
under each Framework Programme were estab lished through separate EC Decisions.1474 
                                                      
1473Panel Report, para. 7.1415.  
1474Panel Report, paras. 7.1517-7-1519, 7.1526-7 .1528, 7.1536-7.1538, 7.1546-7.1548, and 7.1557-
7.1559.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 261  
 
  613. The Second EC Framework Programme w as established by the Council of the 
European Communities through EC Decision 87/ 516/Euratom EEC, dated 28 September 1987.
1475  
The "specific programme" at issue—the BRITE /EURAM programme—was established by the 
Council of the European Communities throug h EC Decision 89/237/EEC of 14 March 1989.1476  This 
EC Decision sets out in Annex IV an "indicative internal allocation" of nearly ECU 500 million 
across five "Areas" of research, 7% of which w as allocated for the resear ch area entitled "Specific 
activities relating to aeronautics".  Annex I stipulat es that the type of research that would fall under 
this heading consists of "pre-competitive resear ch in technological areas which are of primary 
relevance to aeronautics (in particular aeroplanes a nd helicopters) and are not yet covered in other 
programme areas".  Annex I also identifies the followi ng four fields of focus in respect of aeronautics 
research:  "Aerodynamics";  "Acoustics";  "Airbor ne systems and equipment";  and "Propulsion 
systems".1477 
614. The Third EC Framework Programme wa s established by the Council of the 
European Communities through EC Decision 90/221/Euratom EEC, dated 23 April 1990.1478  T h e  
"specific programme" at issue—the specific programme for Research and Technological 
Development in the Field of Industrial and Ma terials Technologies (the "IMT 1991 programme")—
was established  by the Council of the European  Communities through EC Decision 91/506/EEC of 
9 September 1991.1479  This EC Decision sets out in Annex II an "indicative allocation" of over 
ECU 663 million across three "Areas" of research, one of which is entitled "Aeronautics research" 
(for which ECU 53 million is allocated).  Annex I iden tifies six fields of focus:  "Environment related 
technologies";  "Technologies of aircraft opera tion";  "Aerodynamics and aerothermodynamics";  
"Aeronautical structures and manufacturing technologies";  "Avionic system technologies";  and "Mechanical, utility and actuation technologies".  A nnex I also explains that "the aeronautical 
technologies research that began with the BRITE/ EURAM programme will be continued taking 
account of harmonization, standardization, safet y and environmental aspects".  Additionally, the 
                                                     
 
1475Council Decision 87/516/Euratom EEC of 28 September 1987 concerning the framework 
programme for Community activities in the field of research and technological development (1987 to 1991), 
Official Journal of the European Communities , L Series, No. 302 (24 October 1987) 1 (Panel Exhibit EC-200).  
1476Council Decision 89/237/EEC of 14 March 1989 on a specific research and technological 
development programme in the field of industrial manufacturing technologies and advanced materials 
applications (Brite/Euram) (1989 to 1992), Official Journal of the European Communities , L Series, No. 98 
(11 April 1989) 18 (Panel Exhibit EC-195). 
1477Panel Report, paras. 7.1518 and 7.1519.  
1478Council Decision 90/221/Euratom EEC of 23 April 1990 concerning the framework programme for 
Community activities in the field of research an d technological development (1990 to 1994), Official Journal of 
the European Communities , L Series, No. 117 (8 May 1990) 28 (Panel Exhibit EC-201). 
1479Council Decision 91/506/EEC of 9 September 1991 adopting a specific programme of research and 
technological development in the field of industrial and materials technologies (1990 to 1994), Official Journal 
of the European Communities , L Series, No. 269 (25 September 1991) 30 (Panel Exhibit EC-196). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 262  
 
  programme is intended to support only "specific aer onautical research and applications";  general 
aeronautics research will be covered by other research areas.
1480 
615. The Fourth EC Framework Programme was estab lished by the European Parliament and the 
Council of the European Union through EC Decision 1110/94/EC, dated 26 April 1994.1481  T h e  
"specific programme" at issue—the specific programme for Research and Technological Development, including Demonstration, in the Fiel d of Industrial and Materials Technologies (the 
"IMT 1994 programme")—was established by the Council of the European Union through 
EC Decision 94/571/EC of 27 July 1994.
1482  This EC Decision sets out in Annex II an "indicative 
breakdown" of ECU 1.617 billion across three "A reas" of research, one of which is entitled 
"Technologies for transport means".  Annex II also stipulates that 50% of the amount allocated to the "Technologies for transport means"—ECU 230.5 million—is for the aeronautics sector.  This is the 
only sector to have been allocated a specific amount .  Annex I explains that, "where the aircraft 
industry is concerned, research will concern advanc ed technologies, in particular for environmental 
protection, to reduce both noise and polluting emis sions, and as regards design, to reduce overall 
energy consumption".  Annex I also states that th e activities aim to improve safety, increase capacity 
and cost-effectiveness of the air transport system, and facilitate production, operation, reliability, and 
maintenance of future generati ons of aircraft and equipment.
1483 
616. The Fifth EC Framework Programme was establis hed by the European Parliament and the 
Council of the European Union through EC Decision 182/1999/EC, dated 22 December 1998.1484  The 
"specific programme" at issue—the specific progr amme for Research, Technological Development 
and Demonstration on Competitive and Sustaina ble Growth (the "CSG programme")—was 
established by the Council of the European Union through EC Decision 1999/169/EC of 25 January 1999.
1485  This EC Decision sets out in Annex I an "indicative internal allocation" of 
                                                      
1480Panel Report, paras. 7.1527-7.1529.  
1481Council Decision 1110/94/EC of 26 April 1994 concerning the fourth framework programme of the 
European Community activities in the field of research and technological development and demonstration 
(1994-1998), Official Journal of the European Communities , L Series, No. 126 (18 May 1994) 1 (Panel Exhibit 
EC-202).  
1482Council Decision 94/571/EC of 27 July 1994 adopting a specific programme for research and 
technological development, including demonstration, in the field of industrial and materials technologies (1994-
1998), Official Journal of the European Communities , L Series, No. 222 (26 August 1994) 19 (Panel Exhibit 
EC-197). 
1483Panel Report, paras. 7.1537-7.1539. 
1484Council Decision 182/1999/EC of 22 December 1998 concerning the fifth framework programme of 
the European Community for research, technological de velopment and demonstration activities (1998 to 2002), 
Official Journal of the European Communities , L Series, No. 26 (1 February 1999) 1 (Panel Exhibit EC-203). 
1485Council Decision 1999/169/EC of 25 January 1999 adopting a specific programme for research, 
technological development and demonstration on co mpetitive and sustainable growth (1998 to 2002), Official 
Journal of the European Communities , L Series, No. 64 (12 March 1999) 40 (Panel Exhibit EC-198).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 263  
 
  ECU 2.705 billion across three "Areas" of research, one  of which is entitled "Key actions".  Annex II 
identifies four types of activities and associated  budgets for the "Key actions" area, including 
ECU 700 million for "New perspectives for aeronautics", wh ich in turn identifies three fields of focus:  
"Acquisition of critical technologies";  "Technology integration for new-generation aircraft";  and 
"Operational efficiency and safety".  Annex II al so explains that the overall goal of the "New 
perspectives for aeronautics" research activity is to  facilitate the development of aircraft and their 
subsystems and components in order to foster the competitiveness of the European industry, including 
small and medium enterprises ("SMEs"), while assuring the sustainable growth of air transportation.
1486 
617. The Sixth EC Framework Programme was established by the European Parliament and the 
Council of the European Union through EC  Decision 1513/2002/EC, dated 27 June 2002.1487  Annex I 
describes a number of covered activities, most of whic h are of a general horizontal nature, but some of 
which concern particular economic sectors—for example, "Aeronautics and Space".  Annex II 
provides that €1.075 billion is to be allocated to "Aeronautics and Space".  Article 5 of the Decision 
specifies that the Sixth Framework Programme is to  be implemented through "specific programmes" 
that "shall establish precise objectives and the de tailed rules for implementation".  The "specific 
programme" at issue—the specific programme  for Integrating and Strengthening the 
European Research Area (the "ISERA progra mme")—was established by the Council of the 
European Union through EC Decision 2002/834/EC of 30 September 2002.1488  Annex I provides an 
explanation of four research priorities that may qu alify for funding through the "Aeronautics" element 
of the "Aeronautics and Space" activity:  "S trengthening Competitiveness";  "Improving 
Environmental Impact with regard to Emissions";  "Improving Aircraft Safety";  and "Increasing 
Operational Capacity and Safety of the Air Tran sport System".  Annex II of the ISERA programme 
also allocates as part of the "indicative breakdow n" an amount of €1.075 billion for projects falling 
within the scope of the "Aeronautics and Space" activity.1489  
                                                      
1486Panel Report, paras. 7.1547-7.1549.  
1487Council Decision 1513/2002/EC of 27 June 2002 concerning the sixth framework programme of the 
European Community for research, technological developm ent and demonstration activities, contributing to the 
creation of the European Research Ar ea and to innovation (2002 to 2006), Official Journal of the European 
Communities , L Series, No. 232 (29 August 2002) 1 (Panel Exhibit EC-204). 
1488Council Decision 2002/834/EC of 30 September 2002 adopting a specific programme for research, 
technological development and demonstration: "Integra ting and strengthening the European Research Area" 
(2002-2006) Official Journal of the European Communities , L Series, No. 294 (29 October 2002) 1 (Panel 
Exhibit EC-199). 
1489Panel Report, paras. 7.1558 and 7.1559.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 264  
 
  2. R&TD Funding by the French Government
 
618. The United States challenged over €1.2 billion of grants budgeted by the French Government 
between 1986 and 2005 for civil aeronautics R&TD ac tivities.  Relying on extracts of seven French 
Senate reports, the United States contended that  French authorities budgeted €391 million in R&TD 
funding to the French civil aeronautics sectors fo r the period 1986 to 1993, and €809 million for the 
period 1994 to 2005.  In evaluating these figures, the Panel relied in part on a document by the 
Direction des Programmes Aérona utiques et de la Coopération  (the "DPAC")—the authority that 
administered the French Government funding programmes—and which provided a project-by-project 
breakdown of French Government R&TD fundi ng to all recipients during this period.1490  T h e  
European Communities explained that the challe nged R&TD programmes were financed by the 
Ministry of Transport, and administered by the DPAC.1491   
3. R&TD Funding by German Authorities  
619. The United States presented claims against R&TD measures of both federal and sub-federal 
authorities in Germany.  In respect of German fe deral authorities, the United States claimed that the 
German Government provided €217 million to Airbus  for civil aeronautics r esearch under the LuFo I 
(1995-1998), LuFo II (1998-2002), an d LuFo III (2003-2007) programmes.1492  The United States also 
challenged grants from three German sub-federal authorities for LCA-related R&TD projects in which Airbus participated.  The Bavarian Govern ment has, since 1990, provided Airbus with R&TD 
grants under various civil aeronautics programmes, including the Offensive Zukunft Bayern I  
(Offensive Future Bavaria I) (established in 1995), the Offensive Zukunft Bayern  II  (Offensive Future 
Bavaria II) (established in 1996), and the Bayerisches Luftfahrtforschungsprogramm  
(Bavarian Aviation Research Programme) (established in 2000).
1493  In Bremen, the regional 
government provided a total of €11 million in grants to Airbus for aeronautics-specific research under 
the Airbus Materials and System Technology I and II Programmes.1494  The government of Hamburg 
provided Airbus with aeronautics- specific R&TD grants under the Hamburger 
Luftfahrtforschungsprogramm  (Aviation Research Programme).1495 
                                                      
1490Panel Report, paras. 7.1467-7.1473.  
1491European Communities' first written submission to the Panel, para. 1277. 
1492Panel Report, para. 7.1457;  see also para. 7.1415 and Panel Exhibit US-327. 
1493Panel Report, para. 7.1459. 
1494Panel Report, para. 7.1461. 
1495Panel Report, para. 7.1465.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 265  
 
  4. R&TD Funding by the Spanish Government
 
620. The United States challenged R&TD funding under two Spanish Government loan 
programmes.  The United States asserted that, between 1993 and 2003, the Spanish Government 
provided Airbus with R&TD loans under two phas es of the PTA programme:  covering the period 
1993 to 1998 (PTA I);  and th e period 1999 to 2003 (PTA II).1496  The United States also asserted that 
the Spanish Government provided Airbus with R&TD loans amounting to over €60 million under two 
phases of the PROFIT programme, first established in 2000.1497  The European Communities 
explained that the PROFIT programme was managed by the Ministry for Education and Science and 
the Ministry for Industry, Tourism and Trade, a nd is implemented under an umbrella programme, 
known as the Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica .1498   
5. R&TD Funding by the UK Government  
621. The United States also challenged LCA-related research grants that, between 1992 and 2005, 
the UK Department of Trade and Industry agreed to provide to Airbus under the CARAD programme, 
and subsequently the ARP and Technology programmes.1499   
F. Infrastructure and Infrastructure-Related Grants 
622. The United States challenged infrastructure and in frastructure-related grants provided by the 
Governments of France, Germany, Spain, and th e United Kingdom.  The United States brought claims 
against the provision of certain infrastructure, cons isting of:  the Mühlenberger Loch industrial site 
near Hamburg;  the lengthened runway at the Br emen airport and related noise-reduction measures;  
and the provision of the Aéroconste llation industrial site in Toulouse and associated facilities and road 
improvements related to the site.  The United States  also challenged a series of infrastructure-related 
regional grants in Germany, Spain, and Wales. 
1. The Mühlenberger Loch Industrial Site  
623. In 2000, the City of Hamburg, Germany, unde rtook to turn wetlands in the Mühlenberger 
Loch and Rüschkanal, adjacent to Airbus' existing f acilities in Finkenwerder, into usable land.  Work 
on draining and filling the land bega n in February 2001, and was carried out in stages.  The City of 
Hamburg built new dykes and upgraded the height of dykes around the existing Airbus facility to 
                                                      
1496Panel Report, para. 7.1474. 
1497Panel Report, para. 7.1476.  
1498European Communities' first written submission to the Panel, paras. 1317 and 1319. 
1499Panel Report, para. 7.1481. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 266  
 
  provide flood protection for the reclaimed land.  Hamburg also constructed special purpose facilities 
on the reclaimed land, consisting of:  (i) a quay fac ility;  (ii) a sluice and pump building;  (iii) a 
drainage ditch;  (iv) a roll-on-roll-off facility;  a nd (v) a sternfender.  The United States submitted, on 
the basis of publicly available information, that  the Hamburg authorities invested €751 million in the 
creation and development of the site, including the land reclamation, dykes, and special purpose 
facilities.  The European Communities argued th at the aggregate cost of these measures was 
approximately €694 million, asserting that the figure cited by the United States for this work was an 
outdated estimate.
1500   
624. The City of Hamburg—through Projektierungs gesellschaft Finkenwerder GmbH & Co. KG  
("ProFi")1501—leases the reclaimed land and special purpose facilities to Airbus Germany.  The lease 
agreement established an annual rent of €3.60 per s quare meter, to be adjusted annually on the basis 
of changes in the German consumer price index.  As the reclaimed land was subject to settling, and 
thus was not immediately fully usable by Airbus Ge rmany, an initial reduction in the rent was agreed, 
with the rent to be increased to the full am ount of €5,156,588 per a nnum once the land fully 
settled.1502  The City of Hamburg—again through ProF i—and Airbus Germany also concluded four 
lease agreements for the special purpose facilities with a term of 20 years.  According to the 
European Communities, the amount of rent was set to provide the City of Hamburg with a return of 6.5% on its investment in each of the facilities.  The annual rent over the 20-year period for the special purpose facilities was €5,619,200, also to  be adjusted in line with inflation.
1503 
2. The Bremen Airport Runway Extension  
625. The European Communities maintained that Germ an authorities require a safety margin of 
300 meters at both ends of commerc ial runways.  At the Bremen airport, this requirement was 
implemented by shortening the usable length of th e runway.  In May 1988, the City of Bremen 
authorized an extension of the runway by 300 mete rs at either end.  Between 1989 and 1990, the City 
of Bremen extended the airport runway as authori zed—from its then existing length of 2,034 meters, 
to 2,634 meters—such that only 2,034 meters of the runway is available for general aviation use.  The 
City of Bremen also undertook certain noise-reducti on measures.  With the exception of emergencies, 
                                                      
1500Panel Report, para. 7.1051.  
1501The City of Hamburg set up a company, Realisierungsgesellschaft GmbH, for the management of 
the land reclamation project and the special purpose  facilities.  On completion of the project, Hamburg 
transferred ownership of the land and facilities to Pr oFi, a government-owned en tity and titleholder of the 
properties.  ProFi and Airbus Germany entered into a se ries of lease agreements for the land and the special 
purpose facilities. (Panel Report, para. 7.1049) 
1502Panel Report, para. 7.1052. 
1503Panel Report, para. 7.1053.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 267  
 
  use of the entire length of the airport runway, in cluding the 600 meters by which the runway was 
extended, is permitted only for flights transporting Airbus wings from Bremen.
1504  The cost of the 
runway extension and noise-reduction measures was borne by the City of Bremen.  The United States 
asserted that the City of Bremen paid DM 40 million to extend the runway and a further 
DM 10 million for noise-reduction measures, both figur es of which were disputed by the European 
Communities.1505 
3. The Aéroconstellation Industrial Site  
626. In 1999, French Government authorities authoriz ed the development of an industrial site 
adjacent to the Toulouse-Blagnac airport dedicated to aeronautical activities.  This site, known as the 
Aéroconstellation industrial s ite, was established as a " zone d'aménagement concertée " ("ZAC"), a 
zoning designation under French law pursuant to wh ich public authorities buy,  improve, and sell land 
for economic development.  The development of th e Aéroconstellation site required the conversion of 
agricultural land to industrial use, consisting of the creation of drainage, sewag e, and water circulation 
systems, along with fencing, fire protection, landscapi ng, and lighting.  In addition, certain specialized 
facilities—known as " équipement d'intérêt général " ("EIG") facilities—particularly suited for 
aeronautical activities were created, consisting of ta xiways and roads on the site, aircraft parking 
areas, underground technical galleries, and service areas.1506   
627. After the Aéroconstellation site  was prepared, the government-established company charged 
with implementing the project—the Société d'équipement Toulouse Midi Pyrénées ("SETOMIP")—sold all but 11 hectares of the land to different companies involved in the aeronautical industry, including those involved with the development and production of the A380 aircraft.  Purchasers of the 
land included Airbus France, Air France Industri es, Société industrielle aéronautique du Midi 
("SIDMI"), CUS-Elyo, Exxon Mobil, and STTS.  All the purchasers are involved with different 
aspects of the construction, assembly, testing, and ma intenance of aircraft, and all paid the same price 
per square meter for the differently sized plots pur chased.  In addition, an association of users was 
created—the Association foncière urbaine libre ("AFUL")—comprising all the companies that bought 
land at the Aéroconstellation site.  The EIG facili ties were leased by Toulouse authorities to the 
AFUL.  Only AFUL members have access to the EI G facilities, and each member of the AFUL pays 
rent for the EIG facilities on the basis of its use ther eof.  During this time, French authorities also 
undertook the improvement of several roads around the Aéroconstellation site that  link the site to the 
                                                     
 
1504Panel Report, para. 7.1100. 
1505Panel Report, para. 7.1101.  
1506Panel Report, paras. 7.1137 and 7.1138.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 268  
 
  itinéraire à grand gabarit  ("IGG"), an extra-wide highway that enables Airbus to transport A380 
components manufactured elsewhere from the French coast to Toulouse.
1507   
4. Regional Infrastructure-Related Grants  
628. The United States also challenged a series of regional infrastructure-related grants in 
Germany, Spain, and Wales.  These consist of a grant by the German Land of Lower Saxony for the 
expansion of Airbus' Nordenham facility;  a gran t by the Welsh Government for Airbus' Broughton, 
Wales site;  and grants by Spanish local and regi onal authorities for the expansion and modernization 
of the Airbus and EADS plants in Puerto de Santa Maria, Illescas, Puerto Real, Sevilla, and 
La Rinconada.1508   
G. German and French Restructuring Measures 
629. The United States challenged before the Panel certain restructuring measures by the German 
and French Governments.  Concerning the restructuring of Deutsche Airbus, the United States challenged the acquisition by the German Govern ment, through the govern ment development bank 
Kreditanstalt für Wiederaufbau (Credit Agency fo r Reconstruction) ("KfW"), of the 20% equity 
interest in Deutsche Airbus in 1989, and the s ubsequent sale of that interest to Messerschmitt-
Bölkow-Blohm GmbH ("MBB") in 1992.  The Un ited States also challenged a 1998 agreement in 
which the German Government agreed to accept a payment of DM 1.75 billion from Deutsche Airbus 
to settle certain outstanding claims following the r estructuring of Deutsche Airbus.  The United States 
argued that the total accumulated principal amount of debt that Deutsche Airbus owed the German 
Government at the time of the 1998 transaction was at least DM 9.4 billion, and that the 1998 
transaction should therefore be characterized as "debt forgiveness" in the amount of DM 7.7 
billion.
1509   
630. The United States also challenged certain equity infusions made by the French Government in 
Aérospatiale, including four capital investment s between 1987 and 1994.  In 1987, the French 
Government made a capital investment in the amount  of FF 1.25 billion to Aérospatiale.  The French 
Government made a further capital investment of FF 1.25 billion to Aérospatiale in 1988.  In 1992, 
Crédit Lyonnais, which was at that time controlled by the French Government, acquired a 20% equity 
interest in Aérospatiale.  Crédit Lyonnais subscribed  to FF 1.4 billion in newly issued Aérospatiale 
shares, as well as acquired existing Aérospatiale sh ares from the French Government, in exchange for 
                                                      
1507Panel Report, paras. 7.1139 and 7.1140.   
1508Panel Report, para. 7.1010. 
1509Panel Report, paras. 7.1304-7.1308.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 269  
 
  the issuance to the French Government of appr oximately 2% of Crédit Lyonnais' share capital.  
In 1994, the French Government made a further capital investment of FF 2 billion to Aérospatiale.
1510   
631. In addition, the United States argued that the 1998 transfer by the French Government of its 
45.76% equity interest in Dassault Aviation to Aéro spatiale was a specific subsidy within the meaning 
of Articles 1 and 2 of the SCM Agreement .  In 1978, the French Government acquired a 45.76% 
equity interest in Dassault Aviation, a previously privately held manufacturer of military, regional, 
and business jets.  The French Government also acqui red the right to exercise 55% of the voting rights 
of the company by virtue of double voting rights that attached to certain of its shares.  On 30 December 1998, the French Government transfer red its 45.76% interest in Dassault Aviation to 
Aérospatiale in exchange for new shares of Aérospatiale to be issu ed at a later date following the 
fixing of an exchange ratio by a panel of independe nt experts.  That panel delivered its report on 19 
March 1999, approving the contribution of the Dassau lt Aviation shares to Aérospatiale at an amount 
equal to their net book value of FF 2.658 billion.  On the basis of this report, on 6 May 1999, 
Aérospatiale issued 9,267,094 new shares to the Fren ch Government (based on an exchange ratio of 
two Aérospatiale shares for each Dassault Aviation share).
1511  When the French Government 
transferred its 45.76% interest in Dassault Aviati on to Aérospatiale, it relinquished its double voting 
rights that had attached to certain of its shares in Dassault Aviation.1512 
632. The French Government's transfer of its inter est in Dassault Aviation to Aérospatiale was a 
preliminary step in the planned consolidation of the French aeronautical, defence, and space industries 
through the combination of Aérospatiale and MHT.   Following the creation of the newly combined 
entity, Aérospatiale-Matra, the French Government sold a portion of its shares in this entity in a 
public offering such that, following the offering, it held approximately 48% of the shares in Aérospatiale-Matra.
1513  A private company, Lagardère SCA, held 33% of Aérospatiale-Matra and 
exercised control over Aérospatiale -Matra jointly with the French Government.  The remaining shares 
were held by the public and Aérospatiale-Matra employees.1514   
                                                      
1510Panel Report, para. 7.1324.  
1511Panel Report, para. 7.1382. 
1512Panel Report, para. 7.1384.   
1513Panel Report, para. 7.1383.   
1514Panel Report, footnote 4551 to para. 7.1383.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 270  
 
  V. Preliminary Issues 
A. The Panel's Terms of Reference 
633. We begin by examining the European Union's appeal of the Panel's findings that two sets of 
R&TD measures were within the Panel's terms of reference.
1515  The European Union objects to the 
United States' claim that it had challenged, in sec tion (6)(d) of its request for the establishment of a 
panel1516, certain loans provided pursuant to a programme of the Spanish Government running 
between 2000 and 2007, known as the PROFIT programme.  Section (6)(d) expressly refers to "loans 
and other financial support provided under the Plan Tecnológico Aeronáutico I and the Plan 
Tecnológico Aeronáutico II" (together, the "PTA programme"), but does not refer to the PROFIT 
programme by name.  The European Union also objects to the United States' claim that it had 
challenged, in section (6)(e) of its panel request , certain R&TD grants provided by the French 
Government between 1986 and 2005.   
1. The Panel's Findings  
634. In a request for preliminary rulings from the Panel, the European Communities maintained 
that the United States' challenge to certain French R&TD grants was outside the Panel's terms of 
reference because the measures were not adequately identified in the United States' panel request, in 
accordance with Article 6.2 of the DSU.1517  The European Communities argued that the reference, in 
section 6(e) of the United States' panel request, to funding since 1986 could relate to any funding 
provided by French authorities over a 20-year pe riod, and that the reference to the "French 
government, including regional and local authoriti es", could cover any of the hundreds, if not 
thousands, of authorities in France.1518   
635. The Panel considered that the language of th e United States' panel request could not be 
construed as broadly as the European Communities clai med, especially when considered in the light 
of certain circumstances raised by the United Stat es.  The Panel thus concluded that section (6)(e) 
"considered as a whole and in light of attendant ci rcumstances, identifies the measures at issue in a 
                                                      
1515The United States challenged a series of what it te rmed "research, developmen t, and demonstration" 
or "R&D" measures. (Request for the Establishment of a Panel by the United States, WT/DS316/2, section (6))  
The Panel employed the term "research and technological development" or "R&TD" measures.  We also use the 
latter term in this Report. 
1516WT/DS316/2.  
1517Panel Report, para. 7.138.  
1518Panel Report, para. 7.147.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 271  
 
  manner sufficient to present the problem clearly"
1519, and accordingly rejected the 
European Communities' request for a prelim inary ruling in respect of this issue.1520 
636. In its first written submission to the Panel, the European Communiti es submitted that the 
United States' challenge against the Spanish Gove rnment loans provided pursuant to the PROFIT 
programme was also outside the Panel's terms of reference because the measures at issue were not 
adequately identified in the United States' panel request, in accordance with Article 6.2 of the 
DSU.1521  The Panel considered that section (6)(d) of the United States' panel request indicated "the 
provider ('the Spanish government, including regiona l and local authorities');  the timing ('since 
1993');  the purpose ('for civil aeronautics-related R&D projects');  and the subject ('in which Airbus participated'), of the funding at issue."
1522  The Panel remarked that the focus of section (6)(d) of the 
United States' complaint was therefore not all Spanis h Government funding to Airbus for LCA-related 
activities, but rather only that funding which wa s provided "since 1993" and "for civil aeronautics-
related R&D projects".  The Panel also considered it clear from the use of the word "including" that 
the United States' challenge was not limited to  loans under the progra mmes referred to in 
section (6)(d) of its panel request.1523   
637. The Panel also took note of events that transpir ed after the United States' panel request.  The 
Panel noted that the European Communities had rece ived questions from the United States in respect 
of loans under the PROFIT programme during the Annex V process.  The Panel further noted that, when the European Communities submitted its  request for preliminary rulings, the 
European Communities did not object to the United States' challenge against the PROFIT programme 
measures.  The Panel found that, "when consider ed as a whole and in light of the attendant 
circumstances, ... Section (6)(d) of the United Stat es panel request presents the United States' claim 
against the PROFIT loans in a manner that is sufficiently clear to meet  the standards of Article 6.2 of 
the DSU."
1524   
                                                      
1519Panel Report, para. 7.150. 
1520Panel Report, para. 7.158.  
1521Panel Report, para. 7.1418.  
1522Panel Report, para. 7.1420.  
1523Panel Report, para. 7.1420.  
1524Panel Report, para. 7.1422.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 272  
 
  2. The Panel's Assessment of the Panel Request 
 
638. Article 6.2 of the DSU provides, in relevant part: 
The request for the establishment of a panel shall be made in writing.  
It shall indicate whether consultati ons were held, identify the specific 
measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. 
639. Two requirements under Article 6.2 are central to establishing a panel's jurisdiction—namely 
the identification of the specific measures at issue, and the provision of a brief summary of the legal 
basis of the complaint sufficient to present the pr oblem clearly.  Together these elements comprise the 
"matter referred to the DSB", whic h forms the basis for a panel's te rms of reference under Article 7.1 
of the DSU.
1525  The Appellate Body has previously noted  that the panel request serves two essential 
purposes.  First, it defines the scope of the dispute.  Second, it serves the due process objective of 
notifying the respondent and third parties of the nature of the complainant's case.1526   
640. In our view, the requirement that a complain ant identify in its panel request the specific 
measures at issue thus assists in determining the sc ope of the dispute in respect of those measures, 
and, consequently, establishes and delimits the jurisdic tion of the panel.  In so doing, the panel request 
fulfils the objective of providing no tice to the respondent and the third parties regarding the nature of 
the dispute.  This due process objective is not c onstitutive of, but rather follows from, the proper 
establishment of a panel's jurisdicti on.  The principal task of the adjudicator is therefore to assess 
what the panel's terms of reference encompass, and whether a particular measure or claim falls within 
the panel's remit.  
641. As the Appellate Body has stated, determini ng whether a panel request is "sufficiently 
precise"1527 so as to conform to Article 6.2 requires a panel to scrutinize caref ully the panel request, 
read as a whole, and on the basis of the language used.1528  An assessment of whether a complaining 
party has identified the specific measures at issue ma y depend on the particular  context in which those 
                                                      
1525See Appellate Body Report, Guatemala – Cement I , paras. 72 and 73;  Appellate Body Report, US – 
Carbon Steel , para. 125;  Appellate Body Report, US – Continued Zeroing , para. 160;  Appellate Body Report, 
US – Zeroing (Japan) (Article 21.5 – Japan) , para. 107;  and Appellate Body Report, Australia – Apples , 
para. 416. 
1526See Appellate Body Report, US – Carbon Steel , para. 126 (referring to Appellate Body Report, 
Brazil – Desiccated Coconut , p. 22, DSR 1997:I, 167, at 186).  See also Appellate Body Report, EC – Chicken 
Cuts, para. 155;  and Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan) , para. 108. 
1527Appellate Body Report, EC – Bananas III , para. 142;  Appellate Body Report, US – Zeroing 
(Japan) (Article 21.5 – Japan) , para. 108. 
1528Appellate Body Report, US – Carbon Steel , para. 127;  Appellate Body Report, US – Oil Country 
Tubular Goods Sunset Reviews , paras. 164 and 169;  Appellate Body Report, US – Continued Zeroing , 
para. 161;  Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan) , para. 108.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 273  
 
  measures exist and operate.  Such an exercise invol ves, by necessity, a case-by -case analysis since it 
may require examining the extent to which those measures are capable of being precisely identified. 
642. The Appellate Body has also stated that a party's submissions during panel proceedings 
cannot cure a defect in a panel request.
1529  We consider this principle paramount in the assessment of 
a panel's jurisdiction.  Although subsequent events  in panel proceedings, including submissions by a 
party, may be of some assistance in confirming th e meaning of the words used in the panel request, 
those events cannot have the effect of curing the failings of a deficient panel request.  In every 
dispute, the panel's terms of re ference must be objectively determined on the basis of the panel 
request as it existed at the time of filing. 
643. Bearing this in mind, we turn to examine the participants' arguments concerning the Panel's 
terms of reference in this dispute.  Section (6) of the United States' panel request, in its entirety, reads 
as follows: 
The provision by the EC and the member States of financial 
contributions for aeronautics-related research, development, and demonstration ("R&D"), undertaken by Airbus, whether alone or 
with others, or in any other way to the benefit of Airbus, including: 
(a) EC funding for civil aeronautics-related R&D projects under 
the Second (1987-1991), Third (1990-1994), Fourth (1994-1998), Fifth (1998-2002) and Sixth (200 2-2006) EC Framework Programs 
in which Airbus participated. 
(b) Funding from the German federal government and sub-
federal entities for civil aeronautics-related R&D projects in which Airbus participated, including: 
(i) federal government funding as set forth in the  
most updated version of the government's Förderkatalog database, including funding unde r the federal aeronautics  
research programs Luftfahrtforschungsprogramm 1 (1995-
1998), Luftfahrtforschungsprogramm 2 (1998-2002), and Luftfahrtforschungsprogramm 3 (2003-2007); 
(ii) the regional Bremen Airbus Materials & System 
Technology Centre Bremen (AMST) (2000-2002) and the 
Airbus Materials & System Technology Centre Bremen II 
(AMST) (2002-2006);  
(iii) the regional Bavaria "Hightechoffensive Bayern" 
program (1999-2003);  and 
                                                     
 
1529Appellate Body Report, EC – Bananas III , para. 143;  Appellate Body Report, US – Carbon Steel , 
para. 127.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 274  
 
  (iv) the regional Hamburg Luftfahrtforschungsprogramm 
(2001-2005). 
(c) Funding from the government of the United Kingdom since 
1992 for civil aeronautics-related R&D projects in which Airbus participated, including funding under the Civil Aircraft Research and 
Development Program (CARAD) and the Technology & Strategy 
Program. 
(d) Funding from the Spanish government, including regional 
and local authorities, since 1993 for civil aeronautics-related R&D projects in which Airbus participated, including loans and other 
financial support provided under the Plan Tecnológico Aeronáutico I 
and the Plan Tecnológico Aeronáutico II. 
(e) Funding from the French government, including regional and 
local authorities, since 1986 for civil aeronautics-related R&D projects in which Airbus participated. 
(f) The provision by government-controlled and financed 
research institutions of civil aeronautics R&D-related goods or services to Airbus and/or funding for civil aeronautics-related R&D projects in which Airbus participated, including by the German Deutsches Zentrum für Luft- und Raumfahrt ("DLR"), by the UK Defence Evaluation and Research Agency ("DERA") and its 
successor Qinetiq, and by the Fren ch Office National des Études et 
des Recherches Aérospatiales ("ONERA"), the Centre National de la Recherche Scientifique ("CNRS"), and the Centre National de la 
Recherche Technologique ("CNRT"). 
644. At the oral hearing, the participants expressed  their agreement that the challenged Spanish 
and French R&TD measures fall within the general descriptions set out in sections (6)(d) and (6)(e), 
respectively, but differed as to whether the descrip tion in each of these subparagraphs is sufficiently 
precise to identify the specific measures at issu e, as required by Article 6.2 of the DSU.  
Sections (6)(b) through (6)(e) describe R&TD f unding that was provided by each of the member 
States involved in this dispute—France, Germany, Spain, and the United Kingdom.
1530  I n  e a c h  
subparagraph, the United States set out a genera l description of the R&TD funding it sought to 
challenge by identifying the member State and leve l(s) of authority, the relevant time periods over 
which the challenged funding was provided, and that  the funding was for "civil aeronautics-related 
R&D projects in which Airbus participated".  We also note that, for three of these subparagraphs, the 
general description of funding provided by each member State is accompanied by names of the 
                                                      
1530We note that section (6)(a) refers to R& TD funding provided pursuant to the European 
Communities-wide EC Framework Programmes.  The European  Union's appeal in respect of these measures is 
addressed in Part VII.A of this Report.  Section (6)(f)  identifies R&TD funding from research institutions that 
are government controlled and financed, but a claim in  respect of that funding was not pursued by the 
United States before the Panel in this dispute.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 275  
 
  particular programmes pursuant to which the challe nged R&TD was provided.  Thus, for example, 
section (6)(b) states that the general description for German R&TD funding includes funding granted 
pursuant to three successive programmes of the federal Luftfahrtforschungsprogramm , as well as 
named programmes by regional authorities in Bava ria, Bremen, and Hamburg.  Section (6)(c) 
identifies that the general description for UK R&TD funding includes funding under the Civil Aircraft 
Research and Development Program and the Technology & Strategy Program.  As we have already 
noted above, section (6)(d) expressly indicates that the general description of Spanish R&TD funding 
includes loans provided under the PTA programme.  Section (6)(e), relating to the French R&TD 
measures, does not list any names of particular funding programmes. 
645. As we have noted, the question of whether a panel request is "sufficiently precise" in 
identifying the specific measures at issue is to be objectively determ ined through careful scrutiny of 
the panel request and consideration of the particular  context in which such measures exist.  We note 
that, in the circumstances of this case, we are presen ted with the particular question of whether a more 
general description of measures in the United States ' panel request is nevertheless sufficiently precise 
as to the particular measu res the United States sought to challenge.  Ordinarily, a general description 
akin to that set out in sections (6)(d) and (6)(e) w ould suggest a lack of specificity in identifying the 
measures subject to challenge (apart from th e R&TD loans provided pursuant to the PTA 
programme).  In these circumstances, however, we mu st give further consideration to the context in 
which the United States specified, and was capable of specifying,  information identifying these 
measures.  Reading together the subparagraphs of section (6) set out above, we understand the terms 
of the panel request to indicate that, where a part icular programme could be identified pursuant to 
which the challenged R&TD funding was granted, that  information was included  in the United States' 
panel request.  We therefore consider that, in the circumstances of this case, where the United States 
framed its panel request by describing in genera l terms certain R&TD funding and by naming the 
particular programmes under which R&TD grants or loans by particular member States were 
provided, scrutiny of the United States' panel request  must take into account the extent to which the 
relevant funding programmes were capable of be ing identified by name or by other specifying 
information.   
646. We do not consider that the United States' panel request can be understood as having 
identified loans provided pursuant to the Spanish PROFIT programme.  Section (6)(d) contains a 
description of R&TD funding from the Spanish G overnment since 1993 for civil aeronautics-related 
projects in which Airbus participated, coupled with  the identification of a specific funding programme 
in the form of the PTA programme.  Like the PTA programme, the PROFIT programme was WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 276  
 
  authorized through official decr ees of the Spanish Government.
1531  The PROFIT programme was first 
established in 2000 by a Spanish Government decree,  which identified the PROFIT programme in its 
title and expressly referred in the text of the decree to funding for aeronautics research.1532  However, 
although information concerning the PROFIT progra mme was readily available in the public domain 
at the time of the panel request, the United States made no mention of the programme in its request.  
We do not consider that subsequent reference by the United States to the PROFIT programme during 
the Annex V process, or in its written submissions befo re the Panel, cures the lack of specification in 
the panel request.  It follows also that, by reason of the lack of specification of the PROFIT programme by name, the European Communities and the third parties were consequently not on 
notice that the programme was part of the compla inant's case.  On the basis of the above, we 
determine that the PROFIT programme was outside the Panel's terms of reference. 
647. With respect to the French R&TD funding me asures, we note that section (6)(e) identified 
R&TD funding from the French Government, includi ng regional and local authorities, since 1986 for 
civil aeronautics-related R&TD projects in which Air bus participated.  In other words, these funding 
measures are identified by references to the fundin g authority, time period, and area of support.  
Given the specific circumstances of these measures, we do not consider that the United States could 
have provided additional specifying information concerning the name of the funding programme, as it 
had in sections (6)(b), (6)(c), and (6)(d) of its panel request.  Both participants refer on appeal to the 
public information contained in a series of Fr ench Senate reports summarizing R&TD funding 
provided to aeronautics research between 1986 and 2 005—reports that were listed in the Statement of 
Available Evidence attached to the Un ited States' request for consultations
1533, and to which the Panel 
referred to establish the existence and amounts of  the French R&TD funding challenged by the 
United States.1534  Although these reports indicate an allocation of funding to aeronautics research 
pursuant to France's budgetary process, both particip ants acknowledge that they do not identify the 
name of a particular funding programme.1535  At the oral hearing, the European Union referred to 
                                                      
1531Panel Report, para. 7.1479.  
1532See Ministerio de Industria y Energía, Orden de 7 de marzo de 2000 por la que se regulan las 
bases, el régimen de ayudas y la gestión del Programa de Fomento de la Investigación Técnica (PROFIT), 
incluido en el Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica (2000-2003) , 
Boletín Oficial del Estado , No. 59 (9 March 2000) 9855 (Panel Exhibit US-349).  See also United States' first 
written submission to the Panel, para. 697.  
1533WT/DS316/1.  
1534Panel Report, para. 7.1471. 
1535European Union's appellant's submission, para. 1230:  "The listed documents are budgetary reports 
by the French Senate, which do not specify measures either by reference to a programme or to an entity 
providing funding";  United States' appellee's submission, para. 481:  The French Senate reports "established that the French government subsidized Airbus research … {but} did not indicate how, under what program, or 
by whom".    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 277  
 
  several documents containing general information a bout French funding for civil aviation research, 
but it was not able to identify in these or othe r documents the name of the funding programme.
1536   
648. Whether a measure can be identified in conformity with the requirements of Article 6.2 may, 
as is the case here, depend on the extent to which th at measure is specified in the public domain.  We 
do not understand Article 6.2 to impose a standard that renders it more difficult to challenge a 
measure simply because information in the public domain concerning that measure is of a general 
character.  Additionally, the lack of specification in  the public domain should not  shield this particular 
measure from challenge simply because greater detail in the form of, for example, an identifiable 
programme name was publicly available in respect of  the other measures specified in sections (6)(b), 
(6)(c), and (6)(d).  We note that, even after revi ewing the Panel record in this case, and questioning 
the participants at the oral hearing, it is still not cl ear to us what additional degree of specificity could 
reasonably have been expected regarding the iden tification of R&TD funding allocated through the 
French Government's budgetary process.  Taking in to account the public information that existed 
regarding the French R&TD funding at the time of the United States' panel request, we consider that 
the description set out in section (6)(e) was suffici ently precise to establish that the French R&TD 
funding challenged by the United States was within the Panel's terms of reference. 
649. For the foregoing reasons, we reverse  the Panel's finding, in paragraph 7.1422 of the Panel 
Report, that the R&TD loans provided pursuant to the Spanish PROFIT programme were within the 
Panel's terms of reference, and we uphold  the Panel's finding, in paragr aph 7.158 of the Panel Report, 
that the French R&TD grants were with in the Panel's terms of reference.  
B. The Temporal Scope of Article 5 of the SCM Agreement 
650. Before the Panel, the European Communiti es argued that the temporal scope of the 
SCM Agreement  must be determined in accordance with Article 28 of the Vienna Convention , which 
sets out the general rule that treaty provisions do not apply retroactively.1537  According to the 
European Communities, consistent with the princi ple of non-retroactivity embodied in Article 28 of 
the Vienna Convention , Article 5 of the SCM Agreement  applies to subsidies that were granted after  
1 January 1995, while subsidies granted prior  to 1 January 1995 fall outside the temporal scope of 
                                                      
1536The European Union provided, for example, a 2003 WTO notification submitted by the 
European Communities pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement  
(G/SCM/N/95/EEC/Add.5, 15 December 2003).  That doc ument listed France's Annual Finance Law, and the 
Arrangement approved by the European Commission (No. 53/96), but did not identify a name for the funding 
programme or the French agency or agen cies that administered the programme.  
1537Panel Report, para. 7.19 (referring to European  Communities' updated Request for Preliminary 
Rulings, paras. 10-13). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 278  
 
  Article 5.
1538  On this basis, the European Communities requested that the Panel find that "all ... 
actionable subsidies granted by the European Co mmunities before 1 January 1995 are excluded from 
the temporal scope of the proceedings".1539   
651. In a communication to the parties and the third parties dated 22 December 2006, the Panel 
explained that it was "not convinced" that "subsidies granted" or "brought into existence" prior to 
1 January 1995 cannot fall within the scope of Article 5 of the SCM Agreement .1540  Therefore, the 
Panel requested the parties and third parties "to pr oceed on the understanding that all of the alleged 
measures challenged by the United States continue  to fall within the scope of {the Panel} 
proceeding."1541  Subsequently, on 11 July 2007, the Panel issued a preliminary ruling in which it 
rejected the European Communities' request.1542  The Panel explained that, inter alia , "Article 5 
imposes an obligation on Members not to cause adve rse effects to the interests of other Members 
through the use of subsidies as defined in Article 1"1543, and characterized this as "an obligation not to 
cause certain results through a speci fic causal pathway, rather than an obligation not to engage in 
certain conduct."1544  According to the Panel, it was the obligation not to cause, through the use of any 
subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other 
Members that was to be interprete d consistently with the principle of non-retroactivity reflected in 
Article 28 of the Vienna Convention .1545  Based on its review of dictionary definitions for the terms 
"act" and "situation", and noting that the Appellate Body has described the concept of "situation" in 
Article 28 as suggesting "something that  subsists and continues over time"1546, the Panel considered 
that "Article 5 addresses a set of circumstances or state of affairs (i.e., a 'situation') rather than specific 
acts of a Member."1547  In addition, the Panel found that "there  are significant contex tual factors that 
                                                      
1538Panel Report, para. 7.19.  In particular, the Euro pean Communities argued that the following groups 
of measures fall outside the temporal scope of the SCM Agreement :  (i) LA/MSF committed and paid prior to 
1 January 1995;  (ii) EIB loans to EADS and the Airbus companies that were provided in full prior to 
1 January 1995;  (iii) the extension of the runway at the Bremen Airport, which occurred in 1988 and 1989;  and 
(iv) share transfers and equity infusion s that took place before I January 1995.  In  addition, in relation to R&TD 
funding, the European Communities argued "t hat grants or disbursements made after  1 January 1995 pursuant to 
programmes established prior to 1 January 1995 are within  the temporal scope of Article 5, while grants or 
disbursements made prior to 1 January 1995 are outside the temporal scope of Article 5 and should be excluded 
from these proceedings." ( Ibid., footnote 1776 to para. 7.19 (original underlining)) 
1539Panel Report, para. 7.15(a).  
1540Panel Report, para. 7.16 (quoting communication fr om the Panel to the parties dated 22 December 
2006).  
1541Panel Report, para. 7.16 (quoting communication fr om the Panel to the parties dated 22 December 
2006).  
1542Panel Report, para. 1.11.  The content of the Panel' s preliminary ruling is set out in section VII.C of 
the Panel Report, paras. 7.9-7.65.  
1543Panel Report, para. 7.46. 
1544Panel Report, para. 7.46. 
1545Panel Report, para. 7.46. 
1546Panel Report, para. 7.50 (quoting Appellate Body Report, Canada – Patent Term , para. 72). 
1547Panel Report, para. 7.52.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 279  
 
  militate against the interpretation of Article  5 advocated by the European Communities."
1548  In 
particular, the Panel considered that "paragraph 7 of Annex IV to the SCM Agreement indicates that 
the drafters did not regard the temporal scope of  Part III of the SCM Agreement as confined to 
financial contributions made, or subsidies otherw ise brought into existence, after 1 January 1995."1549  
For purposes of the application of Article 28 of the Vienna Convention , the Panel described Article 5 
"as addressing a 'situation';  namely, causing adverse effects through the use of subsidies."1550  The 
Panel further found that "Article 5 applies to any su ch 'situation' which exists as of the effective date 
of the SCM Agreement, even if that  situation arose as a result of the granting of a subsidy prior to that 
date."1551  Therefore, the Panel rejected the European  Communities' request for a preliminary ruling 
"that all alleged prohibited and ac tionable subsidies granted by the European Communities prior to 
1 January 1995 be excluded from the tempor al scope of {the Panel} proceedings."1552 
652. The European Union challenges these findings on appeal.  The European Union argues that, 
since the pre-1995 subsidies challenged by the United St ates were "fully granted, disbursed or brought 
into existence and ended before 1995", they amount to "completed acts" or "completed situations" 
and, thus, are outside the tempor al scope of application of the SCM Agreement , even if the "effects" of 
such subsidies may continue to be felt subsequently.1553  The European Union further argues that the 
Panel erred in its examination of the text , context, and object and purpose of the SCM Agreement  
when characterizing the obligation contained in Ar ticle 5 as referring to "continuing situations", 
including pre-1995 measures with post-1995 effects.  According to the European Union, there was no 
intention to cover subsidies granted before 1995 wh ose effects are felt after 1995 in Article 5 of the 
SCM Agreement .1554   
653. The United States counters that the approach by the European Union is inconsistent with both 
the text of Article 5 of the SCM Agreement  itself, and the international legal principle of 
non-retroactivity on which the European Union purports to rely.  The United States emphasizes that 
the obligation contained in Article 5 is not limited to the act of providing actionable subsidies.  
Rather, the causing of adverse effects through the use of subsidies, as the Panel found, falls within the 
ordinary meaning of "situation" as used in Article 28 of the Vienna Convention , and is thus among the 
types of conditions that a treaty may address without making special provision for retroactivity.   
                                                      
1548Panel Report, para. 7.57. 
1549Panel Report, para. 7.57. 
1550Panel Report, para. 7.64.  
1551Panel Report, para. 7.64.  
1552Panel Report, para. 7.65.  
1553European Union's appellant's submission, paras. 77 and 122.  
1554European Union's appellant's submission, paras. 78 and 79. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 280  
 
  654. We begin our analysis by reviewing the principl e of non-retroactivity of treaties as reflected 
in Article 28 of the Vienna Convention . 
1. Article 28 of the Vienna Convention
 
655. Article 28 of the Vienna Convention  establishes a presumption against the retroactive effect of 
treaties in the following terms:  
Unless a different intention appears from the treaty or is otherwise 
established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before 
the date of the entry into force of th e treaty with respect to that party. 
656. In order to determine the temporal scope of a particular treaty provision, regard must be had 
to the text of the treaty at issue, the subject matter of the treaty in question, and to the nature of the 
treaty obligations undertaken.  We therefore turn  to consider the text of Article 5 of the 
SCM Agreement , read in its context, in order to determ ine whether it indicates the intention of WTO 
Members with respect to its temporal scope.  
2. Whether Article 5 of the SCM Agreement  Applies to Pre-1995 Measures
 
657. Article 5 provides, in relevant part: 
No Member should cause, through the use of any subsidy referred to 
in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other Members ... .  
658. By its terms, Article 5 of the SCM Agreement  addresses the causing of adverse effects 
through the use of subsidies.  In particular, it stipulates that Members should not "cause" adverse 
effects to the interests of other Members "through th e use of" subsidies as defined in Article 1 of the 
SCM Agreement .  The dictionary meaning of the noun "use" is the "act of using, fact of being used;  
the action of using something;  the fact or state of being used;  application or conversion to some 
purpose".
1555  The word "through" is defined in the dictionary as "by means of, via".1556  I n  t h e  
specific context of Article 5, we understand the subordinate clause "through the use of any subsidy" to 
describe the manner  in which a Member should not cause adverse effects.  As we see it, this language 
clarifies that Article 5 is addressed to the causing of certain results in a particular manner—that is, by 
                                                      
1555Shorter Oxford English Dictionary , 5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University 
Press, 2002), Vol. 2, p. 3489. 
1556Shorter Oxford English Dictionary , 5th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University 
Press, 2002), Vol. 2, p. 3255.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 281  
 
  means of the use of any subsidy.  The positioning of the phrase "through the use of any subsidy"  
following the verb "cause" accords with the focus of Article 5, which is the causing of adverse effects.   
659. WTO Members undertook the obligation contained in Article 5 of the SCM Agreement  as of 
1 January 1995.  In other words, as of that date, WTO Members have been under an obligation not to 
"cause, through the use of any subsidy", adverse e ffects to the interests of other Members.   
660. The European Union argues that, "when examining the SCM Agreement  as a whole, it 
becomes evident that there was no intention to incl ude subsidies which were granted before 1995 with 
effects after 1995", and, thus, the Panel erred in its interpretation of Article 5 of the 
SCM Agreement .
1557  In support of its arguments, the European Union refers to various provisions of 
the SCM Agreement , which we examine below. 
661. The European Union contends, in particular, that "the formulation of the obligation in 
Articles 3 and 5 and the scope of the remedy in dicate that both provisions refer to the same 
government conduct:  granting or maintaining subsidies."1558  Regarding actionable subsidies, the 
European Union submits that Article 7 also conf irms that the relevant government conduct for the 
purpose of Article 5 is "granti ng or maintaining a subsidy".1559  The European Union also points to the 
grammatical structure of Article 5 itself to illustrat e that the phrase "through the use of {a} subsidy" 
refers to the government conduct of granting or maintaining subsidies.1560   
662. The text of Article 5 does not provide an agent for the noun "use", suggesting that it may 
address the "use of any subsidy" by either the governme nt granting the subsidy, or the recipient of the 
subsidy.1561  We recognize that a government could "use"  subsidies, in the sense that it employs 
                                                      
1557European Union's appellant's submission, para. 79. 
1558European Union's appellant's submission, para. 84. 
1559European Union's appellant's submission, paras. 84 and 88. 
1560European Union's appellant's submission, paras. 94 and 95. 
1561The French and Spanish versions of Article 5 do not limit the "use of any subsidy" to use by a 
government.  Nor do they indi cate clearly that the "use of" subsidies in cludes use by private firms.  Although the 
French version might suggest that the using is by the Member, the Spanish version fails—like the English 
version—to specify the subject of the use.  The French version reads:  " Aucun Membre ne devrait causer, en 
recourant à l'une quelconque des subventions visées aux paragraphes 1 et 2 de l'Article premier, d'effets 
défavorables pour les intérêts d'autres Membres  ... ."  The Spanish version does not specify who the use is by:  
"Ningún Miembro deberá causar, mediante el empleo de cualquiera de las subvenciones a que se refieren los 
párrafos 1 y 2 del artículo 1, efectos desfavorables para los intereses de otros Miembros  ... ."  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 282  
 
  subsidies for a stated purpose.
1562  However, contrary to what the European Union suggests, the 
reference to the "use of any subsidy" in Article 5 refers to more than merely the "granting" or 
"maintaining" of a subsidy by a government.1563  In particular, we note that Article 6.3 defines serious 
prejudice to which Article 5 refers, inter alia , in terms of "significant price undercutting", "lost sales", 
"price depression", and "price suppression".  Sales and the pricing of goods, in a market economy, are activities usually engaged in by the recipient of a subsi dy rather than by the grantor.  Such actions of a 
recipient of a subsidy are clearly relevant for purposes of assessing whether a WTO Member, as the 
grantor, has complied with its obligation "not to cau se, through the use of any subsidy, adverse effects 
to the interests of other Members."   
663. Article 3 provides that a Member "shall neither  grant nor maintain" prohibited subsidies, 
focusing on the act of granting or maintaining export subsidies.  By contrast, Article 5 is concerned 
with the adverse effects caused by the use of subsidies by a Member and does not prohibit the 
granting or maintaining of subsidies per se .
1564  It is true that the granting of a subsidy by a 
government may cause, through the use of the subsi dy, adverse effects and may, as a consequence, 
trigger the obligation under Article 7.8 for the s ubsidizing Member to "take appropriate steps to 
remove the adverse effects" or "withdraw the subsidy".  This does not mean, however, that the 
conduct covered by Article 5 is limit ed to subsidies granted by a government after the date of entry 
into force of the SCM Agreement .   
664. The European Union considers that the Panel e rred in finding that Article 28.1 "was not of 
contextual assistance in deciding whether subsidies gr anted prior to 1 January 1995 may be subject to 
the obligations of Article 5."1565  Specifically, the European Un ion contends that Article 28.1 
"addresses subsidy programmes , as opposed to individual  subsidies", and that "{t}he fact that the Part 
                                                      
1562The "use" by governments is referred to often in the Tokyo Round Subsidies Code , the precursor to 
the SCM Agreement .  In the Preamble, the signatory Contr acting Parties recognized that "subsidies are used  by 
governments  to promote important objectives of national policy". (emphasis added)  Article 8.1 provides further 
that "signatories recognize that subsidies are used by governments  to promote important objectives of social and 
economic policy." (emphasis added)  Article 11.1 states that "signatories recognize that subsidies other than export subsidies are widely used as important instruments for the promotion of social and economic policy 
objectives and do not intend to restrict the right of signatories to use  such subsidies to achieve these and other 
important policy objectives which they consider desirable." (emphasis added) 
1563It would appear that the "grant" and/ or "maintenance" of a subsidy by a Member , as used in the 
SCM Agreement , is distinct from the "use" of a subsidy. See, for instance, Articles 2.1(c), 3.1, 4.3, 7.1, 7.3, 
and 7.8 of the SCM Agreement , each of which refer to granting and/or maintaining subsidies. 
1564See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 47.  As the Appellate 
Body stated in that case, "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 subs idies are inconsistent with the SCM Agreement ." 
1565European Union's appellant's submission, para. 101.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 283  
 
  dealing with 'Transitional Arrangeme nts' refers only to subsidy programmes indicates the intention to 
exclude prior individual acts of subsidisati on" from the temporal scope of Article 5.
1566   
665. Article 28 indicates that "subsidy programmes" continuing in force or maintained after 1 
January 1995 were generally intended to fall within the temporal scope of Part II of the 
SCM Agreement  (which prohibits the granting or maintaining of export and import substitution 
subsidies ).  By its terms, Article 28 does not refer to i ndividual acts of subsidization, nor does it refer 
to obligations arising under Part III of the SCM Agreement .  We do not read Article 28 to indicate that 
Article 5 was intended to apply only to subsidies brou ght into existence subsequent to 1 January 1995. 
666. Our interpretation is also consistent with paragraph 7 of Annex IV to the SCM Agreement .  
Annex IV sets forth the method for calculating the total ad valorem  subsidization of a product for 
purposes of the presumption of serious prejudice in Article 6.1(a) (an expired provision) of the 
SCM Agreement .  Paragraph 7 of Annex IV stipulates that "{s}ubsidies granted prior to the date of 
entry into force of the WTO Agreement, the benefits  of which are allocated to future production, shall 
be included in the overall rate of subsidization."  This suggests that "adverse effects" within the 
meaning of Article 5 can be caused by subsidies gran ted prior to 1 January 1995.  We agree with the 
Panel that, although Article 6.1 a nd Annex IV have expired, they formed part of the original 
framework for determining when a Member could be considered to have caused adverse effects, and 
thus provide an important indication of the intended scope of Article 5.1567 
667. The European Union argues that paragraph 7 of Annex IV merely sets out "a method  to 
estimate the amount of subsidies granted to a particular product in a given year."1568  We fail to see 
why the fact that paragraph 7 of Annex IV descr ibes a "method" would mean that it cannot provide 
context for purposes of interpreting Article 5.  Instead, as we see it, the inclusion of pre-1995 
subsidies in the calculation of the amount of subs idies suggests that negotiators contemplated that 
subsidies granted before the entry into force of the SCM Agreement  are, as a conceptual matter, 
capable of causing adverse effects.   
668. The European Union further argues that paragr aph 7 of Annex IV authorizes the "exceptional 
inclusion of a benefit from a pre-1995 subsidy in the calcul ation of the overall amount of 
subsidisation post-1995".1569  According to the Euro pean Union, this "indicates the intention that 
WTO Members should not be allowed to shield po st-WTO subsidies of less than 5% from WTO 
                                                      
1566European Union's appellant's submission, para. 102. (original emphasis) 
1567Panel Report, para. 7.57. 
1568European Union's appellant's submission, para. 106. (original emphasis) 
1569European Union's appellant's submission, para. 108. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 284  
 
  scrutiny, although the total amount of subsid ies benefiting current production exceeds 5%."
1570 The 
European Union emphasizes that "this does not mean  that the benefit of every pre-1995 subsidy is 
deemed to 'continue' after 1995 for the purpose of Article 5 of the  SCM Agreement  or in general."1571  
We agree with the European Union that the benefi t of every subsidy granted before the entry into 
force of the  SCM Agreement  should not be "deemed" to continue  thereafter.  However, as the Panel 
found, "{p}aragraph 7 of Annex IV recognises that a subsidy granted prior 1 January 1995 may, in 
certain circumstances (i.e., where its benefits are al located to future production) be relevant to the 
serious prejudice determination in Article 5(c) and thus, may give rise to adverse effects under 
Article 5."1572  Paragraph 7 of Anne x IV therefore supports the proposition that subsidies granted prior 
to 1 January 1995 are subject to the obl igation contained in Article 5 of the SCM Agreement .   
669. The European Union further argues that Artic le 32.3 supports the proposition that "actions 
taken by Members before 1995, in the sense of bringi ng a subsidy into existence, insofar as they are 
'completed', should be examined in view of the c ontemporaneous obligation at that time (i.e., the 1979 
Tokyo Round Subsidies Code) and thus do not fall within the scope of Article 5 of the 
SCM Agreement ."1573  Article 32.3 provides in relevant part that "the provisions of this Agreement 
shall apply to investigations, and reviews of exis ting measures, initiated pursuant to applications 
which have been made on or after the date of entr y into force for a Member of the WTO Agreement."  
We find it of little relevance to our analysis and do not consider that it sheds light on the temporal 
scope of Article 5. 
670. The European Union submits, moreover, that Article 32.5 of the SCM Agreement  applies to 
"'continuing situations' in the form of 'laws, regul ations and administrative procedures'" and "does not 
refer to completed 'acts' or 'situations' su ch as individual subsidies granted before 1995".1574  It is true 
that, by its terms, Article 32.5 obligates WTO Memb ers to take all necessary steps to ensure the 
conformity of its laws, regula tions, and administrative procedures with the provisions of this 
Agreement.  We do not consider, however, that the l ack of a reference in Article 32.5 to individual 
instances of subsidization supports the proposition that no obligation arising out of Article 5 is to be 
imposed on a Member in respect of subsidies granted or brought into existence prior to the entry into 
force of the SCM Agreement .  
                                                      
1570European Union's appellant's submission, para. 108. 
1571European Union's appellant's submission, para. 108. 
1572Panel Report, para. 7.59.  
1573European Union's appellant's submission, para. 104. 
1574European Union's appellant's submission, para. 105.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 285  
 
  671. Our reading of Article 5 does not lead to a "retroactive" application of that provision.  The 
application of Article 5 to subsidies granted prior to 1995 is  justified by virtue of the obligation, under 
that provision, not to cause, through the use of any s ubsidy, adverse effects to the interests of other 
Members.  We see no indication in the text of Article  5 to suggest that the obligation set out in that 
provision is limited to subsidies granted af ter the date of entry into force of the SCM Agreement .  
3. The Interpretation of Article 5 of the SCM Agreement  in the Light of the 
Principle of Non-Retroactivity Reflected in Article 28 of the Vienna 
Convention  
672. The Appellate Body has previously confirmed that the principle of non-retroactivity under 
Article 28 of the Vienna Convention  is a general principle of la w, which is relevant to the 
interpretation of the WTO covered agreements.1575  The Appellate Body has described the application 
of Article 28 in the following way: 
Article 28 of the Vienna Convention  covers not only any "act", but 
also any "fact" or "situation which ceased to exist".  Article 28 
establishes that, in the absence of a contrary intention, treaty 
provisions do not apply to 'any situation wh ich ceased to exist' before 
the treaty's entry into force for a party to the treaty.  Logically, it seems to us that Article 28 also necessarily implies that, absent a 
contrary intention, treaty obligations do apply to any 'situation' which 
has not ceased to exist—that is, to any s ituation that arose in the past, 
but continues to exist under the new treaty.
1576 (original emphasis) 
673. The European Union contends that the Panel erre d in its application of the principle of non-
retroactivity of treaties reflected in Article 28 of the Vienna Convention  by wrongly focusing on the 
nature of the obligation contained in Article 5 of the SCM Agreement  rather than on the nature of the 
measures challenged by the United States.  For the Eu ropean Union, the relevant question before the 
Panel was instead whether the pre-1995 measur es challenged by the United States can be 
characterized as "acts" or "facts" that t ook place before the entry into force of the SCM Agreement , or 
as "completed situations".1577  
674. The United States counters that the Panel correc tly applied the principle of non-retroactivity 
of treaties reflected in Article 28 of the Vienna Convention  by focusing on the nature of the obligation 
contained in Article 5 of the SCM Agreement .  The United States disagrees with the European Union's 
assertion "that the proper approach was 'to identify th e relevant government conduct in the first place, 
characterise it as 'act' or 'situation' and examine wh ether such an 'act' or 'situation' was completed 
                                                      
1575See, for example, Appellate Body Report, EC – Sardines , para. 200. 
1576Appellate Body Report, Canada – Patent Term , para. 72. 
1577European Union's appellant's submission, para. 38. (original emphasis omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 286  
 
  before 1995 or continued afterwards'."
1578  The United States considers that the European Union's 
proposed approach "would have the Appellate Body start with the assumption  that the grant of 
subsidies is the relevant act, fact, or situation in relation to which Article 5 of the SCM Agreement 
binds the Members."1579  According to the United States, this  approach "is essentially circular", 
because "starting with the assumption that the only rele vant activity is something that occurred in the 
past ... foreordains the conclusion that the provision applies to acts, facts, or situations that have 
already ceased to exist."1580  The United States further argues that "Article 28 of the Vienna 
Convention frames the retroactivity analysis in terms of  the acts, facts, or situations with respect to 
which a treaty binds its parties", and argues that nothing in the text of Article 28 "limits those acts, facts, or situations to governmental 'conduct' as opposed to a government obligation that continues after particular conduct has occurred".
1581   
675. As a general proposition, a treaty does not apply to  acts or facts that took place, or situations 
that ceased to exist, before the da te of its entry into force.  As we have noted above, in order to 
determine the temporal sco pe of Article 5 of the SCM Agreement , regard must be had to the text of the 
treaty at issue  and, importantly, to the subject matter of th e treaty in question and to the nature of the 
treaty obligations  undertaken.  We therefore disagree with th e European Union to the extent that it 
suggests that it is the pre-1995 measures  that are to be interpreted consistently with the principle of 
non-retroactivity reflected in Article 28 of the Vienna Convention .  Rather, as the Panel found, it is, as 
set out in Article 5, the causing through the use of any subsidy of adverse effects to the interests of 
other Members that is the subject of that provision.  Thus, even assuming that the European Union 
was correct in its assertion that the pre-1995 measures  challenged by the United States could be 
properly characterized as "completed acts", this would not mean that such measures are precluded 
from challenge under Article 5 of the SCM Agreement , as the European Union suggests.   
676. As noted above, the European Union argues th at, since the pre-1995 subsidies challenged by 
the United States were "fully granted, disbursed or brought into existence and ended before 1995", 
they amount to completed "acts" or "situations" and, thus, are outside the temporal scope of 
application of the SCM Agreement , even if the "economic effects" of  such subsidies may continue to 
be felt subsequently.1582  In reply, the United States submits that the temporal scope of Article 5 is not 
limited to the act of providing actionable subsidies.   
                                                      
1578United States' appellee's submission, para. 20 (referring to European Union's appellant's submission, 
para. 33). 
1579United States' appellee's submission, para. 20. (original emphasis) 
1580United States' appellee's submission, para. 20.  
1581United States' appellee's submission, para. 22. 
1582European Union's appellant's submission, paras. 77 and 122.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 287  
 
  677. In practice, it is often difficult to distinguish be tween, on the one hand, an act or fact that was 
"completed" before the entry into force of the ne w treaty and, on the other hand, an act, fact, or 
situation that "continues" or has "continuing effect".
1583  In order to draw the line between these 
concepts, we turn to the text of Article 28 of the Vienna Convention .   
678. Article 28 refers to "acts or facts which took pl ace", as well as to "situations which ceased to 
exist".  The Appellate Body has pr eviously described the word "act" within the meaning of Article 28 
as "something that is 'done'".1584  In assessing the temporal scope of a treaty provision that is directed 
at "acts" or "facts", the relevant question is whethe r the act or fact "occurred" or "took place" prior to 
the entry into force of the treaty.  By contrast, with  regard to treaty provisions that are directed at a 
"situation", Article 28 does not ask whether the "situ ation" "took place", but rather whether it "ceased 
to exist" prior to the entry into force of the treaty.  As the Appellate Body found in Canada – Patent 
Term , the use of the word "situation" in Article 28 "suggests something that subsists and continues 
over time".1585  The reference to "ceased to exist" support s the notion that a "situation" may continue 
to exist over a period of time, rather than simply oc cur at a particular instant in time, after which the 
"situation" may "cease{} to exist".  
679. In response to questioning at the oral heari ng, the participants agreed that, as a general 
proposition, there is a certain degree of overlap between  the concepts of "act", "fact", and "situation".  
To us, it would appear that almost any "situation" can be said to have arisen from one or more past 
"acts" or "facts", including ones that have been  "completed".  Moreover, it would seem that a 
"situation" may consist of more than a distinct set of repeated acts, such as the use of subsidies under 
a scheme.  
680. The Panel expressed the view that Part III of the SCM Agreement  generally is concerned with 
a situation that subsists and continues over time, ra ther than with specific acts performed by Members.  
According to the Panel: 
{w}hile "cause" is used as a verb in Article 5, it does not connote 
specific action on the part of a Member.  Rather, it describes a 
particular relationship between the antecedent conduct of a Member 
                                                      
1583P. Reuter, Introduction to the Law of Treaties  (Kegan Paul International, 1995), p. 100. 
1584Appellate Body Report, Canada – Patent Term , para. 58. 
1585Appellate Body Report, Canada – Patent Term , para. 72.  The panel in that dispute characterized 
the protection accorded to inventions by  patents granted under a pre-1989 Canadian patent regime as a "situation 
which ha{d} not ceased to exist" at the date of the application of the Agreement on Trade-Related Aspects of 
Intellectual Property Rights . WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 288  
 
  and subsequent events which ultimately are attributed to that 
Member.
1586   
681. We see no reason to disagree with the Panel.  Article 5 reflects the notion that it is the 
causing, through the use of any subsidy, of adverse eff ects, rather than the gran ting of the subsidy that 
is the situation that is addressed by that provisi on.  As we have noted above, Article 5 does not 
prohibit the granting or the use of a subsidy per se .  Rather, Members are permitted to grant or 
maintain specific subsidies to the extent that they do not cause adve rse effects within the meaning of 
Articles 5 and 6 of the SCM Agreement .  The context of Article 5 also supports the notion that Part III 
generally is concerned with a situation that c ontinues over time, rather than with specific acts.1587  For 
instance, Article 6.4 contemplates that the disp lacement or impeding of exports, for purposes of 
Article 6.3(b), shall be demonstrated based on evidence relating to " an appropriately representative 
period  sufficient to demonstrate clear trends in th e development of the market for the product 
concerned, which, in normal circum stances, shall be at least one year."1588  In addition, Article 6.3(d) 
suggests that an increase in the worl d market share of the subsidizing Member is to be determined on 
the basis of " a consistent trend over a period when subsidies have been granted ."1589  
682. The European Union argues that, under general public international law, the question of 
whether treaty obligations apply to certain gove rnment conduct depends on the nature of the 
government conduct and its timing.1590  For the European Union, the fact that certain effects may 
continue as a result of the government  conduct is "entirely irrelevant".1591  To support its position, the 
European Union refers to the Commentaries1592 of the International Law Commission (the "ILC") on 
Article 28 of the Vienna Convention  and on the ILC Articles on  Responsibility of States for 
Internationally Wrongful Acts1593 (the "ILC Articles").  In particular, the European Union refers to 
Article 14 of the ILC Articles to argue that "{a} co mpleted act occurs 'at the moment when the act is 
performed', even though its effects or consequences may continue".1594  The European Union also 
                                                      
1586Panel Report, para. 7.52. 
1587Panel Report, para. 7.52. 
1588Emphasis added. 
1589Emphasis added. 
1590European Union's appellant's submission, para. 43. 
1591European Union's appellant's submission, para. 43. 
1592Draft Articles on the Law of Treaties with commentaries , supra , footnote 105;  Draft Articles on 
Responsibility of States for Internationally Wrongful Acts with commentaries , supra , footnote 105. 
1593ILC Articles on Responsibility of States for Internationally Wrongful Acts , supra , footnote 106. 
1594European Union's appellant's submission, paras. 41 and 42 (quoting Commentary on Article 14 of 
the ILC Articles, supra , footnote 105, pp. 59-60).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 289  
 
  refers to several rulings of the European Court of  Human Rights (the "ECtHR") and the International 
Court of Justice (the "ICJ") to support its argument.
1595 
683. The United States counters that the ILC Articles,  which the European Union cites in support 
of its argument, "are not only irrelevant to the in terpretation of the {non-}retroactivity rules reflected 
in Article 28 of the Vienna Convention, they also do not support the proposition for which the 
European Union cites them".1596  Where, as in the case of Article 5 of the SCM Agreement , "the 
primary obligations of a treaty are concerned with  causing effects through prior government action, 
causing those effects itself is the 'wrongful act', a nd the conclusion as to retroactivity will 'depend' on 
whether it is 'completed' or 'has a continuing character'."1597  The United States points in this regard to 
Article 14(3) of the ILC Articles, which "deals with  'an international obliga tion requiring a State to 
prevent a given event'—analogous to the obligation in Article 5 of the SCM Agreement not to cause 
adverse effects ... {and} provides specifically, that a breach of such an obligation 'occurs when the 
event occurs and extends over the entire period duri ng which the event continues and remains not in 
conformity with the obligation'."1598  The United States further argu es that the decisions by the ICJ 
and the ECtHR cited by the European Union do not  support the European Union's view that 
"government conduct alone, and not the effects of gove rnment conduct, is relevant to an analysis of 
retroactivity, depending on the actual text of the treaty that is being interpreted".1599   
684. As we have noted above, Article 5 of the SCM Agreement  sets out an obligation not to cause, 
through the use of any subsidy, adverse effects to th e interests of other Members.  It is the "causing" 
of such effects that is relevant for purposes of Ar ticle 5, and the conclusion as to retroactivity will 
hinge on whether that situation continues or has b een completed, rather than on when the act of 
granting a subsidy occurred.   
                                                      
1595European Union's appellant's submission, para. 44 (referring to ECtHR, Grand Chamber, Malhous 
v. The Czech Republic , Application No. 33071/96, p. 16).  The European Union also refers to ECtHR, Mayer, 
Weidlich, Fullbrecht Hasenkamp, Golf, Klausner v. Germany , Application Nos. 19048/91, 19049/91, 19342/92, 
18890/92, Decision and Reports 85-A, p. 5;  ECtHR, Grand Chamber, Von Maltzan and others v. Germany , 
Decision to the Admissibility of Applications Nos. 71916/01, 71917/01, and 10260/02 (2 March 2005) ("land 
reform" 1945-49 in the Soviet sector of Germany), paras. 82 and 83;  and ICJ, Judgment on preliminary 
objections, Case Concerning Certain Property (Liechtenstein v. Germany) , ICJ Reports (2005), para. 52. ( Ibid., 
paras. 44 and 45) 
1596United States' appellee's submission, para. 24. (footnote omitted)  The United States adds that the 
ILC Articles themselves are not "covered  agreements" set forth in Appendix I to the DSU, nor do they set forth 
"customary rules of interpretation of public international law".  The United States adds that the ILC 
Articles themselves do not purport merely to set out customary international law, but rather "to formulate , by 
way of codification and progressive development , the basic rules of international law concerning the 
responsibility of states for their internationally wrongful acts." ( Ibid., para. 25 (referring to Commentaries on the 
ILC Articles, supra , footnote 105, p. 31) (emphasis added by the United States)) 
1597United States' appellee's submission, para. 27. 
1598United States' appellee's submission, para. 28. 
1599United States' appellee's submission, para. 30. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 290  
 
  685. Article 14(1) of the ILC Articles stipulates that "{t}he breach of an international obligation by 
an act of a State not having a continuing character  occurs at the moment when the act is performed, 
even if its effects continue."  In other words, Article 14(1) distinguishes between acts and the effects  
of such acts.  Referring to the ILC's Commentary on  this provision, the European Union observes that 
"{a} completed act occurs 'at the moment when th e act is performed', even though its effects or 
consequences may continue."
1600  We agree with the European Union that it is important to distinguish 
between an act and its effects.  Article 5 of the SCM Agreement  is concerned, however, with a 
"situation" that continues over time, rather than with specific "acts".  Thus, although the act of 
granting a subsidy may have been completed prior to  1 January 1995, the situation of causing adverse 
effects may continue. 
686. In sum, we agree with the Panel that Article 5 addresses a "situation" that consists of causing, 
through the use of any subsidy, adverse effects to the interests of another Member.  It is this 
"situation", which is subject to the requirements of Article 5 of the SCM Agreement , that is to be 
construed consistently with the non-retroactiv ity principle reflected in Article 28 of the Vienna 
Convention .  The relevant question for purposes of determ ining the temporal scope of Article 5 is 
whether the causing of adverse effects has "ceased to exist" or continues as a "situation".  We 
consequently disagree with the European Un ion that, by virtue of Article 28 of the Vienna 
Convention , no obligation arising out of Article 5 of the SCM Agreement  is to be imposed on a 
Member in respect of subsidies granted or brought in to existence prior to the entry into force of the 
SCM Agreement .  This may mean that a subsidy granted prio r to 1 January 1995 fa lls within the scope 
of Article 5 of the SCM Agreement , but this is only because of its possible nexus to the continuing 
situation of causing, through the use of this subs idy, adverse effects to which Article 5 applies.1601  In 
reaching this conclusion, we are not saying that the causing of adverse effects, through the use of 
pre-1995 subsidies, can necessarily be characterized as a "continuing" situation in this case.  Rather, 
we simply find that a challenge to pre-1995 subsidies is not precluded  under the terms of the 
SCM Agreement .  
4. The Tokyo Round Subsidies Code  
687. The European Union also contends that the Panel erred in concluding that the Tokyo Round 
Subsidies Code  was not relevant in the present dispute.  According to the Europ ean Union, the rules 
on inter-temporal application of international la w, the specific transitional rules between the Tokyo 
                                                      
1600European Union's appellant's submission, paras. 41 and 42 (quoting Commentary on Article 14 of 
the ILC Articles, supra , footnote 105, pp. 59-60). 
1601See Sir Humphrey Waldock, Sp ecial Rapporteur, Sixth Report on the Law of Treaties, 
UN Document A/CN.4/186 and Add.1-7, Yearbook of the International Law Commission, 1966 , Vol. II, p. 63.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 291  
 
  Round Subsidies Code  and the SCM Agreement , and the rules on termination of international treaties, 
together with the absence of any transitional peri od with respect to pre-1995 subsidies, indicate that 
the pre-1995 subsidies should be assessed in the light of the Tokyo Round Subsidies Code , and not the 
SCM Agreement .  The United States therefore had until 1997 to  challenge those subsidies.  A failure 
to do so, in the European Union's view, cannot lead  to expanding the temporal scope of Article 5 of 
the SCM Agreement .
1602 
688. The United States counters that the European Un ion's arguments provide "no legitimate basis" 
to conclude that the former applicability of the Tokyo Round Subsidies Code  to the act of granting 
pre-1995 subsidies precludes application of the SCM Agreement  to the post-1995 adverse effects of 
those subsidies.1603  The United States concludes that the Appellate Body should therefore uphold the 
Panel's finding.1604 
689. As we see it, the European Union's argument is based on the assumption that subsidies that 
were granted or brought into existence before  1 January 1995 amount to completed "acts" or 
"situations" and, thus, are outside the temporal scope of application of the SCM Agreement .  We have 
disagreed with that proposition above, and do not consider our approach to lead to a retroactive 
application of Article 5 of the  SCM Agreement.   As the ILC has explained, "{t}he non-retroactivity 
principle cannot be infringed by applying a treaty to ma tters that occur or exist when the treaty is in 
force, even if they first began at an earlier date ."1605 
5. Conclusion  
690. For all these reasons, we modify the Panel's interpretation of Article 5 of the SCM Agreement  
and consider that the "causing, through the use of any subsidy, of adverse effects" is covered by 
Article 5 even if it arises out of subsidies granted or brought into existence prior to 1 January 1995, 
and that a challenge to such subsidies is not precluded  under the terms of the SCM Agreement .  
Accordingly, we uphold  the Panel's conclusion, in paragraph 7.65 of the Panel Report, rejecting the 
European Communities' request to exclude all s ubsidies granted prior to 1 January 1995 from the 
temporal scope of the dispute. 
                                                      
1602European Union's appellant's submission, para. 121. 
1603United States' appellee's submission, para. 77.  
1604United States' appellee's submission, para. 15.  
1605Yearbook of the International Law Commission, 1966 , Vol. II, p. 212, para. 3. (emphasis added) WT/DS316/AB/R BCI deleted, as indicated [***] 
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  C. The Life of a Subsidy and Intervening Events 
691. In this section, we address the European Union' s appeal of a number of the Panel's findings 
concerning the interpretation and application of  Articles 1, 4.7, 5, 6, and 7.8 of the SCM Agreement .  
In essence, the European Union submits that these provisions reflect an overarching principle that 
when the "benefit" arising from prior subsidies dimini shes over time, or is removed, there is a change 
that must be taken into account in the application of the SCM Agreement  and, in particular, under an 
adverse effects analysis.  Moreover, the Eur opean Union contends, these provisions require a 
demonstration of a "continuing" or  "present" benefit during the refe rence period chosen for a serious 
prejudice analysis.   
692. In this dispute, the European Union refers to a number of transactions involving certain 
Airbus companies
1606 that it alleges had the effect of rem oving or, in the European Union's words, 
"extinguishing" and "extracting" all or part of the subsidies provided to these companies.  In addition, 
the European Union submits that the circumstances surrounding the corporate restructuring and legal 
reorganization of a number of Airbus compan ies, as they evolved from a consortium of 
European companies into the singl e corporate entity that today manufactures Airbus LCA, namely 
Airbus SAS, required the United States affirmativel y to demonstrate that subsidies provided to the 
Airbus Industrie consortium1607 "passed through" to Airbus SAS.   
693. Our analysis proceeds as follows.  First, in s ubsection 1, we focus on th e Panel's interpretation 
of Articles 1, 5, and 6 of the SCM Agreement , including its finding that th ese provisions do not require 
a complaining party to demonstrate the existence of a "present" benefit, or a "benefit that continues" 
during the reference period.  In subsection 2, we a pply our interpretation of Articles 1, 5, and 6 to 
transactions involving certain Airbus companies th at the European Union alleges resulted in the 
"extinction" and "extraction", and consequently the "withdrawal", of subsidies within the meaning of 
Articles 4.7 and 7.8 of the SCM Agreement .  In this subsection, we al so consider whether, in its 
treatment of the European Communities' arguments on "extinction", "extraction", and "withdrawal", 
the Panel failed to make an objective assessment of the facts before it, and thereby violated Article 11 
of the DSU.  Finally, in subsection 3, we turn to  the European Union's appeal of the Panel's finding 
that the United States was not required to demonstrat e that subsidies provided to the Airbus Industrie 
consortium "passed through" to Airbus SAS, the current producer of Airbus LCA.  
                                                      
1606See the definition of Airbus companie s at section IV.B of this Report. 
1607See supra , para. 577.  See also Panel Report, para. 7.184.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 293  
 
  1. Continuity of Benefit – The Panel's Inte rpretation of Articles 1, 5, and 6 of 
the SCM Agreement  
(a) The Panel's findings  
694. The Panel began its interpretation of Articles 1, 5, and 6 of the SCM Agreement  by recalling 
the European Communities' argument that, as a resu lt of a series of transactions involving Airbus 
predecessor companies that had allegedly received s ubsidies, Airbus SAS—the current producer of 
Airbus LCA—"does not currently enjoy  subsidies that could cause the adverse effects alleged by the 
United States."1608  For the Panel, this argument raised a "t hreshold question" as to "whether a subsidy 
which is found to exist must add itionally be found to confer a presen t, or continuing, benefit on the 
recipient firm producing the subsidized product in or der for that subsidy to be potentially capable of 
causing adverse effects for purposes of Article 5 of the SCM Agreement."1609 
695. The Panel rejected the proposition that a subs idy "can only cause adverse effects pursuant to 
Article 5 if it can be shown to presently  confer a 'benefit' on a recipient."1610  The Panel noted that one 
element of a complaining Member's adverse effe cts claim under Article 5 will be to establish the 
existence of a "subsidy referred to in pa ragraphs 1 and 2 of Article 1" of the SCM Agreement .1611  The 
Panel found that the grammatical construction of Article  1.1 and the use of "thereby" in Article 1.1(b) 
suggest that the financial contribution and the be nefit "come into existence at the same time".1612  The 
Panel further recalled the A ppellate Body's finding in Canada – Aircraft  that the focus of the inquiry 
into the existence of a "benefit" pursuant to Article  1.1(b) is whether the financial contribution places 
the recipient in a more advantageous position than  would have been the case but for the financial 
contribution.  On this basis, the Panel found it diffi cult to understand the "coherence of a concept such 
as 'continuing benefit' within the legal frame work of Article 1 of the SCM Agreement."1613  Instead, to 
the extent that such a concept relates to how the effect of a subsidy is to be analyzed over time, the 
Panel considered this to be an aspect of the causati on analysis to be undertaken pursuant to Articles 5 
and 6 of the SCM Agreement and part of the assessment of the "effects" of a subsidy under those 
provisions.1614  The Panel further considered that the Eu ropean Communities' concept of "continuing 
                                                      
1608Panel Report, para. 7.214 (quoti ng European Communities' second wr itten submission to the Panel, 
para. 90). (emphasis added by the Panel) 
1609Panel Report, para. 7.214.  
1610Panel Report, paras. 7.216 and 7.217. (original emphasis)  
1611Panel Report, para. 7.217.  
1612Panel Report, para. 7.218.  The Panel substantiated this argument by noting that the ordinary 
meaning of the adverb "thereby" is "by that means" ( Ibid., and footnote 2128 thereto (referring to The New 
Shorter Oxford English Dictionary  (Oxford University Press, 1999), Vol. 2, p. 3275;  and Black's Law 
Dictionary , 6th edn (West Publishing Co., 1990), p. 1478)).  
1613Panel Report, para. 7.218.  
1614Panel Report, para. 7.218.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 294  
 
  benefit" appeared to "conflate the concepts of 'benefit', which relat es to the terms on which a financial 
contribution was provided compared with a market benchmark, and 'effects', which relate to the 
impact of the subsidy in the marketplace at a point in time which is typically subsequent to the time 
when the subsidy was granted."
1615  The Panel emphasized that it was not suggesting that, under 
Article 5 of the SCM Agreement , "it is unnecessary to link a subsidy provided to a recipient to a 
particular product or products in order to demonstr ate that a Member has ca used, through the use of 
that subsidy, the asserted adverse effects to  the interests of the complaining Member."1616  The Panel 
explained, however, that "this does not mean that a complaining Member is required to establish that 
the 'benefit' to the recipient is 'current' or 'conti nuing' in order to establish that link and demonstrate 
that use of that subsidy has caused adverse e ffects to the complaining Member's interests."1617  The 
Panel noted that "{t}here may well be circumstance s where, given the nature of the subsidy, the 
passage of time between its receipt and the alleged adverse effects, the recipient's position in the 
market and exogenous market consid erations, it is difficult to demonstrate more than a tenuous causal 
link between the subsidy and the alleged adverse effects."1618  For the Panel, however, this was "an 
inherent part of the causation analysis to be unde rtaken pursuant to Articles 5 and 6, and {did} not 
entail an obligation to demonstrate the 'continuity of benefit' of a previously granted subsidy."1619 
696. For these reasons, the Panel concluded that: 
... provided the United States, as the complaining Member, 
establishes (i) the provision of a financial contribution in accordance with Article 1.1(a)(1); (ii) which thereby confers a benefit, within the meaning of Article 1.1(b) and (iii) specificity, in accordance with 
Article 2, a subsidy that is actionable under Part III of the 
SCM Agreement will be "deemed to exist", and the United States will successfully make out a claim under Article 5; provided it is able to demonstrate that the European  Communities and certain member 
States have caused, through the use of that subsidy, adverse effects to 
the interests of the United States.
1620 
697. On the basis of this reasoning, the Panel dismissed as "unfounded" the 
European Communities' argument that particular s ubsidies had been "extinguished" through a series 
of arm's-length, fair market value transactions, w ith the result that Airbus SAS does not currently 
enjoy subsidies that could cause the adve rse effects alleged by the United States.1621  O n  t h e  s a m e  
                                                      
1615Panel Report, para. 7.219.  The Panel referred, in support, to Panel Report, US – Upland Cotton , 
para. 7.1179. 
1616Panel Report, para. 7.221.  
1617Panel Report, para. 7.221.  
1618Panel Report, para. 7.221.  
1619Panel Report, para. 7.221.  
1620Panel Report, para. 7.222.  
1621Panel Report, para. 7.223.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 295  
 
  basis, the Panel also rejected the European Comm unities' argument that the removal of cash—referred 
to as "cash extractions"—from two Airbus compani es had the effect of extinguishing a portion of 
benefits to them.
1622  The Panel explained that these argumen ts rested on the European Communities' 
"flawed interpretation" of Article 5 of the SCM Agreement , including its assumption that, in order for 
a subsidy to be potentially capable of causing adver se effects within the meaning of that provision, a 
complainant must demonstrate that a subsidy that is  found to exist additionally confers a "present" or 
"continuing" benefit on a recipient.1623  
(b) Do Articles 1, 5, and 6 of the SCM Agreement  require the 
demonstration of a "continuing benefit"? 
698. The European Union requests the Appellate B ody to find that the Panel erred in the 
interpretation and application of Articles 1, 5, and 6 of the SCM Agreement .1624  According to the 
European Union, the Panel ignored the "legal prin ciple" reflected in these provisions that, when a 
benefit to a recipient arising from prior subsidies di minishes over time or is re moved or is taken away, 
there is a "significant change" that must be taken into account in the application of the 
SCM Agreement  and, in particular, in the examination of  the causal link between the granting of the 
subsidy and the alleged adverse effects.1625  According to the European Union, the determination that 
a subsidy exists or has been granted does not precl ude the possibility of using amortization rules to 
allocate the amount of benefit over time to determin e whether such subsidy s till confers, or no longer 
confers, a benefit.  In the European Union's view, th is is particularly relevant in the causation analysis, 
since a subsidy that can be considered fully amor tized before the referen ce period cannot be found to 
cause present adverse effects.1626 
699. The European Union argues that the text of Articles 1, 5, and 6 of the SCM Agreement  
support the notion of a "continuing benefit".  First,  Article 1 defines the conditions under which a 
subsidy "shall be deemed to exist".  The use of the word "exist", in the present tense, demonstrates 
that the SCM Agreement  is not concerned with subsidies that no longer exist and that are not capable 
of causing adverse effects.1627  Further, once a financial contribution is granted, the only element under 
Article 1 that can "cease to exist" or be discontinue d over time if there is a significant change, either 
through the passage of time or any other "inter vening event" or action, is the "benefit".1628  Second, 
                                                      
1622See Panel Report, para. 7.266.   
1623See Panel Report, paras. 7.222, 7.223, and 7.266.  
1624European Union's appellant's submission, para. 198.  
1625European Union's appellant's submission, para. 221;  see also para. 199. 
1626European Union's appellant's submission, para. 223.  
1627European Union's appellant's submission, para. 204.  
1628European Union's appellant's submission, para. 205.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 296  
 
  the European Union submits that the wording of Ar ticles 5 and 6, and particularly the use of the 
present tense in these provisions, supports the view th at subsidies that have been withdrawn, have 
ceased to exist, or whose effects have diminished  with the passage of time, cannot currently "cause" 
present adverse effects.
1629  
700. The United States requests the Appellate Body to uphold the Panel's finding that, on a proper 
interpretation of Articles 1, 5, and 6 of the SCM Agreement , there is no requirement to demonstrate a 
"continuing benefit" for purposes of an adverse effe cts analysis.  The United States contends that the 
phrase "shall be deemed to exist" in Article 1 of the SCM Agreement  indicates that anyone applying 
the definition must consider a subsidy to exist, at the time of analysis, if it meets the listed criteria in Article 1—namely that "there is" a financial c ontribution and a benefit "is" thereby conferred.
1630  The 
United States supports the Panel's finding that th e use of the present tense with respect to the 
"financial contribution" and "benefit", and the use of the term "thereby" to indicate the relationship 
between them, indicate that they exist at the same time.1631  Finally, the United States does not agree 
that the text of Articles 5 and 6 indicates anythi ng about the time at which the causing of adverse 
effects must occur; nor do they support a re quirement to demonstrate a "continuing benefit".1632  
While the United States recognizes that a complaining party may have more trouble establishing a 
causal link between subsidies and alleged current a dverse effects where an extended period of time 
has passed or market conditions have changed, the Un ited States considers that this "is a question for 
the adverse effects analysis, and not a matter to resolve through a presumption as to what a subsidy 
with a diminished benefit can do."1633 
701. As the participants disagree on whether and, if so, how an assessment of the benefit conferred 
under Article 1.1(b) of the SCM Agreement  relates to the adverse effects analysis that must be 
conducted by a panel pursuant to Articles 5 and 6, we begin by setting out our interpretation of these 
provisions.  Thereafter, we address the European Union's specific argument that Articles 5 and 6 
impose an obligation on a complaining party to demonstrate the existence of a "present" or 
"continuing" benefit at the time when adve rse effects are alleged to occur.   
                                                      
1629European Union's appellant's submission, paras. 207 and 208.  
1630United States' appellee's submission, para. 89.  
1631United States' appellee's submission, para. 89 (referring to Panel Report, para. 7.218). 
1632United States' appellee's submission, paras. 99 and 100.  
1633United States' appellee's submission, para. 101.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 297  
 
  702. Article 1.1 of the SCM Agreement provides that a subsidy "shall be deemed to exist" where 
two elements are demonstrated:  (i) there is a "financial contribution by a government or any public 
body within the territory of a Member";  a nd (ii) "a benefit is thereby conferred".
1634  The Appellate 
Body has clarified the dual elements inherent in  the definition of a "subsidy" in Article 1.1 in 
Canada – Aircraft :  
The first element of this definiti on is concerned with whether the 
government made a "financial contri bution", as that term is defined 
in Article 1.1(a).  The focus of the first element is on the action of the 
government in making the "financial contribution".  That being so, it 
seems to us logical that the second element in Article 1.1 is concerned with the "benefit… conferred" on the recipient by that 
governmental action.  Thus, subparagr aphs (a) and (b) of Article 1.1 
define a "subsidy" by reference, first, to the action of the granting authority and, second, to what was conferred on the recipient.
1635   
The definition of a subsidy is therefore met when  a "financial contribution" and the "benefit ... 
conferred" by the financial contribution co-exist.1636   
703. Article 1.1(a)(1)(i)-(iv) lists the types of g overnment action that qualify as "financial 
contribution{s}".  The SCM Agreement  does not define what constitu tes a "benefit" for purposes of 
Article 1.1(b), and the meaning of that term has in stead been elucidated through panel and Appellate 
Body jurisprudence.  In its interpretation of Artic le 1.1(b), the Appellate Body has derived important 
contextual support from Article 14 of the SCM Agreement , even though the opening clause of 
Article 14 limits the scope of application of that provision to Part V of the SCM Agreement , which is 
concerned with countervailing measures.1637   
                                                      
1634We note that, pursuant to Articles 1.1(a)(2) and 1.1(b), a subsidy shall also be deemed to exist if 
"there is any form of income or price support in the sense of Article XVI of the GATT 1994" and "a benefit is 
thereby conferred".  
1635Appellate Body Report, Canada – Aircraft , para. 156. 
1636Both the European Union and the United States seem to interpret Article 1.1 of the SCM Agreement  
to mean that the financial contribution and benefit come into existence simultaneously. (See European Union's appellant's submission, para. 223;  and United States' appellee's submission, paras. 89 and 90) 
1637In Canada – Aircraft , the Appellate Body noted that: 
{a}lthough the opening words of Article 14 state that the guidelines it establishes apply "{f}or the purposes of Part V" of the SCM Agreement , 
which relates to "countervailing measures"', our view is that Article 14, 
nonetheless, constitutes relevant context for the interpretation of 'benefit' in Article 1.1(b). 
(Appellate Body Report, Canada – Aircraft , para. 155) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 298  
 
  704. In Canada – Aircraft , the Appellate Body clarified what must be demonstrated in order to 
establish that a "benefit is ... conferred" within the me aning of Article 1.1(b).  First, a benefit must be 
shown to have been conferred on a "recipient".
1638  In support, the Appellate Body referred to 
Article 14, which requires the calculation of a subsidy in terms of the "benefit to the recipient ".1639  As 
the Appellate Body explained: 
A "benefit" does not exist in the abstract, but must be received and 
enjoyed by a beneficiary or a recipient.  Logically, a "benefit" can be said to arise only if a person, natural or legal, or a group of persons, has in fact received something.
1640 
705. Second, whether a "benefit" has been "conferre d" requires a panel to determine whether the 
recipient has been made "better o ff" than it would have been absent the financial contribution.  In 
Canada – Aircraft , the Appellate Body stated that the "marketplace provides an appropriate basis for 
comparison in determining whether a 'benefit' ha s been 'conferred', because the trade-distorting 
potential of a 'financial contribution' can be id entified by determining whether the recipient has 
received a 'financial contribution' on terms more favour able than those available to the recipient in the 
market."1641   
706. The context provided by Article 14 of the SCM Agreement  confirms that the marketplace is 
the appropriate basis for comparison.  Article 14(a )-(d) sets out various guideli nes and benchmarks for 
determining whether a "benefit" arises from a govern ment's provision of equity capital, loans, loan 
guarantees, goods or services, and its purchase of goods.  Under a "benefit" analysis, a comparison is 
made between the terms and conditions of the financia l contribution when it is granted with the terms 
and conditions that would have been offered on the market at that time .  For instance, Article 14(a), 
which deals with the provision of equity capital, focuses on whether the investment decision comports 
with "the usual investment practice … of private i nvestors".  Article 14(b) calls for a comparison of 
the "amount that the firm receiving the loan pays on the government loan" with "the amount the firm 
would pay on a comparable commercial loan which the firm could actually obtain in the market".  Article 14(c) requires a comparison between "the amount that the firm receiving the guarantee pays 
on a loan guaranteed by the government" with "the amount the firm would pay on a comparable  
commercial loan absent the government guarantee".  These provisions support the view that a panel's 
                                                     
 
1638See Appellate Body Report, Canada – Aircraft , paras. 155 and 156.  The Appellate Body has stated 
that the SCM Agreement  does not provide a specific definition of a "recipient" of a benefit, but uses several 
terms throughout the SCM Agreement  to refer to a "recipient". (See Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 112) 
1639Appellate Body Report, Canada – Aircraft , para. 155. (original emphasis) 
1640Appellate Body Report, Canada – Aircraft , para. 154.  
1641Appellate Body Report, Canada – Aircraft , para. 157.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 299  
 
  assessment of benefit should focus on the relevant  market benchmark at the time the financial 
contribution is granted to the recipient.  That be nchmark entails a consideration of what a market 
participant would have been able to secure on the market at that time.  The market benchmark is 
predicated upon a projection as to the anticipated flow of  returns that are expected  to accrue as a result 
of the financial contribution.  Consequently, the de termination of benefit unde r Article 1.1(b) of the 
SCM Agreement  is an ex ante  analysis that does not depend on how the particular financial 
contribution actually performed after it was granted.  
707. The ordinary meaning of Article 1.1, read in the light of Article 14 of the SCM Agreement , 
confirms, therefore, that a benefit analysis un der Article 1.1(b) is forward-looking and focuses on 
future projections.
1642  The nature, amount, and projected u se of the challenged subsidy may be 
relevant factors to consider in an assessment of the period over which th e benefit from a financial 
contribution might be expected  to flow.  A panel may consider, for example, as part of its ex ante  
analysis of benefit, whether the subsidy is allocat ed to purchase inputs or fixed assets;  the useful life 
of these inputs or assets;  whether the subsidy is la rge or small;  and the period of time over which the 
subsidy is expected to be used for future production. 
708. As we have explained above, "a  subsidy shall be deemed to ex ist" for purposes of Article 1.1 
of the SCM Agreement  if there is a "financial contribution by a government" and "a benefit is thereby 
conferred."  The word "thereby" indicates that it is the financial contribution th at confers the benefit.  
A subsidy therefore comes into existence when a government provides a financial contribution that 
confers a benefit.  However, the fact that a subsid y is "deemed to exist" under Article 1.1 once there is 
a financial contribution that confers a benefit does not  mean that a subsidy does not continue to exist 
after the act of granting the financial contribution.  This is confirmed, for example, by the text of 
Articles 4.7 and 7.8 of the SCM Agreement .  The reference in those provisions to "withdrawing" the 
subsidy would be rendered meaningles s if a subsidy did not continue to exist after its conferral on a 
recipient.1643   
709. We understand the participants to agree with the basic proposition that a subsidy has a life, 
which may come to an end, either through the removal of the financial contribution and/or the 
expiration of the benefit.  In the pa rticular context of Part III of the SCM Agreement , a panel is called 
upon to determine whether the complainant has dem onstrated that the responding party is causing, 
                                                      
1642We discuss this issue in more detail in section VI.B of this Report.  
 1643We also note that, in a Part V context, the Appellate Body has found that an investigating authority 
may presume, for purposes of an administrative review under Article 21.2 of the SCM Agreement , "that a 
'benefit' continues to flow from an untied, non-recurring  'financial contribution'", although this presumption is 
not irrebuttable. (Appellate Body Report, US – Lead and Bismuth II , para. 62;  see also Appellate Body Report, 
US – Countervailing Measures on Certain EC Products , para. 84)   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 300  
 
  through the use of any subsidy, adverse effects.  The fact that Article 5 of the SCM Agreement  speaks 
of "any subsidy referred to in pa ragraphs 1 and 2 of Article 1", wh ich in turn sets out the conditions 
under which a subsidy is "deemed to exist", does not mean that the subsidy remains unchanged over 
time.  At the time of the grant of a subsidy, the s ubsidy will necessarily be projected to have a finite 
life and to be utilized over that finite period.  In  order properly to assess a complaint under Article 5 
that a subsidy causes adverse effects, a panel must take into account that a subsidy provided accrues 
and diminishes over time, and will have a finite life.   The adverse effects analysis under Article 5 is 
distinct from the "benefit" analysis under Article 1.1(b) of the SCM Agreement  and there is 
consequently no need to re-evaluate under Article 5 the amount of the benefit conferred pursuant to 
Article 1.1(b).  Rather, an adverse effects analysis  under Article 5 must consider the trajectory of the 
subsidy as it was projected to materialize over a certa in period at the time of the grant.  Separately, 
where it is so argued, a panel must assess whether there are "intervening events" that occurred after 
the grant of the subsidy that may affect the proj ected value of the subsidy as determined under the 
ex ante  analysis.  Such events may be relevant to an  adverse effects analysis because they may affect 
the link that a complaining party is seeking to estab lish between the subsidy and its alleged effects. 
710. In sum, a  panel's analysis of the adverse effects must take into account how the subsidy has 
materialized over time.  As part of this analysis, a panel must assess how the subsidy is affected, both 
by the depreciation of the subsidy that was projected ex ante  and the "intervening events" referred to 
by a party that may have occurred following its grant.
1644  
711. With these considerations in mind, we turn no w to the European Union's contention that a 
complaining party must demonstrate the existen ce of a "continuing benefit" during the reference 
period in order to show that a subsidy is capable of causing present adverse effects.  The 
European Union supports its argument by referring to the text of Articles 5 and 6.3 of the SCM Agreement .  In its view, the use of the present ten se in Article 5 (no Member should "cause" 
adverse effects) illustrates that subsidies that ha ve been withdrawn or have ceased to exist cannot 
"currently cause" adverse effects.  Moreover, the use of the present tense in subparagraphs (a)-(d) of 
Article 6.3, each of which refer to  what the "effect of the subsidy is"
1645, also suggests that subsidies 
that have been withdrawn or have ceased to exist cannot trigger the types of effects enumerated in 
                                                      
1644For this reason, we disagree with the Panel, at paragraphs 7.224, 7.225, and 7.266 of the Panel 
Report, insofar as it suggests that a consideration of "intervening events", such as the "extinction" and 
"extraction" of subsidies, are not relevant under an adverse effects analysis.  See paras. 725 and 745 of this Report. 
1645European Union's appellant's submission, para. 208. (emphasis added)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 301  
 
  Article 6.3.
1646  In the European Union's view, "{i}t is  not conceivable how a Member through 
granting or maintaining a subsidy that is later on withdrawn or otherwise discontinued or diminished 
to a negligible amount can cause present adverse effects."1647  Moreover, "{i}ndirect effects resulting 
from subsidies that have ceased to exist cannot be sufficient.  If such a historic subsidy 'caused' 
something to happen many years ago, the continuing existence of what was caused and the fact that 
that effect may have continuing effects today cannot be  considered to satisfy the test of Article 5 of 
the SCM Agreement ."1648  In the European Union's view, "{s} uch an interpretation would overstretch 
the concept of adverse effects caused by a subsidy and, thereby, make it meaningless."1649 
712. The text of Articles 5 and 6 of the SCM Agreement , and in particular the use of the present 
tense in these provisions, does not support the proposi tion that there must be "present benefit" during 
the reference period.  In its argumentation,  the European Union conflates present adverse effects , 
which must be demonstrated under Article 6.3, with present subsidization , which need not.  It is not 
disputed that Article 6.3 is concerned with present adverse effects.1650  However, the requirement that 
the effects of subsidies be felt in the reference period, does not mean that the subsidies, and in 
particular the benefit conferred, must also be presen t during that period.  In focusing on the causing of 
adverse effects through the use of any subsidy, Artic le 5 envisages that the use of the subsidy and the 
adverse effects may not be contemporaneous.  This  is supported by the Appellate Body's finding in 
US – Upland Cotton , that the provision of subsidies and their effects need not coincide temporally and 
that there may be a time lag.1651  There, the Appellate Body referred to Article 6.2 of the 
SCM Agreement , which precludes a finding of serious prejudice if the subsidizing Member 
demonstrates that "the subsidy in question has not  resulted in any of the effects enumerated in 
                                                      
1646European Union's appellant's submission, para. 208.  At the oral hearing, the European Union 
argued that the reference in Article 6.3(c) and (d) to a "subsidized" product reinforces its view that the product 
at issue must be "currently subsidized" at the time that adverse effects are alleged to be present.   
1647European Union's appellant's submission, para. 207.  
1648European Union's appellant's submission, para. 207.   
1649European Union's appellant's submission, para. 207.   
1650Elsewhere in its Report, the Panel explained why adverse effects had to be shown to be "present".  
The Panel noted, for instance, that subparagraphs (a), (b), and (c) of Article 6.3 are plainly drafted with 
reference to the present, as each be gins "the effect of the subsidy is …". (Panel Report, footnote 5140 to 
para. 7.1694 (original boldface))   
1651One of the issues in US – Upland Cotton  was whether the subsidy benefit had to be allocated to the 
year when it was paid or whether that could be done over a longer period.  Speci fically, the Appellate Body 
explored whether in the context of a significant price suppression analysis under Article 6.3(c) of the 
SCM Agreement  the effect of a subsidy could be found to continue beyond the year in which it is paid.  In 
distinguishing between the grant of a subsidy and its effects, the Appellate Body explained that whether the effect of a subsidy begins and expires in the year in wh ich it is paid, or in subseque nt years, are fact-specific 
questions, and would depend on the nature of the subsidy and the product at issue.  The Appellate Body found 
that nothing in that provision a priori  excluded that the effect  of the "recurring" subsid y at issue in that case 
could continue after the year in which it was paid. (Appellate Body Report, US – Upland Cotton , paras. 476, 
482, and 484) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 302  
 
  {Article 6.3}".
1652  Moreover, Article 7.8 of the SCM Agreement  refers to a subsidy that "has resulted" 
in the adverse effects referred to in Article 5.  By its terms, Article 5 of the SCM Agreement  imposes 
an obligation on Members not to cause adverse effe cts to the interests of other Members through the 
use of any subsidy as defined in Article 1.  We disagree with the proposition that this obligation does 
not arise in respect of subsidies that have come to an end by the time of the reference period.  In fact, 
we do not exclude that, under certain circumstances, a past subsidy that no longer exists may be found 
to cause or have caused adverse effects that con tinue to be present during the reference period. 
713. For these reasons, we agree  with the Panel that the United States was not required, under 
Article 5 of the SCM Agreement , to establish "that all or part of the 'benefit' found to have been 
conferred by the provision of a financial contri bution continues to exist, or presently exists"1653 during 
the reference period.  We wish to emphasize, how ever, that effects of a subsidy will ordinarily 
dissipate over time and will end at some point after the subsidy has e xpired.  Indeed, as with a subsidy 
that has a finite life and materializes over time, so  too do the effects of a subsidy accrue and diminish 
over time. 
714. The Panel was of the view that the concept of "continuing benefit" may be relevant for 
purposes of assessing how the effect of a subsidy is to be analyzed over  time, and considered this to be 
an aspect of the causation analysis to be und ertaken pursuant to Articles 5 and 6 of the 
SCM Agreement  and part of an assessment of the "effects" of a subsidy under these provisions.1654  It 
is relevant, in our view, to examine the trajectory of  the life of a subsidy in order to determine whether 
a Member is causing, through the use of any subsid y, adverse effects to the interests of another 
Member within the meaning of Article 5 of the SCM Agreement .  Moreover, a panel should consider, 
where relevant for the adverse eff ects analysis, that the effects of a subsidy will ordinarily dissipate 
over time and will come to an end. 
715. In sum, therefore, we modify  the Panel's interpretation, but uphold  the Panel's ultimate 
finding, in paragraphs 7.222 and 7.287 of the Panel Report, that Articles 5 and 6 of the 
SCM Agreement do not require that a complainant demonstr ate that a benefit "continues" or is 
"present" during the reference period for purposes of an adverse effects analysis. 
                                                      
1652Appellate Body Report, US – Upland Cotton , para. 477.  According to the Appellate Body, the 
word "resulted" in this sentence highlights the temporal relationship between the subsidy and the effect, in that 
one might expect a time lag between the provision of the subsidy and the resulting effect.  In addition, the 
Appellate Body has considered that the use of the present perfect tense in this provision implies that some time 
may have passed between the granting of the subsidy and the demonstration of the absence of its effects. ( Ibid.) 
1653Panel Report, para. 7.222.   
1654Panel Report, para. 7.218.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 303  
 
  2. Analysis of "Extinction", "Extraction", and "Pass-Through" of Subsidies
 
716. We have found in the previous section that a subsidy materializes over time and has a finite 
life and that this may be relevant to a panel' s adverse effects analysis  under Part III of the 
SCM Agreement .  As we have also mentioned, quite ap art from the passage of time, there may be 
events occurring after the grant of the subsidy that dimi nish it or bring it to an end.  In this dispute, the 
European Union refers to a number of "intervening ev ents" that it submits reduce, or bring to an end, 
all or part of the subsidies provided to Airbus co mpanies and therefore should have been taken into 
account by the Panel as part of its adverse effects analysis.1655  The European Union identifies the 
following "intervening events": 
(a) shares in an enterprise that has previously  received subsidies are subsequently bought 
by new private owners in sales transacti ons conducted at arm's length and for fair 
market value, resulting in the "extinction" of subsidies;  
(b) a parent company removes cash or cash e quivalents from a wholly owned subsidiary 
that has previously received subsidies, resulti ng in the "extraction" of subsidies;  and 
(c) a company that has previously received subsidies is restructured and legally 
reorganized to form a new company, resulting in a situation in which the subsidies do 
not "pass through" to the new company.1656   
717. In the subsections that follow, we apply our interp retation of Articles 1, 5, and 6, first, to the 
European Union's arguments on "extinction" and "extraction" of subsidies, and then to its argument 
on the "pass-through" of subsidies.  As these argu ments are premised on factual events concerning 
Airbus companies, we refer to section IV.B of th is Report, where we have traced the evolution of 
Airbus companies and, in particular, the devel opment of the European aircraft industry from its 
origins as a partnership among four individual European companies to the current single corporate 
                                                      
1655We recall that the Panel considered the Europ ean Communities' arguments on "extinction" and 
"extraction" on an alternative  basis, that is, in the event that the Appellate Body reversed its finding that 
Article 5 does not require a showing, by the complainant,  of a "continuing benefit" during the reference period.  
Although, for the reasons provided above, we have upheld the Panel's finding that Articles 5 and 6 do not 
require such a showing, in the light of our finding in paragraphs 709 and 710 that "intervening events" are 
relevant under an adverse effects analysis, we pro ceed to consider the European Union's arguments on 
"extinction" and "extraction" of subsidies. 
1656Unlike the two previous situations concerning the "e xtinction" and "extraction" of subsidies that the 
European Union alleges resulted in the diminution of pa st subsidies, the European Union argues that this 
situation requires that a complaining party demonstrate th e "pass-through" of the subs idy to the current producer 
of the alleged subsidized product. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 304  
 
  entity, Airbus SAS.  Where necessary, we provide further details below with respect to the specific 
Airbus companies and transactions implicated  in the European Union's arguments.   
(a) Extinction of subsidies 
718. The European Union argues that certain transactions involving sales of shares in 
Aérospatiale-Matra, EADS, and Airbus SAS
1657 were conducted at "arm's le ngth" and for "fair market 
value" and therefore "extinguished", in full or in pa rt, alleged subsidies remaining in those companies.  
These transactions consist of the following:  (i ) the French Government's sale of shares in 
Aérospatiale-Matra in 2000;  (ii) the combinati on of the LCA-related assets and activities of the 
Airbus partners to form EADS and the public offe ring of EADS shares in 2000;  (iii) sales of EADS 
shares by various shareholders between 2001 and 2006, including sales by the French Government and Lagardère in 2001 (0.93% and 2.07%, respectivel y), a sale by DaimlerChrysler in 2004 (2.75%), 
and sales by DaimlerChrysler and La gardère in 2006 (totalling 15%);  and (iv) the exercise of a "put 
option" and sale by BAE Systems of its 20% interest in Airbus SAS to EADS in 2006.
1658   
719. We recall that, having found that Article 5 of the SCM Agreement  did not require the 
United States to demonstrate the existence of a "c ontinuing benefit", the Panel proceeded to consider, 
in the  alternative , whether, as the European Communities had argued, "in the context of a claim under 
Part III of the SCM Agreement, the existence of a benefit conferred by a financial contribution 
provided to a recipient is presumptively extinguished by the subsequent sale of the recipient to an 
arm's-length purchaser for fair market value."1659  In support of its position, the 
European Communities referred to the reasonings and findings of the panels and the Appellate Body 
in US – Lead and Bismuth II and US – Countervailing Measures on Certain EC Products  (the 
"privatization cases"), arguing that they established the existence of a "principle" that "the sale of a 
producer at arm's-length and for fair market valu e presumptively extinguishes the 'benefit' conferred 
by any financial contributions previously provided to that producer."1660  Noting, inter alia , that the 
Appellate Body indicated in US – Countervailing Measures on Certain EC Products that the findings 
of the panel in that dispute should be confined to the "very precise set of facts and circumstances" of 
                                                      
1657For a fuller description of these Airbus companies, see supra , paras. 578-582. 
1658See Panel Report, para. 7.204 and accompanying table compiled on the basis of information 
provided by the European Communities in its response to Panel Question 111, para. 316. 
1659Panel Report, para. 7.224.  
1660Panel Report, para. 7.239.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 305  
 
  that case, the Panel did not consider that it w ould be appropriate to r ecognize a "principle" of 
extinction as argued by the European Communities.
1661  The Panel concluded that: 
… to the extent that prior reports of the Appellate Body support the 
conclusion that, in a dispute under Part III of the SCM Agreement, 
changes in the ownership of a subsidized producer give rise to a 
rebuttable presumption that the benef it conferred by prior subsidies is 
extinguished ... this would only be where (i) benefits resulting from a prior nonrecurring financial contribution, (ii) are bestowed on a state-owned enterprise, and (iii) following a privatization at arm's length 
and for fair market value, (iv) the government transfers all or 
substantially all the property and re tains no controlling interest in the 
privatized producer.
1662   
For the Panel, however, the European Communities had not demonstrated that the sales transactions at 
issue in this case "fulfil{led} all of the above criteria".1663   
720. The European Union challenges the Panel's fi ndings on appeal, arguing, as it did before the 
Panel, that the Appellate Body in US – Lead and Bismuth II and US – Countervailing Measures on 
Certain EC Products  established a "principle" that the sale of  a subsidized company at arm's length 
and for fair market value removes or "extinguishes" th e benefit of prior subsidies to the buyer.  Such a 
"principle", the European Union submits, is equally applicable to full and partial privatizations, as 
well as to sales between private entities.1664  The United States counters that the Panel properly relied 
on the Appellate Body's reasoning in US – Countervailing Measures on Certain EC Products to reject 
the European Communities' attempt to extend the ruling in that case to partial privatizations and sales 
between private entities.  For the Un ited States, therefore, any "princip le" of extinction is applicable 
exclusively to situations involving full privatiza tions accompanied by full relinquishment of control 
by the government.1665 
721. It is clear that the participants draw di vergent inferences from the Appellate Body's 
conclusions in its privatization case law and disagr ee as to the circumstances that give rise to a 
presumption of the "extinction" of benefits.  Therefor e, we find it useful to begin by restating the core 
findings of the Appellate Body in the privatization cases. 
                                                      
1661Panel Report, para. 7.239 (referring to Appellate Body Report, US – Countervailing Measures on 
Certain EC Products , para. 117).  
1662Panel Report, para. 7.248.  
1663Panel Report, para. 7.249.   
1664European Union's appellant's submission, para. 226.   
1665United States' appellee's submission, para. 105.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 306  
 
  722. The disputes in US – Lead and Bismuth II and US – Countervailing Measures on Certain EC 
Products  arose in the context of Part V of the SCM Agreement .
1666  In particular, they involved an 
examination of USDOC methodologies for levying countervailing duties on imports of firms whose 
ownership had changed through privatizati on, and the application of these methodologies.1667  In both 
privatization cases, former state-owned companies were privatized through transactions at arm's 
length and for fair market value resulting in the co mplete transfer of ownership and control of the 
state-owned firms from the government to new private owners.1668   
723. The Appellate Body found in both cases that an investigating authority could treat benefits 
provided to the state-owned firm as having been "e xtinguished", and therefore not passed to the new 
private owners, following the privatization of the firm through transactions conducted at arm's length 
and for fair market value.1669  I n  US – Countervailing Measures on Certain EC Products , the 
Appellate Body stated that "{p}rivatizations  at arm's length and for fair market value may result in 
extinguishing the benefit" and that "there is a re buttable presumption that a benefit ceases to exist 
after such a privatization."1670  Significantly, however, the Appella te Body emphasized that there is 
"no inflexible rule requiring  that investigating authorities, in future cases, automatically  determine 
                                                      
1666We recall that, in a Part V context, countervailing duties are "specific to i ndividual companies" and 
require a more precise quantification of subsidization, as opposed to a Part III context, where the remedy 
"targets the effects of the subsidy more generally". (Appellate Body Report, US – Upland Cotton , para. 464)  
1667In US – Lead and Bismuth II , the European Communities brought a complaint against the 
United States for levying countervailing duties on imports of certain leaded bars from privatized UK companies 
following administrative reviews in 1995, 1996, and 1997.  Between 1977 and 1986, the companies were state-
owned and received subsidies that were used to develop capacity for producing leaded bars.  In US – 
Countervailing Measures on Certain EC Products , the European Communities challenged 12 countervailing 
duty determinations by the USDOC on imports of certain steel products originating in the 
European Communities.  The European Communities challenged the application by the USDOC of the 
"gamma" method and the "same person" method to determine whether non-recurring subsidies granted to 
state-owned recipients prior to th eir full privatization at arm's lengt h and for fair market value where 
government sold all, or substantially all, their ownershi p interests and no longer had any controlling interests in 
the privatized producers, remained countervailable.   
1668Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 2;  Appellate 
Body Report, US – Lead and Bismuth II , para. 2. 
1669In US – Lead and Bismuth II ,  the Appellate Body found that: 
{t}he question whether a "financial contribution" confers a "benefit" 
depends ... on whether the recipient ha s received a "financial contribution" 
on terms more favourable than those available to the recipient in the market.  In the present case, the Panel made f actual findings that {the new producers 
of imported leaded bars} UES and BSplc/BSES paid fair market value for 
all the productive assets, goodwill, et c., they acquired from {the state-
owned} BSC and subsequently used in the production of leaded bars 
imported into the United States in 1994, 1995 and 1996.  We, therefore, see 
no error in the Panel's conclusion that , in the specific circumstances of this 
case, the "financial contributions" bestowed on BSC between 1977 and 1986 
could not be deemed to confer a "benefit" on UES and BSplc/BSES.  
(Appellate Body Report, US – Lead and Bismuth II , para. 68) 
1670Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.  
(original emphasis)    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 307  
 
  that a 'benefit' derived from pre-privatization financ ial contributions expires following privatization at 
arm's length and for fair-market value."
1671  Rather, as the Appellate Body stated, "{i}t depends on the 
facts of each case."1672 
724. In the present case, we are not in a Part V contex t where the question arises as to the rate of 
subsidization present in the product that is being c ountervailed.  Nor do any of the sales transactions 
in this dispute amount to a full privatization of a previously state-owned company.  Instead, the issue 
is whether, as alleged by the European Union, sales of shares between private entities, and sales 
conducted in the context of partial pr ivatizations, eliminate all or part  of past subsidies, and whether 
this, in turn, results in a change that should be  taken into account in assessing whether past subsidies 
are causing present adverse effects under Article 5 of the SCM Agreement .   
725. Neither of the participants question that the past  rulings in the privatization cases stand for the 
proposition that a presumption of extinction arises where there is a full privatization.  We recall that, 
in both cases, the full privatizations involved sales at fair market value and at arm's length, and that 
there was a complete transfer of ownership and control.  In a partial privatization as well as in private-to-private sales, not all of the elements of a full pr ivatization are present.  Therefore, consistent with 
the Appellate Body's guidance, a fact-intensive inquiry into the circumstances surrounding the changes in ownership would be required in order to determine the extent to which there are sales at 
fair market value and at arm's length, accompanie d by transfers of ownership and control, and 
whether a prior subsidy could be deemed to have co me to an end.  Moreover, a panel assessing claims 
under Part III of the SCM Agreement  would have to examine whether th e transactions are of a nature, 
kind, and amount so as to affect an adverse effe cts analysis and attenuate the link sought to be 
established by the complaining party under Articles 5 and 6 of the SCM Agreement  between the 
alleged subsidies and th eir alleged effects. 
726. Although the Members of this Division discussed at  length the issue of extinction of subsidies 
in the context of partial privatizations and pr ivate-to-private sales, no common view emerged.  
Without prejudice to the further considerations and findings set out below, each Member of the 
Division wishes to set out separate views on this issue: 
(a) Noting that the Appellate Body has previous ly ruled in privatization cases that a full 
privatization, conducted at arm's length  and for fair market value involving a 
complete or substantial transfer of ow nership and control, "extinguishes" prior 
                                                     
 
1671Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.  
(original emphasis) 
1672Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 308  
 
  subsidies, one Member is of the view th at this rule does not apply to partial 
privatizations or to private-to-private sales. 
(b) One Member noted that, as discussed above, the Appellate Body ruled in US – 
Countervailing Measures on Certain EC Products  that, in the context of Part V of the 
SCM Agreement , full privatization at arm's length and for fair market value may result 
in extinguishing the benefit received from the non-recurring financial contribution 
bestowed upon a state-owned firm.
1673  In response to an argument made by the 
United States in that case, the Appellate Body observed that privatization at arm's length and for fair market value does not remove the equipment that a state-owned enterprise may have acquired with the fina ncial contribution and that, consequently, 
the same firm may continue to make the sa me products with the same equipment.  
The Appellate Body agreed with the United States that the utility value  of equipment 
acquired as a result of the financial contri bution is not extinguished as a result of a 
privatization at arm's length and for fair market value.  However, as the Appellate 
Body explained, the utility value of such e quipment to the newly privatized firm is 
legally irrelevant for purposes of determini ng the continued existence of a "benefit" 
under the SCM Agreement .
1674  The Appellate Body recalled that it had found in 
Canada – Aircraft  that the value of the benefit under the SCM Agreement  is to be 
assessed using the marketplace as the basis for co mparison.  It follows, therefore, that 
once a fair market price is paid for the equipment, or more broadly the assets of a 
company, their market value is redeemed, regardless of the utility value a firm may 
derive therefrom.  In response to the argume nt by the United States that nothing about 
the company changes as a result of the priva tization, the Appellate Body agreed with 
the panel in US – Countervailing Measures on Certain EC Products  that the new 
private owners are "profit-maximizers " who will seek to "recoup{} through the 
privatized company … a market return on the full amount of their investment."1675  
Therefore, the new private owners may no longer benefit from any subsidies received 
by the company before its privatization.  This Member considers the rationale  
underlying the Appellate Body's case law on fu ll privatization in the context of Part V 
of the SCM Agreement equally to apply in situations  of partial privatization and 
private-to-private transactions and in the context of Part III of the SCM Agreement .  
                                                      
1673Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.  
1674Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 102.  
1675Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 103 
(referring to Panel Report, US – Countervailing Measures on Certain EC Products , para. 7.60).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 309  
 
  However, this Member also notes that , as the Appellate Body emphasized in US – 
Countervailing Measures on Certain EC Products , there is "no inflexible rule" that a 
"benefit" derived from pre-privatization fi nancial contributions expires following 
privatization at arm's length and for fair-market value.
1676  Rather, as the 
Appellate Body stated, "{i}t depends on the facts of each case."1677  An important 
question in this context is to what extent th e partial privatization or private-to-private 
transactions resulted in a transfer of cont rol to new owners who paid fair market 
value for shares in the company.  
(c) One Member of the Division, though affirmi ng the general test that an extinction of 
benefit is to be determined upon a considera tion of all relevant facts, entertains no 
small measure of doubt that an acquisition of shares, concluded at arm's length and 
for fair market value, constitutes releva nt circumstances warranting the conclusion 
that an extinction of benefit has taken place.  A subsidy granted to a recipient 
company contributes to the net asset value of that company.  The value of that asset 
permits the recipient to enjoy an enhanced stream of future earnings over the life of 
the asset.  The asset is the property of the recipient.  The recipient's shareholders 
enjoy the right to the dividends that may be declared by the recipient and to any 
capital gains that arise from the enhanced earni ngs attributable to the recipient.  When 
shares change hands on an arm's-length basis and for fair market value, the buyer 
pays a price that, in the estimation of th e buyer, places a proper value on the future 
earnings of the recipient.  Those earnings de rive from all the assets of the recipient, 
including the benefit of any subsidy paid to the recipient.  One shareholder may not accurately value or properly manage the assets of the recipient.  Precisely for this reason, sales of shares take place:  the buyer believes that the assets, properly 
managed, will be worth more over time than  the price paid, and the seller believes the 
opposite.  Time will tell who is correct.  The central point is that a sale of shares, 
whether or not it conveys control, transfers rights in the shares to a new owner.  The 
assets of the company, to which the shares att ach, do not change at all.  Nor could it 
be otherwise, because the buyer would then not  acquire the full benefit of the bargain:  
the buyer would pay for an asset (the subsidy) that had in the very sales transaction been "extinguished".  Shares in listed comp anies are traded on st ock exchanges with 
great frequency and without any fear that sales on the market diminish the underlying 
                                                     
 
1676Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127.  
1677Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 127. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 310  
 
  value of the assets owned by these companies.   The changing price of listed securities 
reflects the different valuations that buyers and sellers place upon companies and 
their underlying assets.  However, nothing about these trades extracts the value of any 
asset, including the benefit of any subsidy gran ted.  That subsidy continues to benefit 
the recipient, even if the ownership of th e recipient's shares changes from one day to 
another.  Given that the Appellate Body in this case does not need to come to any 
final view on the issue of extinction in the c ontext of a partial privatization or private-
to-private sales, these matters do not require more definitive determination. 
727. To support its position that an extinction "princip le" applies equally to partial privatizations, 
and that "a partial change of ownership leads to  a partial removal of th e subsidy and a partial 
discontinuation of benefit"
1678, the European Union refers to the compliance panel's ruling in US – 
Countervailing Measures on Certain EC  Products (Article 21.5 – EC) .  In particular, the 
European Union argues that the panel in thos e proceedings was required to determine the 
WTO-consistency of the USDOC's revised privati zation methodology and its application to three 
sunset review re-determinations.  One of the priv atizations at issue was the French Government's 
privatization of Usinor, which occurred in increm ental stages over a three-year period through four 
types of share offerings to four different classes of  purchasers.  Rather than considering the company 
as a whole, the USDOC had separately considered  the sales transactions pertaining to the four 
different categories of share offerings and applied its revised privatization methodology to each of the 
four categories of share offerings in order to eval uate whether the sales transactions in each share 
offering occurred at arm's length and for fair market value.1679  The compliance panel found that, 
"given the complexity of the privatization pr ocess, ... the USDOC's segmented analysis of the 
conditions of Usinor's privatization {was} not  unreasonable and was applied in a transparent 
manner."1680  As the European Union points out, the compliance panel thereby upheld an approach in 
which the sale at fair market value and at arm's length of three of the four share offerings (that is, all, 
save for the 5.16% share offerings to current an d qualifying former employees) were deemed to 
"extinguish" pre-privatization subsidies.1681  However, as the United States also notes, "{e}ven if the 
employee share purchases led to the conclusion that the privatization did not cover 100 percent of the 
                                                      
1678European Union's appellant's submission, para. 260.  
1679The compliance panel in US – Countervailing Measures on Certain EC Products (Article 21.5 – 
EC) found that there was nothing in the original panel report in that dispute  that would require an investigating 
authority to examine the conditions of a privatization by looking at the company as a whole . (See Panel Report, 
US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) , paras. 7.117 and 7.118)   
1680Panel Report, US – Countervailing Measures on Certain EC Products (Article 21.5 – EC) , 
para. 7.122.  
1681See, for instance, Panel Report, US – Countervailing Measures on Certain EC Products 
(Article 21.5 – EC) , paras. 7.93 and 7.108.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 311  
 
  shares, the sale of the remaining 94.84 percent of sh ares, in the context of transfer to the public of 
100 percent of the shares and complete surrender of government control, would meet the criterion of 
transferring 'substantially all of the property'."
1682   
728. The European Union also supports its argumen t that the subsidies can be "extinguished" 
through "private-to-private" sales by referri ng to the Appellate Body's statement in US – 
Countervailing Measures on Certain EC Products  that "{t}he ... absolute rule {by the panel in US – 
Countervailing Measures on Certain EC Products } of 'no benefit' may be defensible in the context of 
transactions between private parties taki ng place in reasonably competitive markets".1683  T h e  
Appellate Body made this observation in seeking to  distinguish sales between private entities, which 
might be presumed to be at "fair market value", from those in which governments were involved, including privatizations, which might not.
1684  Although the Appellate Body thereby suggested that 
sales between private entities in the marketplace w ould more likely be at fair market value, a 
comprehensive assessment would nonetheless be requi red in order to determine to what extent a 
change in ownership and control would result from  the private-to-private sales transactions in 
question. 
729. The Panel's approach to the European Comm unities' arguments concerning "extinction" 
consisted essentially of examining whether the tran sactions at issue involved changes in ownership 
where (i) benefits resulting from a prior non-recurri ng financial contribution (ii) are bestowed on a 
state-owned enterprise (iii) following a privatization at  arm's length and for fair market value, and (iv) 
the government transfers all or substantially all th e property and retains no controlling interest in the 
privatized producer.1685  Since the Panel was of the view that none of the transactions identified by the 
European Communities met all of th ese criteria for full privatization, it did not find that the sales 
transactions at issue "extinguished" prior bene fits.  Specifically, the Panel stated that: 
{t}he European Communities does not argue that the transactions 
that it alleges have resulted in the "extinction" of subsidies bestowed 
on Airbus SAS fulfil all of the above criteria.  For example, the European Communities does not argue, much less demonstrate, that the transactions in question (with th e exception of the stock exchange 
sales of EADS shares) were on arm's length terms.{*}  More 
significantly, none of the transactions in question involved transfers by a government of all or substan tially all of a state-owned producer, 
                                                     
 
1682United States' appellee's submission, footnote 202 to para. 128.  
1683European Union's appellant's submission, para. 253 (referring to Appellate Body Report, US – 
Countervailing Measures on Certain EC Products , para. 124). 
1684As the Appellate Body explained, "governments have the ability, by designing economic and other 
policies, to influence the circumstances and the conditions of the sale so as to obtain a certain market valuation of the enterprise." (Appellate Body Report, US – Countervailing Measures on Certain EC Products , para. 124)  
1685Panel Report, para. 7.248. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 312  
 
  including a complete relinquishment of control.  It is clear that the 
public offerings of shares in Aéro spatiale-Matra and EADS were not 
transactions in which the governments in question retained "no controlling interest in the privatized producer."{**}
1686 
{*original footnote 2175}The concept of "arm's length" is not defined in the 
SCM Agreement.  However,  the compliance panel in  US – Countervailing 
Measures on Certain EC Products (Article 21.5 – EC)  considered various 
dictionary definitions of the term, all of which highlighted the independence 
of parties in arm's length transactions; paras. 7.133-7.134.  We are not persuaded, on the basis of the evidence  presented to us, that any of the 
transactions to which the European Communities refers in paragraph 7.204 
(other than the stock exchange sales of EADS shares) were "arm's length" transactions.   
{**original footnote 2176}Although the French government sold a portion 
of its shares in Aérospatiale-Matra to the public in 1999, it retained (directly or indirectly) a shareholding of approximately 48 percent.  Moreover, the 
French government exerci sed control over Aérospatiale-Matra through a 
shareholders' agreement with  Lagardère (which held 33 percent of the shares 
of Aérospatiale-Matra immediately after the public offering) in addition to 
holding a so-called "Golden Share" ( action spécifique ) giving it special veto 
rights.  Similarly, the French government and DaimlerChrysler continued to control the operations of Airbus Industrie following the public offering of 
shares in the newly formed EADS in 2000.  Immediately following the 
public offering of shares in EADS, 60 percent of the share capital of EADS 
was held in equal proportions by SOGEADE (in which the French state held 
a 50 percent interest) and DaimlerChrysler, which jointly controlled EADS 
through a contractual partnership, in which the Spanish government 
(through SEPI) also exercised voting rights; EADS Offering Memorandum, 
Exhibit EC-24, p. 132. 
 
730. We have a number of concerns about the manner in which the Panel approached this issue.  
First, and contrary to the statement by the Panel,  the European Communities did in fact argue that 
each of the transactions at issue were on arm's-length terms.1687  The European Communities also 
argued that some of the transactions were for "fair ma rket value", a fact not mentioned by the Panel in 
its findings.1688  Second, in concluding that some of the transactions—that is, "the stock exchange 
sales of EADS shares"—were indeed at arm's lengt h, the Panel failed to explain or provide any 
citations as to precisely which of the sales transactions were on the stock exchange.  Therefore, we consider that the Panel failed sufficiently to explor e these issues, with the c onsequence that there is 
                                                     
 
1686Panel Report, para. 7.249 and footnotes 2175 and 2176 thereto. 
1687Even though it may not have used these exact words, the European Communities did make 
arguments before the Panel that a number of the sales had been conducted through transactions that were at 
arm's length. (See, for instance, European Communities' first written submission to the Panel, paras. 232-242, 
248-257, 262, 270, and 278)  The European Union argues separately that the Panel's statement that it did not make arguments that the sales transactions were at arm' s length constitutes a violation of Article 11 of the DSU. 
(See European Union's appellant's submission, para. 279)  We consider the European Union's claims of error 
under Article 11 of the DSU below at paragraphs 760-762.  
1688See European Communities' first written submission to the Panel, paras. 232-242, 248-257, 262, 
270, and 278.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 313  
 
  considerable uncertainty as to which of the sales transactions were at arm's length and whether any of 
the sales transactions were for fair market value.  
731. On the issue of change of control, we recall that the Panel found that the public offerings of 
shares in Aérospatiale-Matra and EADS  were not transactions in which the  governments in question 
retained "no controlling interest in the privatized producer."
1689  The Panel therefore confined its 
findings to the sales transactions i nvolving transfers of control by a government  to private owners and 
did not even consider the sales between private enti ties.  Although, with respect to the transactions 
involving Aérospatiale-Matra and EADS, the Panel concluded that government s retained controlling 
interests in the privatized owners, it recognized nevertheless that there was some transfer of 
ownership to new private owners.  Yet the Panel doe s not appear to have sufficiently explored what 
legal implications, if any, arose with respect to  the control of Aérospatiale-Matra and EADS as a 
result of these changes in the ownership. 
732. The participants canvass different arguments as to how control might be relevant to the 
analysis of extinction.  For instance, the European  Union argues that the degree of common control of 
buyer and seller is an important factor in an extinc tion analysis and should be taken into account in 
deciding whether "the benefit of a subsidy co uld still be used for its original purpose".1690  T h e  
United States submits that the size of the ownership interest transferred as well as the ability to control 
assets of the firm are important factors to be taken into account in determining whether a firm and its 
owners are to be treated as distinct.1691  In its analysis, the Panel failed to provide reasoning as to why 
and how a transfer of control might have been  relevant for its analysis of extinction. 
733. For these reasons, we do not consider the Panel to have sufficiently examined the 
circumstances surrounding the partial privatizations a nd private-to-private sales transactions at issue.  
In order properly to address the relevance of th ese transactions for purposes of the United States' 
claims of adverse effects under Article 5, the Pa nel should have assessed whether each of the sales 
was on arm's-length terms and for fair market value, and to what extent they involved a transfer in 
ownership and control to new owners.  Accordingly, we reverse  the Panel's reasoning and findings 
concerning this issue.1692  
                                                      
1689Panel Report, para. 7.249.  
1690European Union's oral statemen t at the first session of the oral hearing, para. 20.   
1691United States' appellee's submission, para. 115.  
1692Panel Report, paras. 7.248, 7.255, and 7.288. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 314  
 
  734. We note finally that, as it did before the Panel,  the European Union has clarified that it was 
not alleging that every sale of shares in Airbus co mpanies conducted for fair market value and at arm's 
length extinguished the residual va lue of benefits to these compani es.  Rather, the European Union 
has explained that it had limited its claims of extin ction to transactions involving "significant" sales 
by government, industry, or institutional shareholders.
1693  The European Union describes these as 
transactions "in the assets of an enterprise by strategic shareholders rather than sales of shares held as 
investments", and argued that they "realise for th e seller the underlying enterprise value rather than 
the investment value of the shares."1694  In the United States' view, however, the European Union does 
not explain how the "enterprise value" differs from "investment value" or why one triggers extinction 
under the SCM Agreement  and the other does not.1695  While the European Union alleges that the 
nature of the transactions at issue in this disput e were "significant" enough to "extinguish" past 
subsidies—and were therefore distinct from the da ily trading of shares on the stock exchange—it does 
not explain the basis of this distinction.1696   
735. In concluding, we recall that the Panel failed to  make sufficient factual findings with respect 
to whether all the sales transactions at issue referr ed to by the European Communities were at arm's 
length and for fair market value, and that where it addressed the issue, it did not precisely clarify the 
transactions to which it was referring.  Moreover, the Panel did not make su fficient findings on the 
extent to which the change in ownership transferre d the control in the companies concerned.  In these 
circumstances, and noting the complexities underlying the partial privatizations and private-to-private 
sales referred to by the European Union, we are not in a position to assess further whether, and to 
what extent, the sales transactions referred to by the European Union eliminated a portion of past 
subsidies to the relevant Airbus companies and how this would be relevant for purposes of an adverse 
effects analysis under Part III of the SCM Agreement .   
736. For the above reasons, we reverse  the Panel's finding, at paragraphs 7.248, 7.255, and 7.288 
of the Panel Report, that these sales transaction did not "extinguish" a portion of past subsidies, but 
find that there are insufficient factual findings by th e Panel or undisputed facts on the Panel record to 
                                                      
1693See also European Union's appellant's submission, para. 263. 
1694European Union's appellant's submission, para. 263.  
1695United States' appellee's submission, para. 130.  
1696We note that, in rejecting a similar argument by the European Communities, the Panel found that 
there was "no meaningful basis for distinguishing" those sales that the European Communities alleged to have "resulted in the extinction of a portion of the benefit conferred by financial contributions provided to the various 
Airbus-related entities in this dispute, on the one hand, fro m daily trading in shares of  a subsidized producer, on 
the other."  For the Panel, the European Communities' approach would "potentially eviscerate the subsidies disciplines" of the SCM Agreement , especially where the subsidized produ cer is a corporation whose shares are 
publicly traded. (Panel Report, para. 7.246)   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 315  
 
  complete the legal analysis and determine whether these sales transactions "extinguished" a portion of 
past subsidies. 
(b) Extraction of subsidies 
737. The second category of "intervening events" that  the European Union submits should have 
been taken into account by the Panel under its adve rse effects analysis con cern the removal of cash 
from two Airbus GIE partners—Dasa and CASA—prior to  their contribution to EADS in 2000.  As it 
did before the Panel, the European Union argues th at these transactions—which it refers to as "cash 
extractions"—had the effect of "extracting" or taki ng away all or part of the "incremental value" 
created by prior subsidies provided to Dasa and CASA.   
738. We recall that, consistent with its approach  to the European Communities' arguments on 
"extinction", the Panel considered  the European Communities' arguments on "cash extractions" on an 
alternative  basis since it had already found that Article 5 did not require a complaining party to 
establish that a financial contribution conf ers a "continuing" or "present" benefit.
1697  B y  w a y  o f  
explanation, the Panel noted that the specific tran sactions referred to as "cash extractions" comprised 
(i) the retention by DaimlerChrysler, as shareholder of Dasa, of cash and cash equivalents immediately prior to the transfer by Dasa of its  LCA-related assets and activities to EADS;  and 
(ii) the retention by SEPI (as the shareholder of  CASA) of cash and cash equivalents immediately 
prior to CASA's contribution to EADS.
1698  The transactions formed part of a series of events leading 
to the combination of Aérospatiale-Matra, Dasa , and CASA in 2000 to form EADS and were a 
consequence of the Airbus partners' agreement th at the activities of Aérospatiale-Matra, Dasa, and 
CASA in the aeronautics, space, and defence sector s would be contributed to EADS in return for 
shares representing agreed proportions of interests in EADS.1699  The transactions occurred because 
the "value" of Dasa's LCA-related assets and activities, and of CASA, each as contributed to EADS, needed to reflect the corresponding percentage in terests that DaimlerChr ysler and the Spanish 
Government were to hold in EADS.
1700  As a result, DaimlerChrysler (as the shareholder of Dasa) and 
SEPI (as the shareholder of CASA) retained cash and cash equivalent s of Dasa and CASA, 
respectively, so that the adjusted  values of the Dasa and CASA contributions to EADS reflected the 
                                                      
1697Panel Report, paras. 7.266 and 7.267.  
1698Panel Report, para. 7.258.   
1699Panel Report, para. 7.258 and footnote 2187 thereto (referring to Panel Report, section VII.E.1 
(attachment)).  
1700Panel Report, para. 7.258 (referrin g to European Communities' first written submission to the Panel, 
paras. 253 and 254). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 316  
 
  respective proportionate interests of DaimlerChrysle r and the Spanish Government in EADS (that is, 
37.3% and 6.2%) that had been agreed upon by the Airbus partners.
1701  
739. Although the parties contested the exact amount of cash or cash equivalents "extracted" by 
DaimlerChrysler from Dasa's LCA-related assets prio r to their contribution to EADS, the Panel did 
not make factual findings on this issue.  The Eu ropean Communities referred to a sum of €3.133 
billion that remained on the books of DaimlerChrysler as part of the "excluded assets" not transferred 
to EADS.1702  Although the United States did not contest that cash and cash equivalents had been 
retained by DaimlerChrysler following the contribution of Dasa's LCA-related assets to EADS, it estimated the cash value at €1.749 billion.
1703  With respect to CASA, it was uncontested between the 
parties that approximately €342 million was removed from CASA, of which €340 million was 
retained by SEPI "by way of distribution of reser ves and reduction of capital".  The remaining €2.45 
million was distributed to Dasa, which at the tim e retained a shareholding of 0.71% in CASA.1704 
740. In addressing the European Communities' argume nts that the "cash extractions" removed or 
took away the value of subsidies to Dasa and CASA , the Panel noted that the European Communities 
had not claimed that, "every time" cash leaves a co mpany for reasons other than expenditure on 
production, it would be appropriate to consider the benefit of prior financial contributions to that 
company to have been correspondingly reduced.1705  Rather, the Panel understood the 
European Communities to argue that, in order for a cash disbursement to be capable of removing or 
reducing the benefit of prior financ ial contributions to a company, two requirements would have to be 
met:  "(i) there must be a causal relationship of some sort between the cash 'extraction' and the 
                                                      
1701Panel Report, para. 7.258.  
1702The Panel noted the reference made in EADS' Offering Memorandum to one group of excluded 
assets (that is, assets retained by Dasa) was a "cash am ount of {€}3.133 million". (Panel Report, footnote 2185 
to para. 7.258 (referring to EADS' Offering Memorandum, supra , footnote 163, p. 142))   
1703See United States' comments on the European Co mmunities' responses to the second set of Panel 
Questions, para. 207.  The United States' amount is based on a statement appended to the combined financial statements from December 1997 to  December 1999 in EADS' Offering Me morandum where it was stated that 
"Dasa cash and cash equivalents of €1,749 million shall be retained by DaimlerChrysler". (EADS' Offering 
Memorandum, supra , footnote 163, p. F-79)  Pursuant to the agr eement to transfer Dasa's  LCA-related assets to 
EADS, in addition to the €1.749 billion, a further €280 million of DaimlerChrysler's liability was to be assumed 
by EADS. ( Ibid., p. F-12, section G)  However, it is not clear from EADS' Offering Memorandum whether and 
how this amount relates to the cash "extracted" from Dasa's LCA-related assets. 
1704See Panel Report, footnote 2186 to para. 7. 258 (referring to EADS' Offering Memorandum, supra , 
footnote 163, p. 143).  See also EADS' Offering Memorandum, supra , footnote 163, p. 142. 
1705Panel Report, para. 7.269.  The European Comm unities accepted that there are circumstances in 
which a cash disbursement would not remove the benefit of a subsidy:  for instance, where the cash distribution 
would have occurred in the absence of the subsidy (for example, through payments of dividends to 
shareholders), or where the distribution constitutes not hing more than a transfer of resources between a 
company and its sole owner, forming an economic entity.  ( Ibid. (referring to European Communities' response 
to Panel Question 198, para. 236))  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 317  
 
  subsidy and (ii) the 'extraction' must effectivel y move the money beyond the reach of the 'company-
shareholder unit'."
1706  
741. Although the Panel had "difficulty accepting the proposition that a cash disbursement by a 
company reduces the benefit conferred by prior fi nancial contributions to that company in the 
circumstances described by  the European Communities"1707, it nonetheless proceeded to consider the 
specific arguments of the European Communities on an " arguendo " basis.  Even on this basis, the 
Panel did not consider that the European Commun ities had succeeded in meeting either of the two 
criteria it had itself proposed.  With respect to th e first, that is, the establishment of a causal 
relationship between the cash extracted and the subsidy, the Panel found that the 
European Communities had not "provided any evid ence to substantiate its assertion that the 
incremental value of Dasa and CASA could not have  been extracted in th e absence of the alleged 
subsidies."1708  The Panel was unconvinced that the paymen ts necessarily removed any value from the 
company that it would have otherwise enjoyed si nce, as the United States had observed, that 
reasoning assumed that the "extracted" cash represented subsidies provided to Dasa and CASA.1709   
742. With respect to the second criterion, the Panel al so rejected, as a factual matter, that the "cash 
extractions" by DaimlerChrysler and the Spanish Government moved the extracted cash out of the 
"company-shareholder unit".1710  The Panel engaged with the European Communities' contention that, 
as "minority shareholders" of the newly created EADS to which the LCA-related assets of Dasa and CASA were contributed, both Daim lerChrysler and SEPI (with their respective 30% and 5.5% EADS' 
shareholdings) had a "strong disincentive to  re-inject the extracted cash into EADS".
1711  The Panel 
noted that, although the legal ownership of the aeronautics-related assets and activities belonging to 
                                                      
1706Panel Report, para. 7.271 (referring to Europe an Communities' response to Panel Question 199, 
para. 241).  Applied to the facts of the case, the Panel noted that: 
... in accordance with the two requirem ents {the European Communities} 
posits as relevant to determining when subsidy benefits will be extinguished 
by cash "extractions" that: (i) the incremental value of Dasa and CASA 
depended on the alleged subsidies (and could not have been extracted in the absence of those alleged subsidies); an d (ii) the cash was removed from the 
company-shareholder unit in both cas es because the interests of both 
DaimlerChrysler and the Spanish government in EADS following the combination were as minority shareholders in a larger entity (in which they 
could be presumed to have a "strong di sincentive" to re-inject the extracted 
cash).   
(Ibid., para. 7.272) 
1707Panel Report, para. 7.271.  
1708Panel Report, para. 7.273.  
1709Panel Report, para. 7.273 (referring to United States' second written submission to the Panel, 
para. 542).  
1710Panel Report, para. 7. 275.  
1711Panel Report, para. 7.274 (refer ring to European Communities' response to Panel Question 199, 
para. 243).   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 318  
 
  Dasa and CASA had changed, EADS had been stru ctured to "maintain the overall interests of 
DaimlerChrysler and th e Spanish government in Airbus Industrie as a whole ."
1712  The Panel 
explained that, instead of holding and exercising their membership interests in Airbus Industrie 
directly through Dasa and CASA, DaimlerChrysler a nd the Spanish Government (through SEPI) were 
members of a Contractual Partnership that exercised voting rights in respect of 65.48% of the outstanding shares of EADS.  In practice, the Panel found, the nature of cont rol that DaimlerChrysler 
and the Spanish Government exercised over th e LCA activities of Airbus through EADS was 
substantially the same as the control that they had previously exercised over the LCA activities of 
Airbus as members of the Airbus Industrie consortium.
1713 
743. Having found that the European Communities faile d to meet either requirement under its own 
two-part "extraction" test, the Panel did not find it necessary to decide the issue of whether, and on 
what basis, prior financial contributions provide d to a subsidized producer could be reduced or 
eliminated by "extracting" cash from that producer.1714  
744.   Unlike the Panel, we do not a priori  exclude the possibility that all or part of a subsidy may 
be removed from a firm by the removal of cash or cash equivalents.  Indeed, the United States does 
not preclude that "there are circumstances in which a Member may remove cash from a subsidized 
company in a way that 'withdraws' the subsidy."1715  This does not amount to saying, as the 
European Communities acknowledged before the Pane l, that every time cash  leaves a company the 
benefit of prior financial contributio ns would be correspondingly diminished.1716  R a t h e r ,  a  
consideration of whether the cash removed from a comp any eliminates past subsidies is a fact-specific 
inquiry that must be assessed based on the circum stances of the case.  That inquiry would consider 
matters such as whether the cash "extracted" was in the form of dividends representing the profits of a 
company, which both participants accept would not normally amount to an "extraction" of past subsidies.  
                                                     
 
1712Panel Report, para. 7. 275. (original emphasis)   
1713Panel Report, footnote 2218 to para. 7.275. 
1714Panel Report, para. 7.277.  In any event, the Panel found it "difficult to see how a firm could 
eliminate a subsidy simply by transferring funds to its owners" given the finding by the Appellate Body in US – 
Countervailing Measures on Certain EC Products  that a financial contribution to the owners of a firm could 
confer a benefit upon the manufacture, production, or export of any merchandise, as provided for in Article VI:3 
of the GATT 1994. (Panel Report, para. 7.277 (referring to Appellate Body Report, US – Countervailing 
Measures on Certain EC Products , para. 115)) 
1715United States' appellee's submission, para. 137;  United States' response to questioning at the oral 
hearing.   
1716Panel Report, para. 7.269.  Before the Panel, the European Communities itself was against laying 
down "universal rules on extraction" and argued that establishing any extractions would require an examination 
of the facts of each case. (European Communities'  response to Panel Question 198, para. 238)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 319  
 
  745. As noted above, an adverse effects analysis un der Article 5 requires a panel to take into 
account "intervening events" that may bring a subsidy to an end.  The Panel in this case was therefore 
required to ascertain whether the "cash extractions" referred to by the European Communities were of 
such a nature, kind, and amount as to be relevant to its adverse effects analysis.  In this regard, we 
find the two requirements of the "extraction" test proposed by the European  Communities to the Panel 
to be a useful point of departure in examining the European Union's arguments on "extraction".  With 
respect to the first criterion, we note that on app eal the European Union argues, as it did before the 
Panel, that there must be a relationship between  the subsidy and the cash "extracted".  For the 
European Union, any alleged "benefits" from prio r subsidies granted by the Spanish and German 
Governments would have enhanced  CASA's and Dasa's balance sheets and therefore their value
1717 
and, consequently, the removal of cash had th e effect of reducing these companies' value and 
extracting any "incremental value" created by prior subsidies.1718  According to the European Union, 
the "value of the reduction is fixed, immutable and certain, since the extractions were made in cash, a 
perfect measure of wealth not subject to the typ es of estimates often made in discounted cash flow 
analyses."1719  The United States responds that a number of factors can cause an "incremental" 
increase or decrease in a company's value, and there is no reason to believe that any cash transferred 
from a company to one of its owners (whether a go vernment entity or a private entity) amounts to a 
reduction of benefit rather than a reduction in one of the other elements that adds value to the 
company.1720   
746. We are not persuaded by the arguments advan ced by the European Union under the first 
ground of its "extraction" theory.  The European  Union seems to suggest that, because a subsidy 
would be reflected in a company's balance sheet, a nd cash is fungible, once cash is removed there is 
an adequate link established between the subsid ies provided and the cash extracted.  Beyond its 
general assertions, the European Union provides no persuasive evidence as to how the specific 
subsidies provided to Dasa and CASA increased the "incremental value" of those companies, and 
therefore how the cash "removed" could be deemed to remove that value.  Although we do not mean 
to suggest that a "euro-for-euro" link between th e subsidies and the cash extracted is necessary to 
prevail on an argument on "extraction", we do consider that, at a  minimum , the 
European Communities was required to explain how  the specific subsidies received by Dasa and 
CASA were reflected in the balance sheets of those companies, and how the cash removed or 
"extracted" represented the remaining or unused value of these subsidies.  Th e mere assertion by the 
                                                      
1717European Union's appellant's submission, para. 172. 
1718European Union's appellant's submission, para. 173.   
1719European Union's appellant's submission, para. 173.  
1720United States' appellee's submission, para. 136.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 320  
 
  European Communities, without more, that subsidies to Dasa and CASA increased the value of those 
companies and that therefore  any cash taken out represents the subsidy or its "incremental value", 
does not in our view satisfy the requirement of establishing a "causal relationship" between the "cash 
extraction" and the subsidy, as argued by th e European Communities before the Panel. 
747. With respect to the second criterion—that is, whether it had been demonstrated that the 
extracted cash permanently left or moved beyond the reach of the "company-shareholder unit"—the 
European Union rejects the Panel's finding that th e cash extracted from CASA and Dasa was not truly 
removed because the Spanish Gove rnment and DaimlerChrysler, in combination with the French 
Government and Lagardère, collectively "control{led}" EADS
1721 and therefore they did not have a 
disincentive to re-inject the extract ed cash in EADS and LCA operations.1722  According to the 
European Union, the Contractual Partnership had no impact on whether cash could be considered to 
be permanently "withdrawn" from CASA, Dasa, or th eir successors, since that partnership affects the 
exercise of voting rights but does " nothing whatsoever " to reduce the economic disincentive for the 
Spanish Government and DaimlerChrysler against re -injection of the cash given their limited claim to 
EADS' earnings and net assets.1723  In response, the United States c ounters that, with respect to the 
DaimlerChrysler-Dasa "cash extraction", the Eu ropean Union's argument focuses on the wrong 
corporate relationship, because DaimlerChrysler's incentives to return mone y to Dasa following the 
transaction were unchanged as it still owned 100% of Dasa.1724  In any event, the United States 
supports that Panel's finding that the Airbus crea tion process "was structured so as to maintain the 
overall interests of DaimlerChrys ler and the Spanish government in Airbus Industrie as a whole ."1725  
In the United States' view, evidence as to ongoing cont rol is important to an inquiry into whether the 
"cash extractions" "removed the incremental contri bution of alleged prior subsidies" and whether 
"anything had in fact left the recipient".1726 
748. Given that the link between the subsidies and th e cash "extracted" has not been sufficiently 
demonstrated by the European Union, we need not  consider the European Union's further argument 
that the Panel improperly relied on the "joint control"  exercised through the Contractual Partnership to 
which both DaimlerChrysler and SEPI belonged in rejecting the European Communities' argument 
                                                      
1721European Union's appellant's submission, para. 185 (referring to Panel Report, paras. 7.283, 7.285, 
7.275 and footnote 2218 thereto).  
1722European Union's appellant's submission, para. 185.  
1723European Union's appellant's submission, paras. 186 and 189. (original emphasis) 
1724United States' appellee's submission, para. 143 (referring to Panel Report, section VII.E.1 
(attachment), footnote 2241 to para. 4). 
1725United States' appellee's submission, para. 143 (quoting Panel Report, para. 7.275 (original 
emphasis)). 
1726United States' appellee's submission, para. 144 (referring to Panel Report, para. 7.268).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 321  
 
  that there was a strong disincentive to reinvest the extracted cash into EADS and that, therefore, the 
cash left the "company-shareholder unit".
1727 
749. In the light of the foregoing, although we do not a priori  exclude the possibility that all or part 
of a subsidy may be "extracted" by the re moval of cash or cash equivalents, we uphold  the ultimate 
finding by the Panel, in paragraphs 7.276 and 7.28 8 of the Panel Report, that the "cash extractions" 
from Dasa and CASA did not remove  a portion of past subsidies.  
(c) "Withdrawal" of subsidies within the Meaning of Articles 4.7 and 7.8 
of the SCM Agreement 
750. We turn next to consider whether, as argued by the European Union,  the "cash extractions" 
from Dasa and CASA, as well as the sales transactions  referred to above in paragraph 718, constitute 
"withdrawals" of subsidies within the meaning of Articles 4.7 and 7.8 of the SCM Agreement .   
751. We recall that the Panel engaged in a separate and brief examination of whether the "cash 
extractions" could be characterized as "wit hdrawals" under Articles 4.7 and 7.8 of the 
SCM Agreement .  As the European Union points out on appeal, the Panel did not consider its 
arguments that the sales transactions also resulted in  the "withdrawal" of subsidies within the meaning 
of these provisions.1728 
752. The Panel began its assessment by noting that "withdrawal" of a subsidy is the remedy 
envisaged by Article 4.7 (for prohibited subsidies) and an alternative remedy in the context of 
Article 7.8 (for actionable subsidies).  It highlighted that the compliance panel in Australia – 
Automotive Leather II (Article 21.5 – US)  had found that the recommendation to "withdraw the 
subsidy" provided for in Article 4.7 of the SCM Agreement  is not limited to prospective action, and 
may encompass repayment of the prohibited subsidy.1729  The Panel however, rejected the 
                                                      
1727For the same reason, we need not address the Euro pean Union's argument that the Panel erred in 
finding that the value of prior subsidies had not been "withdrawn" or removed because "something of equal 
value" was provided by the Spanish Government (through SEPI) in exchange for the cash from CASA, namely 
the reduction of capital in its subsidiary CASA. (European Union's appellant's submission, paras. 183 and 184 (referring to Panel Report, para. 7.285))  The Panel made this finding when addressing the European 
Communities' argument that the "cash extraction" from CA SA resulted in the "withdraw al" of subsidies, within 
the meaning of Articles 4.7 and 7.8 of the SCM Agreement .  The Panel did not discuss this issue and made no 
such finding with respect to Dasa. (See Panel Report, paras. 7.284 and 7.285) 
1728The European Union alleges that such a failure by the Panel constitutes a denial of its claim, and 
should be reversed both as "legal error" under Articles 4.7 and 7.8 of the SCM Agreement and as a failure to 
fulfil its obligation under Article 11 of the DSU. (See  European Union's appellant's submission, paras. 193 
and 278 respectively)  For the reasons explained below, we do not consider it necessary to make separate 
findings on this argument of the European Union. 
1729Panel Report, para. 7.281 (referring to Panel Report,  Australia – Automotive Leather II (Article 21.5 – 
US), para. 6.39). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 322  
 
  European Communities' arguments regarding "withdrawal" and merely  repeated its earlier findings 
with respect to the "cash extractions", namely th at neither the CASA nor Dasa transactions had 
removed the value of prior subsidies.
1730  In response to specific arguments made by the 
European Communities, the Panel also found that the "cash extraction" of €340 million by SEPI did 
not result in "withdrawal" because it was made in retu rn for a reduction in the equity or capital in 
CASA, and that therefore CASA had "provi ded something of equal value" to SEPI.1731  
753. In this appeal, the European Union argues th at the Panel erred in its interpretation and 
application of the term "withdraw " in Articles 4.7 and 7.8 of the SCM Agreement .  The 
European Union submits that both the "cash extrac tions" and the sales transactions meet the definition 
of "withdrawal" of subsidies espoused by the Appellate Body in Brazil – Aircraft (Article 21.5 – 
Canada)  and should have been treated as such by the Panel.1732  Moreover, the European Union 
argues that, to the extent that it has already "w ithdraw{n}" the subsidies by virtue of these 
transactions, the Panel erred in recommending that it do so.1733  By contrast, the United States submits 
that Articles 4.7 and 7.8 of the SCM Agreement  do not create a "separate and independent" 
requirement to evaluate, for each transaction, whet her the subsidizing Member has "withdrawn" or 
"extracted" a subsidy.1734  Moreover, the United States observes,  these provisions create an obligation 
on the Member, or in the case of Article 7.8 give the Member an option, to withdraw the subsidy.1735  
According to the United States, it is the Member  that must do something affirmative to "remove" or 
"take away" the subsidy.1736  The United States does not consider a transfer of funds or other assets by 
the subsidy recipient to an entity other than the gove rnment to be action by the "Member" to remove 
or take away the subsidies, as requi red under Articles 4.7 and 7.8 of the SCM Agreement . 
754. We note that both Article 4.7 and Article 7.8 of the SCM Agreement  provide a remedy of 
"withdrawal" following a panel's determination that a subsidy is "prohibited" or "actionable".  In 
Brazil – Aircraft (Article 21.5 – Canada) , the  Appellate Body defined the term "withdraw" as to 
                                                      
1730Panel Report, paras. 7.283-7.285. 
1731Panel Report, para. 7.285.  
1732European Union's appellant's submission, paras. 170 and 171 (quoting Appellate Body Report, 
Brazil – Aircraft (Article 21.5 – Canada) , para. 45). 
1733European Union's appellant's submission, para. 171. 
1734United States' appellee's submission, Part III.C.1. 
1735United States' appellee's submission, para. 135.  
1736United States' appellee's submission, para. 13 5 (referring to Appellate Body Report, Brazil – 
Aircraft (Article 21.5 – Canada) , para. 45;  Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 226 
and 227;  and Panel Report, Australia – Automotive Leather II (Article 21.5 – US) , para. 6.27). (original 
emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 323  
 
  "remove" or "take away" and "to take away what has been enjoyed; to take from."
1737  As the 
Appellate Body highlighted in that dispute, the "with drawal" of a subsidy, under Article 4.7, refers to 
the "removal" or "taking away" of that subsidy.1738  Based on this definition, the European Union 
submits that the sales transactions and the "cash extractions" from Dasa and CASA qualify as "withdrawals" within the meaning of Articles 4.7 and 7.8  of the  SCM Agreement .
1739  As we have not 
made affirmative findings that the sales transactions and "cash extractions" resulted respectively in the 
"extinction" or "extraction" of subsidies, we ne ed not decide whether the subsidies alleged by the 
European Union to have been extinguished or extracted were thereby also "withdrawn".   
755. Even if the European Union had been succe ssful in its arguments on "extinction" and 
"extraction", we do not consider that the sales tr ansactions and "cash extractions" resulted in the 
"withdrawal" of subsidies within the meaning of Articles 4.7 and 7.8  of the  SCM Agreement .   
756. First, we recall that the drafters of Articles 4.7 and 7.8 contemplated that the remedy of 
"withdrawal" would be available only after  a panel and the Appellate Body have determined, in 
original proceedings, that subsidies are prohibite d and/or actionable and causing adverse effects.  
Article 4.7 provides that, "{i}f the measure in ques tion is found to be a prohi bited subsidy, the panel 
shall recommend that the subsidizing Member wit hdraw the subsidy without delay."  Likewise, 
Article 7.8 reads that, "{w}here a panel report or an  Appellate Body report is adopted in which it is 
determined that any subsidy has resulted in adverse effects to the interests of another Member within 
the meaning of Article 5, the Member granting or maintaining such subsidy shall take appropriate 
steps to remove the adverse effects or shall withdraw the subsidy."1740  Therefore, a recommendation 
to "withdraw" subsidies pursuant to Article 4.7 is di rected at subsidies that have been found to be 
prohibited;  under Article 7.8, a recommendation to  "withdraw" subsidies or  remove their adverse 
effects is directed at actionable subsidies that ha ve been found to cause adve rse effects.  We recall 
that, in this dispute, at the time the sales transac tions and "cash extractions" took place, there had been 
no findings by a panel or the Appellate Body that al leged subsidies were either prohibited subsidies or 
actionable subsidies causing adverse effects.  Therefore, we do not consider that the sales transactions and "cash extractions" resulted in the "withdrawal" of  subsidies, within the meaning of Articles 4.7 
and 7.8 of the SCM Agreement . 
                                                     
 
1737Appellate Body Report,  Brazil – Aircraft (Article 21.5 – Canada) , para. 45 (referring respectively to 
Concise Oxford English Dictionary  (Clarendon Press, 1995), p. 1609; and Black's Law Dictionary , 6th edn 
(West Publishing, 1990), p. 1602). 
1738Appellate Body Report,  Brazil – Aircraft (Article 21.5 – Canada) , para. 45.   
1739See European Union's appellant's submission, paras. 171 and 194 respectively.  
1740Although there is no sp ecific provision in the SCM Agreement  requiring a panel to make a 
recommendation of withdr awal with respect to actionable subsidies, a panel may do so pursuant to the general 
rule in Article 19.1 of the DSU.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 324  
 
  757. Moreover, we understand the reco mmendations made by the Panel to be collective, in the 
sense that they concern all those subsidies ultimatel y found to be prohibited subsidies or actionable 
subsidies causing adverse effects.  They do not co ncern subsidies that have been "extinguished" or 
"extracted".  Such recommendations request the Eur opean Union to withdraw those subsidies and/or 
remove adverse effects;  panels or the Appella te Body are not required to make recommendations 
pursuant to Articles 4.7 and 7.8 with respect to s ubsidy measures that are found to be "extinguished" 
or "extracted". 
758. Finally, a determination as to whether any action taken to implement the recommendations 
made has actually resulted in the "withdrawal" of subsidies and has brought about a Member's 
compliance with the SCM Agreement , is, if contested, best left to a compliance panel whose principal 
task is to assess whether a Member's implemen tation measures bring it into compliance with its 
obligations under the SCM Agreement .   
759. Accordingly, we uphold  the Panel's ultimate finding, in para graphs 7.283, 7.28 4, and 7.289 of 
the Panel Report, that the "cash extractions" did not result in the "withdrawal" of subsidies, within the 
meaning of Articles 4.7 and 7.8 of the SCM Agreement .  With respect to the sales transactions at 
issue, we have no basis to make a finding that they  resulted in "withdrawal" of subsidies as we have 
not completed the analysis to determine whether th ey "extinguished" prior subsidies.  Moreover, we 
do not consider that the Panel erred in  making a collective recommendation to the 
European Communities to withdraw subsidies that have resulted in adverse effects or to take 
appropriate steps to remove these effects.
1741 
(d) Claims under Article 11 of the DSU  
760. The European Union submits that, in addition to committing errors in its interpretation and 
application of Articles 1, 4.7, 5, 6, and 7.8 of the SCM Agreement , the Panel failed to make an 
objective assessment of the matter before it, and ther eby acted inconsistently with Article 11 of the 
DSU, when considering the European Commun ities' arguments regarding the "extinction", 
"extraction", and "withdrawal" of subsidies.  In pa rticular, the European Union claims that the Panel 
acted inconsistently with Article 11 of the DSU by failing to:  (i) provide a reasoned and adequate 
explanation for its finding that the Spanish Govern ment "provided something of equal value" for the 
"cash extraction" from CASA, namely a "reduction of  capital or equity in CASA";  (ii) provide a 
reasoned and adequate explanation and have a suffi cient evidentiary basis for its finding that the 
                                                      
1741Panel Report, paras. 8.6 and 8.7.  We note, howeve r, that in this Report, we reverse the Panel's 
recommendation, at paragraph 8.6 of the Panel Report, that  the subsidies found by the Panel to be prohibited be 
withdrawn. (See footnote 2437 of this Report)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 325  
 
  Contractual Partnership assigning the voting rights  to DaimlerChrysler and the Spanish Government 
meant that these entities had no "disincentive to reinv est" the "extracted" cash and therefore had not 
"withdrawn" subsidies;  (iii) make "internally consistent" findings as between its finding that the 
Spanish Government's "cash extraction" from CASA  did not constitute a "withdrawal" within the 
meaning of Articles 4.7 and 7.8 of the SCM Agreement  and its conclusion elsewhere that the French 
Government's contributions to Aérospatiale cons tituted "financial contributions";  (iv) assess and 
provide a reasoned and adequate explanation as to  why the sales transactions did not result in the 
"withdrawal" of subsidies within the meaning of Articles 4.7 and 7.8 of the SCM Agreement ;  and 
finally, (v) properly reflect the European Communiti es' arguments that each of the sales transactions 
was at "arm's length", and provide a reasoned and adequate explanati on for its finding that they were 
not.
1742 
761. In alleging that the Panel acted inconsis tently with Article 11 of the DSU, the 
European Union relies on many of the arguments that it made in respect of its appeal of the Panel's 
interpretation and application of Artic les 1, 4.7, 5, 6, and 7.8 of the SCM Agreement .  As the 
Appellate Body has previously found, a claim unde r Article 11 of the DSU "must stand by itself and 
should not be made merely as a subsidiary argument or claim in support of a claim that a panel failed 
to apply correctly a provision of the covered agreements".1743  Even where the European Union's 
arguments differ, in the light of our findings rega rding the proper interpretation and application of 
Articles 1, 4.7, 5, 6, and 7.8 of the SCM Agreement , we need not address the European Union's claims 
under Article 11 of the DSU.  At the oral heari ng, the European Union confirmed that where its 
claims under Article 11 of the DSU were dealt with  by virtue of our findings regarding the proper 
interpretation and application of Artic les 1, 4.7, 5, 6, and 7.8 of the SCM Agreement , we need not 
make separate findings under Article 11 of the DSU.   
762. Accordingly, we decline to make additiona l findings as to whether the Panel acted 
inconsistently with Article 11 of the DSU in its treatment of the European Communities' arguments 
concerning the "extinction", "extracti on", and "withdrawal" of subsidies. 
                                                      
1742See European Union's appellant's submission, paras. 273-281.  
1743Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina) , para. 238 (referring 
to Appellate Body Report, US – Steel Safeguards , para. 498).  See also, Appellate Body Report, China – 
Publications and Audiovisual Products , para. 189.   WT/DS316/AB/R BCI deleted, as indicated [***] 
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  3. The "Pass-Through" of Subsidies
 
763. In this final subsection, we address the Europ ean Union's request for reversal of the Panel's 
finding that the United States was not required, in order to make a prima facie  case under Articles 5 
and 6 of the SCM Agreement , to demonstrate that the benefits of subsidies provided to the Airbus 
Industrie consortium1744 "passed through" to Airbus SAS, the cu rrent producer of Airbus LCA.  In this 
regard, we refer once more to the factual overvie w of the evolution of Airbus SAS from Airbus 
predecessor companies.1745   
764. The European Communities argued before the Pane l that the United States had failed to show 
that alleged subsidies provided to the Airbus LCA op erations of certain Airbus  partners or to Airbus 
GIE prior to 2001, "passed through" to Airbus SAS when the Airbus partners restructured their 
internal relationships and created Airbus SAS in 2001.1746  According to the European Communities, 
since Airbus SAS came into existence only in 2001,  any subsidies granted prior to that date cannot 
possibly have been granted to Airbus SAS.1747  Therefore, the United States had the burden of 
establishing that the alleged subsidies "currently be nefit Airbus SAS or have {a} causal connection to 
the adverse effects alleged by the United States."1748   
765. The Panel began its analysis by focusing on th e identity of the "producer" and the "subsidized 
product" raised in the United States' claims.  Ba sed on the language used by the United States in its 
panel request and in its written submissions to the Panel, the Panel observed that the United States' 
challenge in this dispute related to specific measu res provided "to the Airbus companies", comprising 
"not only Airbus SAS, but also 'its predecessor Airbus GIE and current and predecessor affiliated 
                                                      
1744We note that the European Communities listed the companies to which its claims of "pass-through" 
applied. (See Panel Report, para. 7.185)  In its discussion of the "pass-through" claims, however, the Panel made 
generic references to Airbus "predecessor" companie s, Airbus "affiliated" comp anies, Airbus "related" 
companies, and/or the Airbus Indu strie consortium. (See for instance, ibid., paras. 7.185,  7.191-7.193, 7.199, 
7.200, and 7.286)  We note that, in its ultimate conc lusion as to whether the United States was required to 
demonstrate the "pass-through" of subsidies to Airbus SAS, the Panel's findings were directed at Airbus 
Industrie, which it defined as including Airbus partners and Airbus GIE as well as their "affiliates". ( Ibid., 
para. 7.286)  This description is slightly at variance w ith the Panel's earlier explanation that the Airbus Industrie 
consortium, as it operated between 1970 and 2001, included the four Airbus partners and Airbus GIE. ( Ibid., 
para. 7.184) 
1745See section IV.B of this Report. 
1746Panel Report, para. 7.185. 
1747Panel Report, para. 7.185. 
1748Panel Report, para. 7.186 (referring to European Communities' first written submission to the Panel, 
para. 194;  and European Communities' second  written submission to the Panel, para. 89).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 327  
 
  companies' of both Airbus SAS and Airbus GIE."
1749  Next, the Panel noted that the United States had 
presented its claims on the basis that the "subsidized product" at issue is the entire family of Airbus 
LCA.1750  The Panel considered that the "producer" of  Airbus LCA, the subsidized product, in the 
pre-2001 period was "the consortiu m Airbus Industrie;  i.e., each of  the Airbus partners and their 
respective affiliates, and Airbus GIE".1751  Consequently, the Panel concluded that, for purposes of its 
analysis of the United States' claims in this disput e, "a financial contribution provided to any Airbus 
partner or affiliated entity, or to Airbus GIE, in relation to the development and/or production of an 
Airbus LCA, potentially confers a benefit on the Ai rbus Industrie consortium, as the 'producer' of 
Airbus LCA."1752   
766. The Panel then considered whether, as conte nded by the European Communities, the facts of 
the present dispute required the United States to dem onstrate the "pass-through" of the benefit.  The 
Panel observed that the question of whether it is necessary to conduct a "pass-through" analysis in 
WTO law had previously arisen in the context of Part V of the SCM Agreement  in situations where a 
financial contribution was provided to an entity in r espect of a product but the "benefit" was alleged to 
be conferred on an unrelated entity producing a different product.1753  On the question of whether the 
"pass-through" concept is applicable in a Part III cont ext, the Panel noted that the Appellate Body in 
US – Upland Cotton  had found that a "pass-through" analysis is "not critical for an assessment of 
significant price suppression under Article 6.3(c) in Part III of the SCM Agreement ", but that, 
nevertheless, "the 'subsidized prod uct' must be properly identified for purposes of significant price 
suppression under Article 6.3(c) of the SCM Agreement."1754  The Panel understood the Appellate 
Body to mean that a showing of causation under Article 6.3(c) of the SCM Agreement  requires only 
that a link be demonstrated between the subsidy and the product alleged to be involved in causing 
serious prejudice.1755   
                                                      
1749Panel Report, para. 7.191 (quoting, in relevant part, Request for the Establishment of a Panel by the 
United States, WT/DS316/2).  We recall that, in its pane l request, the United States  stated that the "Airbus 
companies" included "Airbus SAS, its predecessor Airbus GIE and current and predecessor affiliated 
companies, including each person or entity that is or  was under common control with Airbus SAS or Airbus 
GIE, such as parent companies, sibling companies and subsidiaries, including Airbus Deutschland GmbH, 
Airbus España SL, Airbus France S.A.S., Airbus UK Limited, European De fence and Space Company 
('EADS'), and BAE Systems." 
1750Panel Report, para. 7.192. 
1751Panel Report, para. 7.192. (original emphasis) 
1752Panel Report, para. 7.192.  
1753Panel Report, paras. 7.194 and 7.195 (referring to Appellate Body Report, US – Softwood 
Lumber IV , para. 167;  and Panel Report, Mexico – Olive Oil , para. 7.143).  
1754Panel Report, para. 7.196 (quoting Appellate Body Report, US – Upland Cotton , para. 472). 
1755Panel Report, para. 7.197.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 328  
 
  767. Finally, the Panel found that, although as a matte r of corporate law there had been a legal 
reorganization of the producer of Airbus LCA, from a groupement d'intérêt économique  (GIE) to a 
société par actions simplifiée  (SAS), the "economic realities" of production of Airbus LCA illustrated 
that the Airbus Industrie consortium (that is, each of the Airbus partners, th eir respective affiliates, 
and Airbus GIE) was the same producer of Airbus LCA as Airbus SAS.
1756  Moreover, the Panel 
noted that the European Commission had itself expr essed the view that there was no indication that 
the combination of the Airbus partners Aérospa tiale-Matra, Dasa, and CASA to form EADS would 
affect the quality or nature of control of Airbus Industrie, nor would it have any impact on the work 
share distribution between the Airbus partners.1757   
768. For these reasons, the Panel considered that , for purposes of assessing the United States' 
claims under Articles 5 and 6 of the SCM Agreement , the changes to the corporate structure of the 
producer of Airbus LCA did not require that the United States demonstrate, as part of its prima facie  
case, the "pass-through" to the entity Airbus SAS of be nefits conferred by financial contributions that 
had been provided to the Airbus Industrie consortium.1758 
(i) Was a "pass-through" analysis required? 
769. The European Union argues in this appeal that the Panel erred in finding that the 
United States was not required to demonstrate the "p ass-through" of subsidies, and that this error is 
premised on a flawed interpretation and app lication of Articles 1, 5, and 6 of the SCM Agreement , 
which require a showing of "continuing benefit".1759  The European Union rejects the Panel's finding 
that a "pass-through" analysis should be confined to a Part V context and is inapplicable to Part III of 
the SCM Agreement .  The European Union notes that there is a common definition of subsidy under 
Article 1, which applies to both Parts III and V.1760  In this regard, the European Union refers to the 
finding by the Appellate Body in Canada – Aircraft  that a benefit arises only if a person, natural or 
legal, or a group of persons has, in fact, received something.1761  According to the European Union, 
this suggests that the United States had the burden of proving that alleged subsidies to recipients other 
than the current producer of LCA, Airbus SAS, cu rrently benefit Airbus SAS.  The adverse effects 
under Articles 5 and 6 of the SCM Agreement  are defined as particular types of competitive harm that 
                                                      
1756Panel Report, para. 7.199. 
1757Panel Report, para. 7.199 and footnote 2097 thereto (referring to European Commission, Merger 
Procedure Article 6(2) Decision, Case No. COMP/M.1745 – EADS (11 May 2000) (Panel Exhibit US-479), 
para. 16). 
1758Panel Report, para. 7.200.  
1759European Union's appellant's submission, para. 269.   
1760European Union's appellant's submission, para. 270.  
1761European Union's appellant's submission, para. 271 (referring to Appellate Body Report, Canada – 
Aircraft , para. 154).    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 329  
 
  are the "effect of the subsidy", which are transm itted through a recipient company's products.  The 
European Union recalls that the Appellate Body in US – Upland Cotton  found that a prerequisite to a 
finding of causation is that the challenged subs idy does in fact benefit the subsidized product.
1762   
770. The United States responds that, as the complain ing party, its only burden was to establish 
that the subsidies at issue caused adverse effects to the United States' inte rests, which it did by 
demonstrating that the member States made financ ial contributions, that each conferred a benefit on 
producers of LCA, and that these subsidies caused adve rse effects to the United States.  To the extent 
that the Appellate Body considers that the United States bore some further burden, the United States 
argues that it satisfied that burden by establishing that the corporate predecessors were all producers 
of LCA and that, as the Panel found, there was no indication that the reorganization among the Airbus entities to create Airbus SAS had any impact on the "qua lity or nature of control" of Airbus Industrie 
or the work share distribution between the Airbus partners.
1763   
771. We begin by noting that the European Union's arguments are premised on its earlier 
arguments that, for purposes of a serious prejudice analysis under Article 5 of the SCM Agreement , a 
complainant must demonstrate the existence of a "con tinuing benefit" that is enjoyed by the recipient 
during the reference period .  For the reasons given in paragraph 712 above, we disagree with the 
proposition that subsidies are capable of causing ad verse effects during the reference period only to 
the extent that the complaining party has demonstr ated the existence of a continuing benefit during 
that period.  Accordingly, we disagree with the Eu ropean Union that the United States was required in 
this case to demonstrate the existence of a "conti nuing benefit" to Airbus SAS during the reference 
period.  
772. In addition, like the Panel, we note that the United States' claims were not limited to adverse 
effects caused by subsidies provided to the current  producer of LCA or to the current LCA models 
produced by Airbus SAS.1764  Rather, the United States also challenged subsidies provided to 
"predecessor Airbus GIE companies"  and "predecessor affiliated companies" of both Airbus GIE and 
Airbus SAS.1765  As we explained above, and as the Appella te Body has previously found, subsidies 
                                                      
1762European Union's appellant's submission, para. 271 (referring to Appellate Body Report, US – 
Upland Cotton , para. 472).  
1763United States' appellee's submission, para. 161 (referring to Panel Report, para. 7.199).  
1764Panel Report, paras. 7.190-7.192.     
1765See Panel Report, para. 7.191. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 330  
 
  provided in the past can continue to have adverse effects at a later point in time.
1766  We therefore fail 
to see why, as the European Uni on argues, the United States would have been required also to 
demonstrate that past subsidies "passed through" from one company  to another, in addition to showing 
that the European Union was in breach of its obliga tion not to cause, through the use of any subsidy, 
adverse effects to the interests of the United States.  
773. The European Communities argued before the Panel that, to the extent that subsidies provided 
to Airbus predecessor companies and their related companies were alleged to continue to benefit 
Airbus SAS, this would have to be affirmativel y demonstrated by the United States because "Airbus 
partners restructured their relationship" to one  another when they formed Airbus SAS in 2001.1767  
Before addressing this argument, we recall, as the Panel did, the specific circumstances in which a 
"pass-through" analysis has been required in WTO disputes under the SCM Agreement .  We recall that 
the Appellate Body pronounced on the requi rements for a "pass-through" analysis in US – Softwood 
Lumber IV .  That dispute concerned countervailing duties levied by the United States on imports of 
softwood lumber, including remanufactured lumber, from  Canada to offset subsidies granted to timber 
harvesters in relation to the harvesting of timber (that is, the input into the production of softwood 
lumber).  The Appellate Body upheld th e panel's findings that Article 10 of the SCM Agreement  and 
Article VI:3 of the GATT 1994 required the US DOC to conduct a "pass-through" analysis in 
circumstances where a subsidy is received by th e producer of an input product and the imported 
product subject to the countervailing duty inve stigation is a different, downstream product 
manufactured by an unrelated producer operating at arm's length from the recipient of the subsidy.   
774. The issue of "pass-through" also arose in US – Upland Cotton  in legally and factually 
different circumstances than in US – Softwood Lumber IV .  Similar to this dispute, US – Upland 
Cotton involved claims of serious prejudice under Part III of the SCM Agreement .  In that case, the 
Appellate Body found that a "pass-through" analys is was "not critical" for an assessment of price 
suppression under Article 6.3(c) of the SCM Agreement , in part due to the differing contexts and 
                                                      
1766The Appellate Body in US – Upland Cotton explained that: 
Whether the effect of a subsidy begins and expires in the year in which it is 
paid or begins in one year and continues in any subsequent year, and how 
long a subsidy can be regarded as having  effects, are fact-specific questions.  
The answers to these questions may depend on the nature of the subsidy and 
the product in question.  We see nothing in the text of Article 6.3(c) that 
excludes a priori the possibility that the effect  of a "recurring" subsidy may 
continue after the year in which it is paid.  Article 6.3(c) deals with the 
"effect" of a subsidy, and not with th e financial accounting of the amount of 
the subsidy. 
(Appellate Body Report, US – Upland Cotton , para. 476) 
1767Panel Report, para. 7.185.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 331  
 
  rationales of Part III and Part V of the SCM Agreement .
1768  As the Appellate Body explained,  Part III 
of the SCM Agreement  requires only proof that the subsidy causes "adverse effects" and does not 
require a precise quantification of the subsidies since, inter alia , the remedy for a finding of adverse 
effects "targets the effects of the subsidy ... generally".1769   
775. Based on these considerations, we do not consider that, as alleged by the European Union, the 
facts of this case give rise to a requirement to conduc t an analysis of whether the benefit of subsidies 
provided to the Airbus Industrie consortium "passed  through" to Airbus SAS.  First, there is no 
suggestion here that subsidies were provided to a different "input product" that was separate or 
distinct from a downstream "subsidized product", as was the case in US – Softwood Lumber IV .  
Second, although we do not exclude that there may be other circumstances, including ones involving 
the restructuring of companies in which the rece ipt of a subsidy by a predecessor company may not 
mean that it is enjoyed by a successor company, we  recall the Panel's finding that, despite the changes 
to their "legal organization", the "economic realiti es" of production of Airbus LCA demonstrated that 
the Airbus Industrie consortium (that is, each of th e Airbus partners, their respective affiliates and 
Airbus GIE) and Airbus SAS we re the "same producer" of LCA.1770  The Panel explained that "all of 
the LCA operating assets and all of the LCA design,  manufacturing and marketing activities of the 
                                                      
1768The Appellate Body has stated:   
{T}he requirement in Article VI:3 of the GATT 1994 and Article 19.4 of the 
SCM Agreement that countervailing duties on a product be limited to the 
amount of the subsidy accruing to that  product finds no parallel in the 
provisions on actionable subsidies and pertinent remedies under Part III of 
the SCM Agreement .  Therefore, the need for a "pass-through" analysis 
under Part V of the SCM Agreement is not critical for an assessment of 
significant price suppression under Article 6.3(c) in Part III of the 
SCM Agreement .  Nevertheless, we acknowledge that the "subsidized 
product" must be properly identified for purposes of significant price 
suppression under Article 6.3(c) of the SCM Agreement .  And if the 
challenged payments do not, in fact, subsidize that product, this may undermine the conclusion that the e ffect of the subsidy is significant 
suppression of prices of that product in the relevant market. 
(Appellate Body Report, US – Upland Cotton , para. 472) 
1769The Appellate Body explained the differing rationales of Parts III and V of the SCM Agreement  as 
follows: 
We note that the apparent rationale for Part III differs from that for Part V of 
the SCM Agreement .  Under Part V, the amount of the subsidy must be 
calculated because, under Article 19.4 of the SCM Agreement  and 
Article VI:3 of the GATT 1994, countervailing duties cannot be levied in excess of that amount.  In contrast, under Part III, the remedy envisaged 
under Article 7.8 of the SCM Agreement is the withdrawal of the subsidy or 
the removal of the adverse effects.  This remedy is not specific to individual companies.  Rather, it targets the eff ects of the subsidy more generally.  
Article 6.3(c) thus goes in the same  vein and does not require a precise 
quantification of the subsidies at issue.  
(Appellate Body Report, US – Upland Cotton , para. 464) 
1770Panel Report, para. 7.199. (emphasis omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 332  
 
  former Airbus partners and Airbus GIE were groupe d in Airbus SAS and its subsidiaries" and, as the 
European Commission had stated in a document gran ting merger clearance for the creation of EADS, 
"there was no indication" that as a r esult of the formation of EADS "the quality or nature of control  of 
Airbus Industrie" or the "impact on the work share distribution between the Airbus partners" would be 
affected.
1771  At the oral hearing, we engaged the par ticipants in some discussion as to whether the 
restructuring of predecessor companies to form EADS , and thereafter Airbus SAS, involved a change 
in LCA productive activities and corporate contract ual relationships.  The European Union did not 
contest the United States' assertion that Airbus' ope rations or production activ ities did not change as a 
result of the restructuring.   
776. Finally, we do not consider that the rela tionship between the predecessor companies and 
Airbus SAS is one that can be characterized as a relationship between unrelated companies operating 
at "arm's length".  Instead, the companies and Airbus SAS were related, at least to some extent, 
through common ownership.  We c onclude, therefore, that we are not faced with a situation where 
predecessor and successor companies are unrelated and operate at arm's length and where a "pass-
through" analysis might therefore be required.   
777. For the foregoing reasons, we uphold  the Panel's finding, in paragraphs 7.200 and 7.286 of 
the Panel Report, that the United States was not  required to demonstrate, as part of its prima facie 
case under Article 5 of the SCM Agreement , that subsidies provided to the Airbus Industrie 
consortium "passed through" to the current pr oducer of Airbus LCA, Airbus SAS.  
VI. Launch Aid/Member State Financing 
A. The LA/MSF "Programme" 
778. Before the Panel, the United States alleged that  the Governments of France, Germany, Spain, 
and the United Kingdom have maintained a "formal and institutionalized industrial policy" towards 
Airbus and that a "central part" of this policy h as been the "systematic and coordinated" provision of 
LA/MSF subsidies to assist Airbus in developing a family of LCA.1772  This record of support, the 
United States argued, "evidences the existence of a LA/MSF Programme … as a distinct measure, separate from the individual grants of LA/MSF".
1773  In reply, the European Communities contested 
the existence of an LA/MSF "Programme", arguing that "{n}o overarching measure" stipulates the 
                                                      
1771Panel Report, para. 7.199. (original emphasis) 
1772Panel Report, para. 7.498 (referring to United States' first written submission to the Panel, 
paras. 85-89). 
1773Panel Report, para. 7.498 (referring to United Stat es' oral statement at the second Panel meeting, 
paras. 34 and 36).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 333  
 
  provision of LA/MSF to Airbus and that "{t}he United  States can point to no rule or norm that would 
transform a series of separate financing measures made for separate aircraft programmes by separate 
countries into an all-encompassing measure."
1774   
779. The Panel found that "{i}ndividually, no piece or category of evidence relied upon by the 
United States positively demonstrates the existe nce of the alleged unwritten LA/MSF Programme."1775  
The Panel noted, for instance, that, "while the facts surrounding the development of Airbus LCA 
show a history and general policy to support Air bus through LA/MSF, this support has not always 
been expressed by the same four EC memb er States or for the same LCA projects."1776  Moreover, 
"the institutions created under the first inter-gove rnmental agreements to manage the different 
Members' participation in various Airbus LCA project s have at different times involved fewer or more 
countries than the four EC member States the United States asserts systematically operated the 
unwritten LA/MSF Programme."1777  The Panel added that "the func tions of these institutions evolved 
over the years, becoming more limited by the time of the A380", and that "{a}pparently the 
institutions were not used at all to manage LA/MSF provided for the A330-200 and A340-500/600 
projects."1778  The Panel also recalled its earlier finding th at the evidence and arguments advanced by 
the parties did not lead it "to conclude that LA/MSF,  by definition, involves below-market financing" 
and that, therefore, "any LA/MSF granted in the future will involve non-commercial interest rates."1779  
For all these reasons, the Panel concluded that the United States had failed to demonstrate the 
existence of the alleged unwritten LA/MSF Programme.1780  The Panel added that its conclusion 
would be the same even if it had found that the Un ited States did not have to establish the general and 
prospective application of the alleged unwritten LA/MSF Programme.  The Panel explained that, "in 
general terms, a 'programme' may be described as a planned series of events."1781  The Panel queried 
"whether a 'programme' of any kind can exist wit hout having general and pr ospective application."1782  
For the Panel, it was "not entirely clear" what th e United States meant when it argued that "the 
evidence it has adduced supports th e existence of an unwritten LA/MSF Programme that is not of 
                                                      
1774European Communities' first written submission to the Panel, para. 342. 
1775Panel Report, para. 7.577.  
1776Panel Report, para. 7.577.  
1777Panel Report, para. 7.577.  
1778Panel Report, para. 7.577.  
1779Panel Report, para. 7.578.  
1780Panel Report, para. 7.579.  
1781Panel Report, para. 7.580.  
1782Panel Report, para. 7.580.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 334  
 
  general and prospective application."
1783  To the extent that the focu s of the United States' position 
was the "repetition of the same government action over a limited period of time"—that is, provision 
by the member States of LA/MSF to Airbus "whene ver sought, on the same four core terms between 
1969 and 2002"—the Panel recalled its view that "mer e repetition of the same government action over 
time does not necessarily demonstrate that the govern ment acted pursuant to a rule that applied 
generally over that same period."1784  Moreover, the Panel considered  that there was evidence pointing 
to "the non-existence of any such unwritten LA/M SF Programme, including:  the fact that between 
1969 and 2002 the same four member States did not always participate, or participated with other EC member States, in Airbus LCA projects funded through LA/MSF;  the evolving role and function of the inter-governmental institutions;  and the fact that the latter were not apparently used for the 
purpose of the LA/MSF provided for the A330-200 and A340-500/600."
1785   
1. Arguments on Appeal  
780. On appeal, the United States argues that the Pa nel erred in finding that the United States had 
failed to demonstrate the existence of the alle ged unwritten LA/MSF Programme.  The United States 
requests the Appellate Body to reverse the Pa nel's finding and find that the alleged LA/MSF 
Programme "constitutes a specific subsidy, provided by France, Germany, Spain and the United Kingdom to Airbus, that causes adverse effects to the interests of the United States."
1786 
781. The United States describes the alleged LA /MSF Programme as "ongoing conduct" or 
"repeated provision of {LA/MSF} to each and ever y major Airbus model, under the same four core 
conditions and benefiting the same subsidized product".1787  The United States further explains that its 
challenge before the Panel "was based on a demonstr ation that over the past four decades (since 
1969), the Airbus governments have consistently s ubsidized Airbus, in the form of {LA/MSF}, by 
underwriting the costs of developing each and every single model through long-term unsecured loans at zero or below-market rates of interest, with b ack-loaded repayment schedules that allow Airbus to 
repay the loans through a levy on each delivery of the financed aircraft."
1788  According to the 
                                                      
1783Panel Report, para. 7.580.  The United States described the "precise content" of the alleged 
LA/MSF Programme as consisting of "the consistent, up-front provision by the Airbus governments of a 
significant portion of the capital th at Airbus needs to develop each new LCA model through loans that are:  
(a) unsecured;  (b) repayable on a success-dependent basis (i.e., through per sale levies);  (c) with the levy 
amounts greater for later sales than earlier sales (i.e., back -loaded);  and (d) with inte rest accruing at rates below 
what the market would demand for the assumption of similar risk."  Accord ing to the United States, "each and 
every LA/MSF contract has featured  these core characteristics". ( Ibid., para. 7.501) 
1784Panel Report, para. 7.580.   
1785Panel Report, para. 7.580.  
1786United States' other appellant's submission, paras. 82 and 83(e).  
1787United States' other appellant's submission, para. 61. 
1788United States' other appellant's submission, para. 60.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 335  
 
  United States, the Panel's factual findings, viewed in  the light of the Appellate Body's analysis in US – 
Continued Zeroing , demonstrate the existence of the LA/MSF Programme "as a measure subject to 
challenge in WTO dispute settlement proceedings".
1789  The United States further contends that the 
Panel's findings and analysis, regarding the cumulative effect of each individual instance of LA/MSF, provide the factual and legal basis for the Appe llate Body to find that the LA/MSF Programme 
"caused serious prejudice to the interests of th e United States in the form of displacement of 
United States' LCA from the EC and certain third c ountry markets and the significant lost sales during 
the period 2001-2006 found by the Panel with r espect to individual instances of {LA/MSF}."
1790 
782. By contrast, the European Union supports the Panel's finding that the United States failed to 
establish the existence of the alleged LA/MSF Programme.  The European Union argues that, 
inter alia , the United States has now changed the descrip tion of the measure it challenges on appeal, 
simply combining into a single measure all instance s of past LA/MSF loans.  Under the United States' 
approach, the European Union argues, "the whole is not greater than the sum of its constituent 
parts."1791  The European Union adds that, while it ass erts that the alleged LA/MSF Programme is a 
"broader scheme" than, and "separate from", th e individual instances of LA/MSF loans, "the 
United States fails to cite to any evidence other than  that relating to the individual MSF loans for the 
proposition that the alleged programme constitu tes a subsidy and causes adverse effects."1792  T h e  
European Union also emphasizes that the presen t challenge against the alleged LA/MSF Programme 
is "markedly different than a challenge that the Un ited States could have attempted to lodge, but did 
not—i.e., an 'as such' challenge to an MSF pr ogramme, as a whole, where the programme was 
demonstrated to satisfy the characteristics of an ongoing programme."1793 
783. Even if the Appellate Body were to complete the analysis pursuant to the legal framework set 
out in US – Continued Zeroing , the European Union argues that the alleged LA/MSF Programme does 
not involve conduct that can be attributed to Fran ce, Germany, Spain, and the United Kingdom.  Nor 
is there a clear definition of what the conduct entails.  In this regard, the European Union refers to the 
Panel's finding, that the "vast majority of te rms and conditions" in each LA/MSF contract are 
"different", to argue that the "four core terms" that the United States alludes to "are neither very 
specific, nor well defined, nor monolithic or automatic as was the zeroing methodology at issue in 
US – Continued Zeroing ."1794  Rather, according to the European Union, such "core terms" "constitute 
                                                      
1789United States' other appellant's submission, para. 64. 
1790United States' other appellant's submission, para. 81. 
1791European Union's appellee's submission, para. 209. (original emphasis) 
1792European Union's appellee's submission, footnote 233 to para. 209. 
1793European Union's appellee's submission, para. 210. 
1794European Union's appellee's submission, para. 303 (referring to Panel Report, para. 7.525).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 336  
 
  generic descriptions of features in a financing agreement, and mask the significant differences 
between the various, individually negotiated MSF lo ans that the Panel pointed out in its factual 
findings".
1795   
2. Analysis  
784. Before turning to the specific issues raised on a ppeal, we review, briefly, the applicable rules 
governing a panel's terms of reference. 
785. Article 6.2 of the DSU provides, in relevant part: 
The request for the establishment of a panel shall be made in writing.  
It shall indicate whether consultati ons were held, identify the specific 
measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. 
786. As discussed above, two requirements under Article  6.2 of the DSU are central to establishing 
a panel's jurisdiction—namely the identification of the specific measures at issue, and the provision of 
a brief summary of the legal basis of the complaint.   Together, specific measures and claims comprise 
the "matter referred to the DSB", which forms th e basis for a panel's te rms of reference under 
Article 7.1 of the DSU.
1796  The panel request thus functions to establish and delimit the jurisdiction of 
the panel in a dispute and it serves the due process objective of notifying the respondent and third parties of the nature of the dispute.  The clear identification of the specific measures in the panel 
request is therefore central to define the scope of the dispute to be addressed by a panel.   
787. In considering whether the United States' request  for the establishment of a panel identified an 
LA/MSF Programme as a "specific measure at issue", we first recall that the requirements of 
Article 6.2 must be established on the basis of the language in the panel request, read "as a whole".
1797  
A party's subsequent submissions during the pane l proceedings cannot cure a defect in a panel 
request.1798 Rather, the panel's terms of reference must be objectively determined on the basis of the 
                                                      
1795European Union's appellee's submission, para. 303.  
1796See Appellate Body Report, Guatemala – Cement I , paras. 72 and 73;  Appellate Body Report, US – 
Carbon Steel , para. 125;  Appellate Body Report, US – Continued Zeroing , para. 160;  and Appellate Body 
Report, US – Zeroing (Japan) (Article 21.5 – Japan) , para. 107. 
1797See Appellate Body Report, US – Carbon Steel , para. 127;  Appellate Body Report, US – Oil 
Country Tubular Goods Sunset Reviews , paras. 164 and 169;  Appellate Body Report, US – Continued Zeroing , 
para. 161;  and Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan) , para. 108. 
1798See Appellate Body Report, EC – Bananas III , para. 143;  and Appellate Body Report, US – 
Carbon Steel , para. 127.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 337  
 
  panel request as it existed at the time of the filing.  With these principles in mind, we turn to review 
the United States' panel request.
1799 
788. With respect to the measures at issue, th e panel request reads, in relevant part: 
(1) The provision by the member States of financing for large 
civil aircraft design and development to the Airbus companies1 
(hereinafter "launch aid").2  This financing provi des benefits to the 
recipient companies including financing for projects that would 
otherwise not be commercially feasible.  The non-commercial terms of the financing may include no inter est or interest at below-market 
rates and a repayment obligation that is tied to sales.  If the aircraft is not successful, some or all of the financing need not be repaid.  
Specific examples of the financing at issue include: 
(a) French financing for the Airbus A300, A310, A320, 
A330/340, A330-200, A340-500/600, A380, and A350; 
(b) German financing for the Airbus A300, A310, A320, 
A330/340, A380, and A350; 
(c) United Kingdom financing for the Airbus A300, A310, 
A320, A330/340, A340-500/600, A380, and A350;  and 
(d) Spanish financing for the Airbus A300, A310, A320, 
A330/340, A340-500/600, A380, and A350. 
1The Airbus companies, as referenced throughout this request, include 
Airbus SAS, its predecessor Airbus GIE and current and predecessor 
affiliated companies, including each person or entity that directly, or indirectly through one or more intermed iaries or relationships, controls or 
controlled, is or was controlled by, or is or was under common control with 
Airbus SAS or Airbus GIE, such as parent companies, sibling companies and subsidiaries, including Airbus Deutschland GmbH, Airbus España SL, 
Airbus France S.A.S., Airbus UK Limited, European Defence and Space 
Company ("EADS"), and BAE Systems. 
2The EC and the member States use diffe rent terms to describe the type of 
financing at issue, such as launch aid, launch investment, avances 
remboursables, Rückzahlbare Zuwe ndungen, Entwicklungsbeihilfen, 
Zuschüsse zur Entwicklung von zivilen Flugzeugen, anticipo reembolsable, 
and prestamo reembolsable.  Althou gh the United States will hereinafter 
refer to the financing as "launch aid," th e U.S. request is with respect to all 
such types of financing, regardless of the specific term or terms that the 
entity providing the financing uses. 
789. The United States' panel request expressly refers to the "provision by the member States of 
financing for large civil aircraft design and develo pment to the Airbus companies" and describes this 
financing as "launch aid".  In addition, it states th at the "EC and the member States use different terms 
to describe the type of financing at issue", and sp ecifies that the United States' complaint is "with 
                                                      
1799WT/DS316/2. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 338  
 
  respect to all such types of financing, regardless of  the specific term or terms that the entity providing 
the financing uses."  The request goes on to list sp ecific "examples of the financing at issue".   
790. It is uncontested that these references in the Un ited States' panel request can be read to refer 
to individual provisions of LA/MSF.  However, we  do not believe the same references can be read 
simultaneously to refer to a distinct  measure, consisting of an unwritten LA/MSF Programme or 
indeed "a concerted and coherent approach ... desi gned to contribute to the long-term competitiveness 
of Airbus".
1800  It is well established that, where a panel request fails to identify a particular measure 
or fails to specify a particular claim, such a measu re or claim will not form part of the matter covered 
by the panel's terms of reference.1801  Moreover, as noted above, a complainant's submission during 
the panel proceedings cannot cure a defect in a panel request.1802  
791. Although the European Union did not raise pr ocedural objections, under Article 6.2 of the 
DSU, against the United States' challenge to an unwritten LA/MSF Programme before the Panel or in 
its appellee's submission, "certain issues going to the jurisdiction  of a panel are so fundamental that 
they may be considered at any stage in a proceeding."1803  In this case, we have deemed it necessary to 
consider these issues on our own motion. 
792. When a challenge is brought against an unwritten measure , the very existence and the precise 
contours of the alleged measure may be uncertain.  We would therefore expect complaining parties to 
identify such measures in their panel requests as cl early as possible.  We would also expect that 
complaining parties state unambiguously the legal basi s for the allegation that those measures are not 
consistent with particular provisions of the covered agreements.  Pa nel requests should give 
respondents and third parties sufficient notice of the specific measures that the complainant intends to 
challenge in WTO dispute settlement proceedings. 
793. The United States' failure to identify clearly the alleged unwritten LA/MSF Programme in its 
panel request appears to have had implications  on the Panel's ability properly to understand the 
substance of the United States' challenge.  As th e Panel found, the United States initially argued that 
"the evidence before the Panel clearly demonstrat ed that the unwritten measure it was challenging 
unavoidably necessitated certain future conduct"1804 and characterized the alleged LA/MSF 
                                                      
1800United States' other appellant's submission, para. 70. 
1801See Appellate Body Report, Australia – Apples , para. 416. 
1802See Appellate Body Report, EC – Bananas III , para. 143;  and Appellate Body Report, US – 
Carbon Steel , para. 127.  
1803See Appellate Body Report, US – Carbon Steel , para. 123. (original emphasis) 
1804Panel Report, para. 6.95.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 339  
 
  Programme as a measure that has "normative value".
1805  Subsequently, the United States clarified that 
it was not challenging the alleged LA/MSF Programme "as such", explaining that the focus of its 
claim was not "on something about a measure that mandates or necessarily results in a breach each 
time the measure is applied, which is  the essence of an 'as such' claim".1806  In the United States' view, 
it is not necessary to show that the challenged measu re possessed "normative value" in order to show 
it existed as a "measure".1807  On appeal, the United States argues that the provision of LA/MSF 
"reflected a concerted and coherent approach—t hat is, a 'program' or 'ongoing conduct'—designed to 
contribute to the long-term competitiveness of Airbus in the only way possible: through the 
production of a range  of aircraft covering the varying needs of LCA customers and with commonality 
of features to retain those customers."1808  According to the United States, "each individual grant of 
{LA/MSF} effectuated the broader scheme that the Airbus governments maintain to ensure that at 
least one of the world's LCA producers will be European."1809  The United States further describes the 
measure it was challenging as "a repeated course of action by responding Members".1810  At the oral 
hearing, the United States added that there could be  different implementation actions that might have 
to be taken by the European Union in respect of a recommendation directed at such a measure. 
794. The Appellate Body has addressed, in several  cases, the scope of "measures" that may 
properly form the subject of WTO dispute settlement.  In US – Corrosion-Resistant Steel Sunset 
Review , the Appellate Body found that, "{i}n principle, any act or omission attributable to a WTO 
Member can be a measure of that Member for purposes of dispute settlement proceedings."1811  The 
scope of measures that can be challenged in WTO dis pute settlement is therefore broad.  As a general 
proposition, we do not exclude the possibility that c oncerted action or practice could be susceptible to 
challenge in WTO dispute settlement.  Nor do we c onsider that a complainant would necessarily be 
required to demonstrate the existence of a rule or no rm of general and prospective application in order 
to show that such a measure exists.  In the pr esent case, however, we are unable to discern in the 
United States' panel request a challenge to an alleged LA/MSF Programme as a specific measure 
                                                      
1805Panel Report, para. 6.95.  
1806Panel Report, para. 7.513 (quoting United States' oral statement at the second Panel meeting, 
para. 37).  
1807Panel Report, para. 6.95.  
1808United States' other appellant's submission, para. 70. (original emphasis) 
1809United States' other appellant's submission, para. 71.  
1810United States' other appellant's submission, para. 71.  
1811Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review , para. 81.  See also Appellate 
Body Report,  US – Softwood Lumber IV (Article 21.5 – Canada) , para. 67.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 340  
 
  "separate from the individual instances of {LA/MSF}"
1812, and, as noted, a complainant's subsequent 
submissions during panel proceedings cannot cure such a defect in a panel request.1813 
795. In the light of the above, we find that the alleged LA/MSF Programme was not within the 
Panel's terms of reference because it was not identifie d in the request for the establishment of a panel, 
as required by Article 6.2 of the DSU. 
796. Having found that the alleged unwritten LA /MSF Programme was not within the Panel's 
terms of reference, we have no basis further to c onsider the arguments raised by the participants 
regarding the alleged LA/MSF Programme.  Nor do we  have a basis further to examine the Panel's 
finding that no such scheme or programme exists.1814  Accordingly, we declare moot and of no legal 
effect the Panel's finding, in paragraphs 7.579, 7.5 80, and 8.3(a)(iv) of the Panel Report, that the 
United States failed to establish the existen ce of an unwritten LA/MSF Programme measure 
constituting a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement . 
B. LA/MSF Benefit  
797. We turn now to the European Union's app eal of the Panel's findings concerning the 
assessment of whether the challenged LA/MSF measu res confer a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement .  The Panel's findings are summarized in subsection 1.  This is 
followed in subsection 2 by a brief description of  the LA/MSF measures before we proceed, in 
subsection 3, to review the Panel's assessment of whether those measures confer a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement .  Finally, subsection 4 deals with a residual issue 
concerning the Panel's statement that "the number of sales over which full repayment is expected says 
little, if anything, about the appropriateness of the rate of return that will be achieved by that 
lender".1815 
1. The Panel's Findings  
798. Before the Panel, the United States argued that  "each of the 'financial contributions' made 
available through the challenged LA/MSF measures conf ers a 'benefit' on Airbus, within the meaning 
of Article 1.1(b) of the SCM Agreement, because each was provided on interest rate terms that are 
                                                      
1812United States' other appellant's submission, para. 71. 
1813Appellate Body Report, EC – Bananas III , para. 143;  Appellate Body Report, US – Carbon Steel , 
para. 127.  
1814Panel Report, paras. 7.576-7.580. 
1815Panel Report, para. 7.397.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 341  
 
  more advantageous than would otherwise be the ca se if financing on the same or similar terms and 
conditions had been sought by Airbus from a market lender."
1816 
799. The European Communities made several arguments in response.  First, the 
European Communities asserted that Article 4 of the 1992 Agreement sets out the appropriate 
benchmark to determine whether LA/MSF granted af ter 1992 conferred a "benefit" to Airbus.  The 
Panel noted that, "{a}lthough the European Commun ities argues that Article 4 serves as relevant 
context for the interpretation  of the notion of 'benefit', it has not explained exactly how it informs the 
meaning  that must be given to this term."1817  The Panel further explained that Article 4 of the 1992 
Agreement "contains no definition of a 'subsidy' nor does it make any reference to the notion of 
'benefit'" and, consequently, the Panel did not see anything "in the language of Article 4 to suggest 
that it informs the meaning of Article 1.1(b) of the SCM Agreement."1818  Therefore, the Panel 
concluded that "even assuming that the 1992 Agreement were an instrument containing relevant rules 
of international law applicable between the parti es, within the meaning of Article 31(3)(c) of the 
{Vienna Convention } (... we emphasize that on this questi on, we express no view), we are not 
convinced that Article 4 of that Agreement provide s any guidance on how to interpret the concept of 
'benefit' under Article 1.1(b) of the SCM Agreement."1819  
800. Next, the Panel addressed the European Communitie s' argument that "the 'decisive factor' for 
determining whether LA/MSF measures ... confer a benefit is the reasonableness of the repayment 
forecasts."1820  The Panel first considered the relevance of footnote 16 of the SCM Agreement .  
Footnote 16 is attached to subparagr aph (d) of Article 6.1, which states that serious prejudice shall be 
deemed to exist in the case of direct forgiveness of  debt, that is, forgiveness of government-held debt, 
and grants to cover debt repayment.  Footnot e 16 clarifies that "Members recognize that where 
royalty-based financing for a civil aircraft programme  is not being fully repaid due to the level of 
actual sales falling below the level of forecast sales, this does not in itself constitute serious prejudice 
for the purposes of this subparagraph." 
                                                      
1816Panel Report, para. 7.383. 
1817Panel Report, para. 7.388. (original emphasis) 
1818Panel Report, para. 7.389. 
1819Panel Report, para. 7.389. (footnote omitted) 
1820Panel Report, para. 7.390.  The European Communities had initially advanced this argument in 
respect of only the LA/MSF measures for the A330-200, A340-500/600, and the A380, but subsequently 
declared that it could be of equal relevance to certain  pre-1995 LA/MSF measures (specifically, the A320 and 
A330/A340 contracts) if the Panel were to reject its sp ecific defences advanced in relation to these measures 
based on the temporal scope of the SCM Agreement  and the relevance of the Tokyo Round Subsidies Code .  
Because the Panel had dismissed these two defences, the Pa nel said that its evaluation should be understood as 
addressing the European Communities' arguments as they relate to all of these measures, namely LA/MSF for 
the A320, A330/A340, A330-200, A340-500/600, and the A380. ( Ibid.) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 342  
 
  801. The Panel observed that, "{t}o the extent that th e effect of footnote 16 is expressly limited to 
the purposes of Article 6.1(d)—that is, determining wh ether direct debt forgiveness can be deemed to 
cause serious prejudice—it is clear that it was not intended to inform the meaning of 'benefit' under 
Article 1.1(b)."
1821  The Panel then analyzed whethe r a reasonableness benchmark would be 
appropriate irrespective of the legal relevance of footnote 16.  In this regard, the Panel stated: 
In our view, a reasonable repayment forecast, in the terms advanced 
by the European Communities—i.e., a reasonable number of sales over which a market lender could expect full repayment of loaned principal plus interest—cannot alone  be determinative of whether a 
royalty-based financing instrument (in this case LA/MSF) confers a 
benefit for the purpose of the SCM Agreement.  While we can accept 
that an unreasonable repayment forecast may signal that a loan 
confers a benefit, we do not belie ve the opposite will necessarily be 
the case when LA/MSF is gr ounded on a reasonable repayment 
forecast.  This is because the number of sales over which full repayment is expected says little, if anything, about the 
appropriateness of the rate of return that will be achieved by the 
lender.
1822 (original emphasis; footnotes omitted) 
802. Having rejected the "reasonableness" benchmark proposed by the European Communities, the 
Panel laid out its own views as to what it consider ed to be the proper benchmark under Article 1.1(b) 
of the  SCM Agreement : 
Bearing in mind that it is now well established that the question of 
benefit under Article 1.1(b) of  the SCM Agreement should be 
resolved by comparing the situation of the recipient of a financial contribution with and without that contribution, we believe that it 
makes sense to focus the assessme nt of whether LA/MSF confers a 
benefit on whether the rate of return of the challenged measures is lower than the rate of return that would be sought by a market lender 
for financing on the same or simila r terms and conditions, taking into 
account a comparable schedule of repayment.
1823 (footnote omitted)  
                                                      
1821Panel Report, para. 7.396. 
1822Panel Report, para. 7.397.  We note that the Panel used the term "royalties" in two different ways.  
In the broader sense, it refers generally to payments to the member State governments under the LA/MSF 
measures.  This is the way the term is used in the 1992  Agreement.  However, the Panel here seems to be using 
it in a narrower sense to refer to payments made to the member State governments  after the LA/MSF has been 
fully repaid. 
1823Panel Report, para. 7.398.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 343  
 
  803. Before proceeding to make the comparison, the Panel addressed the European Communities' 
argument that "reliance on a 'perfect market' be nchmark ... would be inappropriate because of the 
heavy government intervention and internati onal regulation it alleges is found in the LCA 
industry".
1824  The Panel rejected the European  Communities' argument because the 
European Communities "provided no evidence or  explanation of how  alleged government 
intervention in the LCA industry distorts the behaviou r of market lenders such that it renders the rate 
of return they would ask for financing compar able to LA/MSF an inappropriate benchmark upon 
which to base a benefit analysis."1825  The Panel further explained: 
While we recognize that the LCA industry has particular features that 
set{} it apart from many other industrial sectors, in the absence of clear arguments and evidence of government action distorting 
non-governmental loan markets,  we cannot accept the European 
Communities' assertion that the "reasonableness of repayment forecasts" used to construct LA/MSF contracts is the "'decisive factor" for determining whether a LA/MSF contract confers a benefit and constitutes a subsidy under the SCM Agreement.
1826 (footnotes 
omitted) 
804. The Panel turned to the first element of th e comparison, that is, the calculation of the 
LA/MSF rates of return.  The United States and the European Communities submitted their own 
calculations of the rates of return of the LA/MSF measures.  The Panel opted to proceed on the basis 
of the methodology used by the European Commun ities, because the United States did not seem to 
contest this methodology in general: 
                                                      
1824Panel Report, para. 7.399. (footnote omitted)  The European Communities submitted that its 
position was supported by certain observations made by the Appellate Body in US – Countervailing Measures 
on Certain EC Products , which the European Communities argued stands for the proposition that "fair" market 
transactions may not always be the most appropriate benchmarks for the purpose of establishing the existence of 
subsidies under the SCM Agreement , particularly where the market for those transactions has been distorted by 
government action.  The Panel observed that the "core legal question" before the panel in US – Countervailing 
Measures on Certain EC Products  was whether the benefit resulting from a prior non-recurring financial 
contribution bestowed on a state-owned enterprise continued to exist following its privatization at arm's length 
and at fair market value, the government having tran sferred all or substantially all property and controlling 
interest.  In the light of this "very narrow set of facts and circumstances", the Panel did not consider it apparent 
that the guidance of the Appellate Body, upon which the European Communities relied, "is as directly relevant 
to the question we are faced with u nder the present set of arguments (i.e ., whether the rate of return for 
comparable market financing is an appropriate benchmark for determining whether LA/MSF confers a benefit) 
as the European Communities contends". ( Ibid., para. 7.399 and footnote 2513 thereto (referring to Appellate 
Body Report, US – Countervailing Measures on Certain EC Products , paras. 117, 123, and 124)) 
1825Panel Report, para. 7.400.  
1826Panel Report, para. 7.400.  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  Although the United States contests the European Communities' view 
that the rates of return by member States from each of the challenged LA/MSF measures must be determined taking into account the IRR{—internal rate of return—
1827}for each LA/MSF contract, we do 
not understand the United States to contest the general NPV{—net 
present value—}of cash-flows methodology applied by the 
European Communities to determine these IRRs.  Indeed, where it had access to information on LA/MSF disbursements and repayments, the United States appears to have relied upon a similar methodology to derive the values of the interest rates it submits were 
actually charged by the EC member States for LA/MSF.
1828 (original 
footnotes omitted) 
The Panel noted, however, that the United States cont ested two aspects of the European Communities' 
calculation:  (i) the reliance on projected aircraft deliveries, as opposed to actual deliveries, in order to establish the amount and timing of LA/MSF repayments;  and (ii) the inclusion of royalty payments in 
the calculation.
1829 
805. Regarding the use of projections, the Panel observed: 
To the extent that the IRRs  determined by the European 
Communities are based on the number, timing and (for some contracts) the forecast prices of deliveries projected in the relevant Airbus business case, they are entir ely dependent upon the credibility 
of the Airbus business plan, and therefore inherently contain an 
element of speculation.  Thus, as the United States appears to note, the IRRs calculated by the European Communities do not result from an absolute legal obligation on Air bus to make repayments over a set 
period of time at a given interest rate.  Rather, they are based on a repayment obligation that is conditional upon Airbus' business plan 
actually being met.
1830 (footnote omitted) 
806. Turning to the issue of royalties, the Panel stat ed that "the fact that such payments were 
expressly provided for in these contracts indicates that the EC member State governments to some 
degree anticipated they could enhance the rate of return that would otherwise be achieved on their 
LA/MSF investment."1831  At the same time, the Panel noted that "exactly how much the EC member 
State governments expected their returns to improve  depends upon the number and timing of aircraft 
                                                      
1827The "internal rate of return" ("IRR") is the "rate of interest which you would have to use in 
discounting the flow over time of net revenue generated by an investment such that the present value of the net 
revenue flows is equal to the capital sum invested.  The inte rnal rate of return, therefore, is the discount rate at 
which the net present value of a project is zero." ( Dictionary of Economics , G. Bannock, R.E. Baxter, E. Davis 
(eds) (Profile Books Ltd, 1999), p. 214) 
1828Panel Report, para. 7.407.  
1829Panel Report, para. 7.407. (footnote omitted) 
1830Panel Report, para. 7.408.  
1831Panel Report, para. 7.410.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 345  
 
  deliveries they anticipated would attr act the specified royalty payments."
1832  Therefore, the Panel 
concluded that "the IRRs established by the European Communities, taking royalty payments into 
account, could only represent, at most, the outer limit of what the EC member State governments 
could have reasonably expected at the time of concluding the contracts."1833   
807. The Panel, however, rejected the internal ra tes of return ("IRR"s) calculated by the 
European Communities for the French A330/A340 contract and the Spanish A340-500/600 contract.  
The Panel rejected the Eu ropean Communities' IRR for the French A330/A340 contract because it had 
been calculated on the basis of provisional repayment terms.1834  In particular, the Panel noted that the 
"schedule of repayment that was finally agreed i nvolved an initial repayment levy that was about 50% 
lower than the one used by the European Communities in its calculations."1835  As for the Spanish 
A340-500/600 contract, the Panel rejected the I RR submitted by the European Communities because 
it had not been calculated "by identifying the IRR that set the NPV of anticipated LA/MSF inflows 
and outflows at zero, but rather it was calculated on the basis of an interest rate formula which the 
European Communities asserts was applied in the contract".1836 
808. The European Communities also argued that th e effects of taxation on LA/MSF contributions 
and repayments should be taken into account in calculating the IRR of the measures preceding the 
A380, because the member States clas sified LA/MSF as taxable income.1837  The Panel declined to 
consider the effects of taxation for three reasons.  Firs t, it noted that "there is little, if any, evidence" 
demonstrating that "the EC member State governme nts (and Airbus) knew at the time they entered 
into the LA/MSF contracts that part of the disbursed  principal would be returned to the governments 
through taxation, thereby effectively diminish ing the amount of funds available to Airbus."1838  
Second, the Panel did not consider that the Eur opean Communities "substantiated its assertion that the 
relevant tax rates were applied directly to the amounts of LA/MSF at issue , and that Airbus made a 
corresponding tax payment."1839  Third, the Panel stated that "the re is no basis in the SCM Agreement 
                                                      
1832Panel Report, para. 7.410.  The Panel explained that, "although ostensibly required by the terms of 
the LA/MSF agreements, royalty payments may never be made if attached to a number of aircraft sales, which 
although identified in the business pl an that formed the basis of the par ties' expectations on concluding the 
LA/MSF contracts, cannot realisti cally ever be achieved." ( Ibid., para. 7.412 (footnote omitted)) 
1833Panel Report, para. 7.414. 
1834Panel Report, para. 7.422.   
1835Panel Report, para. 7.422.   
1836Panel Report, para. 7.423. 
1837Panel Report, para. 7.425. 
1838Panel Report, para. 7.427. 
1839Panel Report, para. 7.428. (original emphasis)  The European Communities provided the taxation 
rates allegedly applied in the relevant member States at the time of the relevant contracts and a statement from 
an Airbus executive responsible for taxation matters conf irming that Airbus paid all corporate taxes "that were 
due" in the relevant tax periods. ( Ibid.) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 346  
 
  to support the view that the amount of a financia l contribution may be reduced for any tax payments 
made to the government on income generated fro m economic activity that is facilitated by that 
financial contribution."
1840  Consequently, the Panel rejected the "tax-adjusted 'implicit rates of return' 
determined by the European Communities".1841 
809. In Table 5 at paragraph 7.431 of the Panel Re port, the Panel set out the LA/MSF rates it 
would consider in the remainder of its analysis  and which it believed could serve as "reasonable 
proxies for the maximum  rates of return that the EC member State governments could have reasonably 
anticipated when entering in to the LA/MSF agreements".1842 
810. Having determined the rates of return of the LA /MSF measures, the Panel turned to the other 
element of the comparison, that is, the rates of re turn of comparable market-based financing.  The 
Panel noted that both parties had submitted their own estimates of the rates of return they considered 
that a market lender would have required.  The Unite d States submitted that comparable rate of return 
could be constructed on the basis of the following th ree elements:  "(i) ten-year long-term government 
borrowing rates (representing the general risk-free co st of capital);  (ii) ten-year company-specific 
general borrowing rates (representing the general level of  risk associated with lending to Airbus);  and 
(iii) a project-specific risk premium (representing the risk profile of LCA development and the 
features of LA/MSF)."1843   
811. The European Communities put forward its own pr oject-specific risk premium.  According to 
the Panel, the European Communities did not reject  the United States' "construction of the proposed 
interest rate benchmarks " and applied "the same  general government and corporate borrowing rates 
used in the United States' calculations when de riving its own proposed market-based rates of 
return."1844  However, the European Communities disagr eed with the project-specific risk premium 
proposed by the United States, arguing that "it is ove rstated because ... it is based on the returns that 
would be expected from equity-based financing".1845  As an alternative, the European Communities 
proposed that the project-specific risk premium be  based on the returns expected by risk-sharing 
suppliers participating in the A380 project, which it  considered more appropriate because "it more 
closely reflects the debt-like characteristics of LA/MSF."1846   
                                                      
1840Panel Report, para. 7.429. 
1841Panel Report, para. 7.430. 
1842Panel Report, para. 7.431. (original emphasis) 
1843Panel Report, para. 7.432. (footnote omitted) 
1844Panel Report, para. 7.433. (footnote omitted) 
1845Panel Report, para. 7.433. 
1846Panel Report, para. 7.433.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 347  
 
  812. After analyzing the calculations made by the United  States and the European Communities, 
and the opinions given by their respective experts, the Panel found that the United States "probably 
overstates the appropriate level of project-specifi c risk that may be reasonably associated with 
LA/MSF provided for at least a number of the challenged Airbus LCA projects".
1847  The Panel gave 
the following reasons for considering that the project-specific risk premium proposed by the 
United States overestimates the level of risk:  (i) while LA/MSF is unsecured and success-dependent, 
the level of risk associated with venture capital fina ncing is typically higher;  (ii) venture capital is 
usually provided to firms that  are typically "small and young, plagued with high levels of 
uncertainty", while Airbus has developed into a "r elatively large firm with over 30 years experience, 
substantial capital assets and revenue and a track r ecord of successful LCA development";  (iii) it was 
unclear that the figure of 700 basis points "captures on ly the risk associated with venture capital";  and 
(iv) it was not persuaded that the same risk premiu m should apply to all mode ls of LCA developed by 
Airbus.1848   
813. At the same time, the Panel found that th e European Communities "under-estimates the 
appropriate level of project-specific risk that may be reasonably associated with LA/MSF for all of the 
challenged measures."1849  The reasons given by the Panel for finding that the project-specific risk 
premium proposed by the European Communities underestimated the level of risk were:   
(i) the risk premium was calculated using a sma ll sample of risk-sharing suppliers;  (ii) the 
European Communities did not provid e sufficient information;  (iii) one risk-sharing supplier contract 
showed major difference in repayment terms compared  to LA/MSF contracts;  (iv) the risk-sharing 
suppliers had incentives to lower thei r expected rates of return;  (v) LA/MSF reduced the level of risk 
associated with risk-sharing supplier financing;  a nd (vi) risk-sharing supplie rs may have themselves 
been subsidized.   
                                                      
1847Panel Report, para. 7.461.   
1848Panel Report, paras. 7.463 and 7.464.   
1849Panel Report, para. 7.479.   WT/DS316/AB/R BCI deleted, as indicated [***] 
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  814. As regards the A300 and A310, the Panel summarized its findings as follows: 
{A}s far as the cost of market financing comparable to LA/MSF is 
concerned, we have found that neither of the proposals made by the parties on the appropriate project-specific risk premium can be reasonably applied as the perfect standard against which to measure whether all of the challenged LA/MSF contracts confer a benefit.  Starting with LA/MSF provided fo r the A300 and A310, we have 
found that the project-specific risk premium advanced by the 
United States represents a reasonable proxy for the minimum  project-
specific risk premium that it would be appropriate to associate with market financing comparable to LA/MSF.  We recall that the European Communities has not adva nced any alternative project-
specific risk premium for these Airbus LCA models.  It follows that 
the appropriate market interest rate for determining whether the 
French, German and Spanish go vernment LA/MSF contracts for 
these Airbus LCA models confer a benefit is the market interest rate benchmark advanced by the Unite d States, which we view as 
representing a reasonable estimate of the lowest interest rate that a 
commercial lender would have demande d in return for financing the 
same LCA projects on comparable terms and conditions to LA/MSF.
1850 (original emphasis) 
815. In connection with the A320, A330/A340, A330-200, and A340-500/600 LCA projects, the 
Panel found:   
In terms of the models of LCA developed between the A310 and the 
A380, our findings on the appropria te project-specific risk premium 
lead us to conclude that the most appropriate market interest rate benchmarks against which to measure whether the challenged 
LA/MSF measures conferred a benefit lie in the range of interest 
rates advanced by both of the parti es—that is, above the interest rate 
benchmarks proposed by the European Communities but below the benchmark levels submitted by the United States.
1851 
                                                      
1850Panel Report, para. 7.485. 
1851Panel Report, para. 7.486.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 349  
 
  816. And with respect to the A380, the Panel concluded: 
Finally, we recall that we have found the United States' project-
specific risk premium for the A380 could be reasonably accepted to represent the outer limit of the risk premium that a market lender would ask Airbus to pay for financing comparable with LA/MSF; whereas, we consider the project-s pecific risk premium advanced by 
the European Communities to understate the appropriate level of risk 
associated with financing such a project on terms and conditions 
comparable with LA/MSF.  Accord ingly, we find that the most 
appropriate market interest rate  benchmarks against which to 
measure whether the challenged A 380 LA/MSF contracts conferred a 
benefit lie in the range of interest  rates above those submitted by the 
European Communities and up to the values advanced by the 
United States.
1852  
More detailed information about the project-specifi c risk premia proposed by the United States and 
the European Communities, and the Panel's assessm ent of them, is provided in subsections 3(d) 
and 3(e) below. 
817. The Panel's findings concerning the rates of return of each LA/MSF measure, the comparable 
market rates of return, and any difference betwee n the two, are summarized in Table 7 (and footnotes 
2719-2726 thereto) of the Panel Report,  which is reproduced below.  Th e Panel noted that some of the 
LA/MSF was provided at no interest cost, while th e same financing could have been obtained from 
the market only at positive rates of interest.1853  Accordingly, the Panel found that that "the financial 
contributions made available through the A300 and A310 agreements, and the Spanish A320 and 
A330/A340 contracts, conferred a benefit upon Airbus and therefore constitute subsidies within the 
meaning of Article 1.1 of the SCM Agreement."1854  The Panel arrived at the same conclusion with 
respect to the other LA/MSF measures1855, explaining that "even relying on the 
European Communities' own estimates of the rates of re turn and market interest rate benchmarks, it is 
clear that the financial contributions provided in the form of LA/MSF conferred a benefit on 
Airbus."1856   
                                                      
1852Panel Report, para. 7.487.  
1853Panel Report, para. 7.489.  The Panel did not consider it necessary to decide whether the 
United States was correct in arguing that  a contribution at a zero rate of interest necessarily confers a benefit.  
The Panel did state that a situation where market-based financing would be provided at zero interest would be "extraordinary" and "highly unlikely". ( Ibid., footnote 2728) 
1854Panel Report, para. 7.489. 
1855The measures are:  the French  LA/MSF for the A330/A340, A330-200, A340-500/600, and A380;  
the German LA/MSF for the A320, A330/A340, and A380;  the Spanish LA/MSF for the A340-500/600 and 
A380;  and the UK LA/MSF for the A320, A330/A340, and A380. 
1856Panel Report, para. 7.490. (footnote omitted)  Th e Panel added that the same result would have 
been  obtained had it not rejected the taxation-adjusted LA/MSF rates of return advanced by the 
European Communities, with the excep tion of the French A330-200 contract. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 350  
 
  Panel Table 7 – LA/MSF Rates of Return Compared with Market Rates of Return 
 LA/MSF 
Contract LA/MSF Rate 
of Return2719 Market Rate of Return2720 Differential 
A300 0% at least 16.52% at least 16.52% 
A310 0% at least 18.88% at least 18.88% 
A320 [***%] above 13.49%2721  
but less than 20.49% more than [***%] + [[HSBI]]2722 but 
less than [***%] 
A330/A340 [[HSBI]] above 10.86%2722  
but less than 17.86% more than [[HSBI]]2723  
but less than [[HSBI]]2724 
A330-200 [***%] above 9.2%2722  
but less than 17.22% more than [[HSBI]]2725  
but less than [***%] 
A340-500/600 [***%] above 7.47%2722  
but less than 14.47% more than [***%] + [[HSBI]]2723 but 
less than [***%] FRANCE 
A380 [***%] more than 6.89%2722  
and up to 13.89% from ([***] + [[HSBI]]2723)  
to [***%] 
A300 0% at least 15.18% at least 15.18% 
A310 0% at least 13.99% at least 13.99% 
A320 [***%] more than 8.95%2722  
but less than 15.95% more than ([***%] + [[HSBI]]2723) 
but less than [***%] 
A330/A340 [***%] more than 7.52%2722  
but less than 14.52% more than ([***%] + [[HSBI]]2723) 
but less than [***%] GERMANY 
A380 [***%] more than 6.75%2722  
and up to 13.75% from ([***] + [[HSBI]]2723)  
to [***%] 
A300 0% at least 16.60% at least 16.60% 
A310 0% at least 18.88% at least 18.88% 
A320 [***%] more than 17.52%2722  
but less than 24.52% more than ([***%] + [[HSBI]]2723) 
but less than [***%] 
A330/A340 [***%] more than 14.19%2722 but 
less than 21.19% more than ([***%] + [[HSBI]]2723) 
but less than [***%] 
A340-500/600 [***%] more than 8.29%2722  
but less than 15.29% more than ([***%] + [[HSBI]]2723) 
but less than [***%] SPAIN 
A380 [***%] more than 7.07%2722  
and up to 14.07% from ([***%] + [[HSBI]]2723)  
to [***%] 
A320  [***%] more than 12.59%2722  
but less than 19.59% more than ([***%] + [[HSBI]]2723) 
but less than [***%] 
A330/A340 [***%] more than 10.97%2722  
but less than 17.97% more than ([***%] + [[HSBI]]2723) 
but less than [***%] UK 
A380 [***%] more than 6.54%2722  
and up to 13.54% from [[HSBI]]2726 to [***%] 
2719 See above, Table 5. 
2720 All figures that are not marked with a footnot e in this column are sourced from Table 6. 
2721 This figure is intended to represent the market interest  rate benchmark proposed by the European Communities.  
However, because the European Communitie s has designated its market interest ra te benchmarks HSBI, they cannot be 
revealed in the text of our Report.  In or der to disclose an approximate measure of th e relevant range of market interest rate 
benchmarks, we have substituted the EC market interest ra te benchmark based on HSBI with the "Market based General 
Corporate Borrowing Rates for the Airbus Companies" identified in  Exhibit 6 of the Ellis Report (which we note were relied 
upon by the European Communities in establishing its benchmar ks).  See, e.g., Whitelaw Re port, Exhibit EC-11 (BCI), 
para. 40.  In all cases, the actual market  interest rate benchmark advanced by the European Communities is less than [***] of 
700 basis points greater than the relevant  value taken from the "Market based Ge neral Corporate Borrowing Rates for the 
Airbus Companies" identified in Exhibit 6 of the Ellis Report.   
2722 This HSBI figure is the project-specif ic risk premium calculated by the Euro pean Communities, which can be found in 
Exhibits 2 and 3 of the Whitelaw Report, Exhibit EC-11 (HSBI).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 351  
 
  2723 10.86% plus the European Communities' proposed project-speci fic risk premium, minus the [[HSBI]] rate of return 
shown in the second column. 
2724 17.86% minus the [[HSBI]] rate of re turn shown in the second column. 
2725 9.2% plus the European Communities' proposed project-specific risk premium, minus [***%]. 
27266.54% plus the European Communities' proposed project-specific risk premium, minus [***%]. 
 
818. The Panel next addressed the European Communities' arguments that "the fact that the 
interest rates associated with the challenged LA/MSF measures might be less than those that would be 
attached to comparable market-based financing in struments does not automatically imply that they 
confer a benefit", because "the public policy obligati ons attached to 'most' of the relevant contracts 
must also be taken into account."1857  The Panel dismissed the European Communities' argument.1858  
First, the Panel found that the European Commun ities had failed to substa ntiate its argument: 
{E}ven assuming that we were to ac cept the premise that any public 
policy obligations contained in the challenged LA/MSF contracts 
should be taken into account when  considering the question of 
benefit (a premise upon which we ma ke no ruling), we find that the 
European Communities has failed  to adduce sufficient factual 
arguments to persuade us that it has reasonably substantiated its 
assertion.1859 (footnote omitted) 
819. Second, the Panel questioned the continued releva nce of this argument given that the Panel 
had already rejected the European Communities' reliance on taxation-adjusted rates of return: 
In any case, we note that the Eur opean Communities raises the costs 
of public policy obligations as a fa ctor that may alter the benefit 
analysis solely in the context of the (tax adjusted) LA/MSF rates of 
return it has relied upon.  Because we have rejected these rates, we 
question the continued relevance of the European Communities' argument.
1860   
820. Finally, the Panel agreed with the United States th at "if our benefit analysis were to take the 
costs associated with public policy obligations into account, we would also need to consider whether 
to factor costs that are unique to market -based financing into our determination."1861 
                                                      
1857Panel Report, para. 7.491. (footnote omitted) 
1858Panel Report, para. 7.496. 
1859Panel Report, para. 7.494.  See also United States' first written submission to the Panel, paras. 186-
188, 206-210, 229-233, 251, 258, 271, 280, 288, and 297. 
1860Panel Report, para. 7.495. 
1861Panel Report, para. 7.495.  The United States was referring to bank fees, regulatory and credit 
agency fees, and costs associated with employees engaged on an ongoing basis in financing-related activities. (See Panel Report, para. 7.492 (referring to United States' response to Panel Question 140;  and United States' 
comments on European Communities' response to Panel Question 170)) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 352  
 
  2. The Measures at Issue
 
821. The European Union's appeal concerns the indi vidual instances in which France, Germany, 
Spain, and the United Kingdom provided LA/MSF for the development of specific types of aircraft by 
Airbus.  These measures are identified in Table 7 of  the Panel Report (which was reproduced above), 
with an indication of the member State providing the LA/MSF and the LCA project for which it was provided. 
822. The LA/MSF measures are described in more de tail in section IV.C of this Report.  For 
convenience, we recall that the contractual frame work of each of the challenged LA/MSF measures 
usually took one of two forms:  (i) general ag reements between participating member State 
governments, implemented at the national level thr ough separate contracts betw een each participating 
member State government and the Airbus entity locat ed within its territory;  or (ii) individual 
contracts between each relevant member State go vernment and the Airbus entity located in its 
territory.  Funding for Airbus' first LCA project s (the A300 and A310) was contracted at the 
intergovernmental level through a series of ag reements between participating member State 
governments.
1862  These agreements expressed the releva nt member State's commitment to fund the 
development of the A300 and A310;  they also set out to varying degrees some of the key terms and conditions attached to the provision of financing,  such as the schedules for specific amounts of funds 
to be disbursed and the mode of repayment.
1863  Separate contracts implementing the 
intergovernmental agreements, in the context of one  or more different aspects or phases of the first 
two Airbus LCA projects, were entered into at the national level between each financing member 
State government and the Airbus entity located within its territory.1864  The contractual framework for 
the A320 and A330/A340 projects contained elements si milar to those of the A300 and A310 projects:  
funding was agreed between the participating gove rnments, and implemented at the national level 
through specific contracts between each relevant  member State government and the Airbus entity 
located within its territory.  No intergovernmental agreements were concluded in the context of the 
LA/MSF provided by the Governments of France and Spain for the A330-200 and A340-500/600 
projects.  Nor was such an agreement (expressing a commitment to provide funding) concluded with 
respect to the A380.  Instead, for these projects, the member State governments entered into separate 
national-level contracts, setting fo rth various relevant te rms and conditions, with  the French aerospace 
manufacturer, Aérospatiale, and the Spanish aerospace manufacturer, CASA (in respect of the 
A330-200 and A340-500/600  projects) and with Airbus France,  Airbus Deutschland GmbH, EADS 
                                                      
18621969 A300 Agreement (P anel Exhibit US-11);  1971 A300 Agreement (Panel Exhibit EC-992 
(BCI));  1981 A310 Agreement (Panel Exhibit EC-942 (BCI)).  
1863Panel Report, para. 7.370. 
1864Panel Report, para. 7.370.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 353  
 
  Airbus SL (Spain), BAE Systems (Operations) Lt d, and British Aerospace PLC (in respect of the 
A380).
1865 
823. The funds provided under the LA/MSF measures are "in many cases … transferred in 
advance of actual development costs being incurred, usually on the basis of projected expenditure", in 
which case the "costs actually incurred may be subse quently audited or reviewed by the governments 
and the funding amounts adjusted to ensure th at total borrowing does not exceed the level of 
development costs it was agreed would be financed."1866  In other cases, "disbursements up to the 
agreed amounts may be made after actual costs have been incurred."1867   
824. Regarding repayment, the Panel explained that "{i}n almost all cases, Airbus is required to 
reimburse all funding contributions, plus any inter est at the agreed rate, exclusively from revenues 
generated by deliveries of the LCA model that is financed."1868  Repayment takes place through 
"per-aircraft levies and follow a pre-established repayment schedule".1869  The Panel noted that 
repayments "{u}sually ... start with the delivery of the first aircraft", but "in some instances, 
repayment begins only after Airbus has made a specified number of aircraft deliveries."1870  The Panel 
further observed that repayment "appears in all cases to be graduated, such that repayment amounts at 
the beginning of the repayment period are lower than at the end."1871  It additionally pointed out that 
in some of the contracts, "royalty payments on a pe r-aircraft basis are called for on deliveries made in 
excess of the number needed to secure repayment of  the disbursed principal plus any interest."1872 
825. The Panel described the LA/MSF measures as "unsecured", because "LA/MSF is provided 
without any guarantee of repayment in the event that  Airbus fails to make the number of deliveries 
needed to reimburse the full amount of financ ing obtained from the EC member States."1873  
According to the Panel, "the scheduled repaymen ts are not secured by any lien on Airbus assets nor 
are they guaranteed by any third party."1874  The Panel observed that the European Communities had 
asserted "that the governments' claims on revenues ge nerated from the delivery of LCA are, in some 
cases, guaranteed by one of the companies forming part of the Airbus economic entity."1875  T h e  
                                                      
1865Panel Report, paras. 7.370 and 7.371.  
1866Panel Report, para. 7.373. (footnote omitted) 
1867Panel Report, para. 7.373. (footnote omitted) 
1868Panel Report, para. 7.374. (footnote omitted) 
1869Panel Report, para. 7.374. (footnote omitted) 
1870Panel Report, para. 7.374. (footnote omitted) 
1871Panel Report, para. 7.374. (footnote omitted) 
1872Panel Report, para. 7.374. (footnote omitted) 
1873Panel Report, para. 7.375.  "Unsecured debt" is "{a} debt not supported by collateral or other 
security". ( Black's Law Dictionary , 7th edn, B.A. Garner (ed.) (West Group, 1999), p. 411) 
1874Panel Report, para. 7.375. 
1875Panel Report, para. 7.375. (footnote omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 354  
 
  Panel, however, was not persuaded that this gua rantee changed the "unsecured" nature of the 
measures, observing that "there is no obligation on  Airbus (or any company forming part of the 
Airbus economic entity) to fully (a nd sometimes even partially) repa y LA/MSF in the event that the 
delivery targets stipulated in the contr actual repayment schedules are not achieved."
1876  
Consequently, the Panel agreed with the United States  "that Airbus' obligation to fully repay the loans 
provided under the challenged LA/MSF measures is  entirely dependent upon the success of the 
particular LCA project."1877  The Panel added that "{t}he fact that it is possible, under certain 
contracts, for Airbus to make voluntary repaymen ts notwithstanding the number of sales achieved, 
does not, in our view, alter this conclusion."1878 
826. In laying out its initial complaint, the United States repeatedly char acterized the LA/MSF 
measures as "loans".  For example, the United St ates asserted in its first written submission to the 
Panel: "All of the Launch Aid that the Airbus gove rnments have provided to Airbus has taken the 
same form:  long-term unsecured loans  at zero or below-market rates of interest, with back-loaded 
repayment schedules that allow Airbus to repay the loans  through a levy on each delivery of the 
financed aircraft."1879  Dr. Ellis, the United States' expert, also described the LA/MSF measures as 
loans in the report in which he developed the benc hmark proposed by the United States to determine 
whether the LA/MSF measures confer a benefit.1880  The United States, however, departed from this 
initial characterization after the European Communiti es' expert criticized the benchmark developed by 
Dr. Ellis because it was based on returns of  equity, and particularly venture capital.1881  In its second 
written submission to the Panel, the United Stat es argued that LA/MSF is a "hybrid form of 
financing" and explained that it "has a number of features that would make it inappropriate to treat it as pure debt."
1882  
827. The Panel acknowledged that "LA/MSF may be considered to have some equity-like 
qualities, such as the fact that lender governments have no recourse in the event of non-repayment", 
but observed that "LA/MSF contracts are generall y conceived as amortizing loans repaid out of 
project revenue."1883  We share the Panel's view that the LA/MSF measures have particular features 
that distinguish them from a conventional loan.  The ex tent to which risk is transferred from Airbus to 
                                                      
1876Panel Report, para. 7.375. (footnote omitted) 
1877Panel Report, para. 7.375.  
1878Panel Report, para. 7.375. (footnote omitted) 
1879United States' first written submission to the Panel, para. 87. (footnote omitted;  emphasis added)  
1880See, for example, Ellis Report, supra , footnote 760, p. 3:  "Launch aid loans only have to be repaid 
if the specific projects for which they are made are successful". 
1881See Robert Whitelaw, Economic Assessment of Member State Financing (3 February 2007) (Panel 
Exhibit EC-11 (BCI/HSBI) (hereinafter  the "Whitelaw Report"), para. 11. 
1882United States' second written submission to the Panel, subtitle before para. 83, and para. 84.  
1883Panel Report, para. 7.462.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 355  
 
  the member State governments suggests an arrangement  approaching what one finds in some equity 
instruments.  Nonetheless, we are not called upon here to review this aspect of the Panel's analysis as 
the United States has not appealed the Panel's characterization of LA/MSF measures as "loans".  We 
will thus treat the LA/MSF measures as loans in our re view of the Panel's assessment of benefit.   
3. Did the Panel Err in Concluding that the Challenged LA/MSF Measures 
Confer a Benefit?  
(a) The determination of benefit under Article 1.1(b) of the 
SCM Agreement  
828. Article 1.1 of the SCM Agreement defines what a "subsidy" is for purposes of that Agreement.  
It reads: 
For the purpose of this Agreement, a subsidy shall be deemed to exist 
if:  
(a)(1) there is a financial contribution by a government or any public 
body within the territory of a Memb er (referred to in this Agreement 
as "government"), i.e. where: 
(i) a government practice involves a direct transfer of funds (e.g. 
grants, loans, and equity infusion), potential direct transfers of funds 
or liabilities (e.g. loan guarantees); 
(ii) government revenue that is otherwise due is foregone or not 
collected (e.g. fiscal incen tives such as tax credits); 
(iii) a government provides goods or services other than general 
infrastructure, or purchases goods; 
(iv) a government makes payments to a funding mechanism, or 
entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be 
vested in the government and the pr actice, in no real sense, differs 
from practices normally followed by governments; 
or 
(a)(2) there is any form of income or price support in the sense of 
Article XVI of GATT 1994;  
and 
(b) a benefit is thereby conferred. (footnote omitted) 
829. The first requirement of the definition of "s ubsidy" is the existence of a "financial 
contribution".  The United States argued before th e Panel that "each of the challenged LA/MSF WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 356  
 
  measures involves a 'financial contribution' in the fo rm of either a direct transfer of funds or both 
direct and potential direct transfers of funds, with in the meaning of Article 1.1(a)(1)(i) of the SCM 
Agreement".
1884  The Panel agreed with the United Stat es' characterization of the LA/MSF with 
respect to the measures for which the funds had al ready been fully disbursed.  The Panel found that 
the funds had been fully disbursed under all th e LA/MSF measures except fo r the French, German, 
and Spanish A380 contracts.1885  The Panel concluded: 
To this extent, we believe there is  no doubt that, as the United States 
argues, these measures involved direct transfers of funds, and 
therefore, the provision of a "financial contribution by a government or any public body", within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
1886 (original emphasis)  
830. As regards the three A380 LA/MSF contracts for which the funds had not been fully 
disbursed, the Panel disagreed with the United Stat es' characterization of the undisbursed amounts as 
involving "potential direct transfers of funds".1887  Instead, the Panel considered that it was more 
appropriate to characterize these measures as "loans " within the meaning of Article 1.1(a)(1)(i)".1888  
The Panel thus found that: 
… irrespective of whether all of the funds committed under the 
French, German and Spanish A380 cont racts have been paid out, it is 
in our view clear from the particular facts that are before us that each 
of the LA/MSF contracts evidences the existence of a "government 
practice {that} involves a direct transfer of funds" in amounts and at moments agreed and planned at th e conclusion of each contract.  
Therefore, we find that the French, German and Spanish A380 contracts are "financial contributions", within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement.
1889 (footnote omitted) 
831. The European Union has not challenged on a ppeal the Panel's finding that the LA/MSF 
measures constitute "financial contributions".   
832. Under Article 1.1(b) of the SCM Agreement , the financial contribution must confer a "benefit" 
in order to constitute a subsidy.  The term "benefit" is not defined in the SCM Agreement .  In 
Canada – Aircraft , the Appellate Body interpreted the term as follows: 
                                                      
1884Panel Report, para. 7.376. 
1885Panel Report, para. 7.378. 
1886Panel Report, para. 7.377. 
1887Panel Report, para. 7.379. (emphasis omitted) 
1888Panel Report, para. 7.379. 
1889Panel Report, para. 7.379.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 357  
 
  We also believe that the word "ben efit", as used in Article 1.1(b), 
implies some kind of comparison.  This must be so, for there can be no "benefit" to the recipient unless the "financial contribution" makes the recipient "better off" than it would otherwise have been, absent 
that contribution.  In our 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 the market.
1890 
833. Article 1.1(b) of the SCM Agreement  does not set out a particular methodology to be used to 
determine whether a financial contribution has confe rred a benefit.  The calculation of benefit is 
addressed in Article 14 of the SCM Agreement , which provides in relevant part: 
Article 14 
Calculation of the Amount of a Subsidy in Terms 
of the Benefit to the Recipient 
For the purpose of Part V, any me thod used by the investigating 
authority to calculate the benefit to the recipient conferred pursuant 
to paragraph 1 of Article 1 sha ll be provided for in the national 
legislation or implementing regula tions of the Member concerned 
and its application to each particular case shall be transparent and adequately explained.  Furthermore, any such method shall be 
consistent with the following guidelines: ... . 
The opening clause of Article 14 limits the scope of application of this provision to Part V of the 
SCM Agreement , which is about countervailing measures.  Ne vertheless, we consider that Article 14 
provides useful context in the interpretation of th e "benefit" requirement in Article 1.1(b) of the 
SCM Agreement .
1891   
834. We noted earlier that the Panel characterized the LA/MSF measures as "unsecured loans"1892 
and that neither participant has challenged this ch aracterization on appeal.  Accordingly, the most 
relevant "guideline" of Article 14 of the SCM Agreement  is that provided in subparagraph (b): 
                                                      
1890Appellate Body Report, Canada – Aircraft , para. 157.  The Appellate Body also explained that: 
{a} "benefit" does not exist in the abstract, but must be received and 
enjoyed by a beneficiary or a recipient.  Logically, a "benefit" can be said to 
arise only if a person, natural or legal, or a group of persons, has in fact received something.  The term "benefit" , therefore, implies that there must 
be a recipient. 
(Ibid., para. 154) 
1891Appellate Body Report, Canada – Aircraft , para. 155. 
1892Panel Report, para. 7.525.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 358  
 
  {A} loan by a government shall not be considered as conferring a 
benefit, unless there is a difference between the amount that the firm receiving the loan pays on the government loan and the amount the firm would pay on a comparable commercial loan which the firm could actually obtain on the market.  In this case the benefit shall be 
the difference between these two amounts{.} 
A panel relying on Article 14(b) would thus ex amine whether there is a difference between the 
amount that the recipient pays on the government loan and the amount the recipient would pay on a 
comparable commercial loan, which the recipient could have actually obtained on the market.
1893  
There is a benefit—and therefore a subsidy—wh ere the amount that the recipient pays on the 
government loan is less than what the recipient would have paid on a comparable commercial loan 
that the recipient could have obtained on the mark et.  There is no benefit—and therefore no subsidy—
if what the recipient pays on the government loan is  equal to or higher than what it would have paid 
on a comparable commercial loan.  The amount the re cipient would have paid on a commercial loan is 
a function of the size of the loan, the interest ra te, the duration, and othe r relevant terms of the 
transaction.  The participants agreed at the oral hearing that Article 14(b) of the SCM Agreement  
provides useful guidance for purposes of the assessme nt of whether the LA/MSF measures confer a 
benefit. 
835. Article 14(b) of the SCM Agreement  calls for a comparison of the "amount the firm receiving 
the loan pays on the government loan" with "the amount the firm would pay on a comparable commercial loan which the firm could actually obtain in the market".  As we have already discussed 
in general terms above, we read th is as suggesting that the comparison is to be performed as though 
the loans were obtained at the same time.  In other words, the comparable commercial loan is one that 
would have been available to the recipient firm  at the time it received the government loan.   
836. Because the assessment focuses on the moment in time when the lender and borrower commit 
to the transaction, it must look at how the loan is st ructured and how risk is factored in, rather than 
                                                     
 
1893Article 14(b) of the SCM Agreement  says that the comparison should be to a comparable 
commercial loan that the recipient "could actually obtain on  the market."  This sugges ts that where the recipient 
could not have obtained a commercial loan, then the granting of a loan by the government would be deemed to 
confer a benefit irrespective of the terms of that loan.  As the European Union underscored at the oral hearing, 
the United States did not argue before  the Panel that Airbus would have been unable to obtain a commercial 
loan.  Instead, the United States premised its case on Airbus having to pay less for the LA/MSF than it would 
have paid for a commercial loan.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 359  
 
  looking at how the loan actually performs over time.
1894  S u c h  ex ante  analysis of financial 
transactions is commonly used and appropriate fi nancial models have be en developed for these 
purposes.  The analysis from a financial persp ective proceeds as follows.  The investor commits 
resources to an investment in the expectation of a fu ture stream of earnings that will provide a positive 
return on the investment made.  In deciding whethe r to commit resources to a particular investment, 
the investor will consider alternative investment oppor tunities.  The investor will make its decision to 
invest on the basis of information available at the time the decision is made about market conditions 
and projections about how those economic conditions  are likely to develop (future demand and price 
for the product, future costs, etc.).   The information available will be, in most cases, imperfect.  The 
investor does not have perfect foresight and thus ther e is always some likelihood, in some instances a 
sizeable one, that the investor's projections will de viate significantly from what actually transpires.  
Hence, determining whether the investment was comme rcially rational is to be ascertained based on 
the information that was available to the investor  at the time the decision to invest was made.1895  The 
commercial rationality of an investment cannot be a scertained on the basis of how the investment in 
fact performed because such an analysis has not hing useful to say about the basis upon which the 
investment was made.  The investment could have ea rned a rate of return th at exceeded, or was less 
than, the going market rate, but it was not predetermined to do so. 
837. We note, moreover, that from a practical perspective, a requirement to look at the actual 
performance of a loan would mean that such measu res could not be challenged until performance is 
fully completed.  In the case of long-term loans, this  would mean that any challenge of such measures 
would have to be deferred for years.  Requiring a WTO Member to wait so long to mount a challenge 
would limit the effectiveness of Part II and Part III of the SCM Agreement  also in the light of the 
prospective nature of WTO remedies.1896 
838. Therefore, in our view, the assessment of bene fit must examine the terms and conditions of a 
loan at the time it is made and compare them to the terms and conditions that  would have been offered 
                                                      
1894We recognize that, in US – Upland Cotton (Article 21.5 – Brazil) , the Appellate Body said that an 
assessment of whether guarantees under an export cr edit guarantee programme constituted export subsidies, 
under item (j) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement , could "examine 
both retrospective data relating to a programme's historical performance and projections of its future performance". (Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 278)  That particular 
dispute concerned item (j) of the Illustrative List of Export Subsidies pursuant to which export credit guarantees 
will be deemed to be subsidies if they are provided at premium rates which are "inadequate to cover the long-
term operating costs and losses" of the programmes.   
1895Such an ex ante  approach is wholly consistent with the manner in which financial methods have 
been developed to test projections through sensitivity analysis and scenario building. 
1896It may also affect the ability of Members to apply countervailing measures under Part V of the 
SCM Agreement . WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 360  
 
  by the market at that time.  The European Union a nd the United States agreed at the oral hearing with 
this approach. 
(b) The relevance of the 1992 Agreement 
839. On appeal, the European Union asserts that Artic le 4 of the 1992 Agreement is a "relevant 
rule{} of international law applicable in the rela tions between the parties" within the meaning of 
Article 31(3)(c) of the Vienna Convention , which should be taken into account in determining whether 
"benefits" were conferred, within the meaning of Article 1.1(b) of the SCM Agreement , through the 
provision of LA/MSF to the A330-200, A340-500/600, and A380.
1897  According to the 
European Union, Article 4 of the 1992 Agreement is relevant to the interpretation of "benefit" under 
Article 1.1(b) of the SCM Agreement  in two main ways:  (i) it is concerned with development 
"support" for LCA and establishes two "thresholds" for the provision of that support, namely a 
maximum ceiling in terms of the amount of support th at may be provided and a minimum interest rate 
at which it may be provided1898;  and (ii) it is the "understood benchmark" between the United States 
and the European  Communities for purposes of de termining whether the LA/MSF measures at issue 
confer a "benefit".1899  Alternatively, the European Union s ubmits that the Panel should have taken 
into account the existence and opera tion of Article 4 of the 1992 Agreem ent "as part of the facts" to 
establish the relevant market benchmark at  the time the LA/MSF measures were granted.1900   
840. The United States responds that the 1992 Agreement does not qualify under Article 31(3)(c) 
of the Vienna Convention  because the reference to "the parties" is  to all the parties to the treaty being 
interpreted1901, meaning all WTO Members.  The United States disagrees that Article 4 of the 1992 
Agreement is relevant to an interpretation of "benefit" under Article 1.1(b) of the SCM Agreement .  
According to the United States, the references to "sup port" and the thresholds in Article 4 of the 1992 
Agreement, as well as in the SCM Agreement , do not create a link that is relevant to the interpretation 
of the SCM Agreement .1902  For the United States, the 1992 Agreement was aimed at placing 
constraints on the amount and terms of LA/MSF and not, as the European Union suggests, at putting 
in place a new "benchmark" for what would constitute a "benefit" under the SCM Agreement .1903  The 
                                                      
1897See European Union's appellant's submission, paras. 696 and 701-718.  The European Union also 
raises the 1992 Agreement in the context of its claims of error with respect to the Panel's findings on export subsidies and adverse effects.   
1898European Union's appellant's submission, paras. 719-723. 
1899European Union's appellant's submission, paras. 724-729.  
1900European Union's appellant's submission, paras. 730-732.  
1901United States' appellee's submission, para. 244.  See generally, United States' appellee's submission, 
paras. 242-261. 
1902United States' appellee's submission, para. 235.  
1903United States' appellee's submission, para. 230.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 361  
 
  United States also disagrees that Article 4 of the 1992 Agreement is a "fact" that the Panel was 
required to "take into account" in establishing the benchmark for LA/MSF.
1904  Finally, the 
United States refers to the fifth recital of the pr eamble of the 1992 Agreement that states that the 
parties to the Agreement were acting "without prejudice to their rights and obligations under the GATT and under other multilateral agreements negotiated under the auspices of the GATT".  The 
United States refers to the Panel's finding elsew here in its Report that the "other multilateral 
agreements negotiated under the auspices of the GATT"  referred to in the fifth recital would include 
the SCM Agreement .
1905 
841. Turning first to the preliminary issue of whether the 1992 Agreement qualifies under 
Article 31(3)(c), we note that Article 31 of the Vienna Convention  is entitled "General rule of  
interpretation".1906  Article 31(3)(c) provides that, when interpreting a treaty:  
{t}here shall be taken into account, together with the context:   
... 
(c)   any relevant rules of interna tional law applicable in the relations 
between the parties. 
To qualify under Article 31(3)(c), the 1992 Agreemen t would therefore have to be a "rule{} of 
international law", which is "relevant" and "app licable in the relations between the parties".  
Moreover, even assuming the 1992 Agreement were  to fulfil these conditions, the chapeau to 
Article 31(3)(c) specifies the normative weight to be ascribed to the 1992 Agreement, namely that it is 
to be "taken into account" in interpreting the SCM Agreement . 
842. In this appeal, the European Union and the Un ited States have focused their arguments on the 
proper meaning to be ascribed to the term "the pa rties" in Article 31(3)(c).  They disagree as to 
whether the reference is to all the parties to the treat y being interpreted, or a smaller sub-set of parties 
including, for instance, the parties to the disput e in which the interpretative issue arises.  The 
European Union argues that the definition of "party" in Article 2(1)(g) of the Vienna Convention  as 
referring to "a State which has consented to be bound by the treaty and for which the treaty is in 
force"  is neutral and could "apply equally to the parties to the SCM Agreement  or to the parties to the 
                                                      
1904United States' appellee's submission, para. 238.  
1905United States' appellee's submission, para. 239 (referring to Panel Report, para. 7.95).  
1906Pursuant to Article 3.2 of the DSU, WTO adjudicating bodies must interpret the WTO agreements 
"in accordance with customary rules of interpretation of public international law".  Previous Appellate Body 
case law has established that the principles codified in Articles 31 and 32 of the Vienna Convention are such 
customary rules. (See, for inst ance, Appellate Body Report, US – Carbon Steel , para. 61) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 362  
 
  1992 Agreement ".
1907  According to the European Union, the context provided by Articles 31(2) 
and 31(3)(a) and (b), as well as the object and purpo se of Article 31(3)(c), support its view that the 
reference to "the parties" in Article 31(3)(c) is  not to "all the parties" to the treaty being 
interpreted.1908  Moreover, the European Union refers to  a WTO panel report, which it argues suggests 
that a relevant rule of international law within the meaning of Article 31(3)(c) need only be binding 
on the parties to the dispute.1909   
843. In contrast, the United States argues that, ta king account of the definition of "party" in 
Article 2(1)(g) of the Vienna Convention , as well as the context of Article 31(3)(c), the term "the 
parties" as used in Article 31(3)(c) refers to "Sta tes which have consented to be bound by the treaty 
subject to interpretation  and for which that treaty is in force".1910  The United States considers that 
Article 31(2)(a) and (b), as well as  Article 31(3)(a) and (b) of the Vienna Convention , provide 
contextual support for its interpretati on of "the parties" to mean "all the parties" to the treaty being 
interpreted.1911  In support, the United States refers to an unappealed report of a WTO panel that 
interpreted Article 31(3)(c) to mean that the rules of international law to be taken into account in 
interpreting the WTO agreements at issue in that  dispute were those applicable between all WTO 
Members.1912   
844. We note that the meaning of the term "the parties" in Article 31(3)(c) of the Vienna 
Convention  has in recent years been the subject of mu ch academic debate and has been addressed by 
the ILC.1913  While the participants refer to WTO panels that have addressed its meaning1914, the 
Appellate Body has made no statement as to whether th e term "the parties" in Article 31(3)(c) refers 
to all WTO Members, or rather to a subset of Members, such as the parties to the dispute .  
845. An interpretation of "the parties" in Article 31( 3)(c) should be guided by the Appellate Body's  
statement that "the purpose of treaty interpretation is to establish the common  intention of the parties 
to the treaty."1915  This suggests that one must exercise caution in drawing from an international 
                                                      
1907European Union's appellant's submission, para. 703.  
1908European Union's appellant's submission, paras. 704-709. 
1909European Union's appellant's submission, para. 710 (referring to Panel Report, US – Shrimp 
(Article 21.5 – Malaysia) , para. 5.57). 
1910Emphasis added.  See United States' appellee's submission, paras.  244 and 245. 
1911United States' appellee's submission, paras. 247 and 248. 
1912United States' appellee's submission, para. 253 (referring to Panel Report, EC – Approval and 
Marketing of Biotech Products , para. 7.68). 
1913See ILC Report on Fragmentation, supra , footnote 205, paras. 410-480. 
1914See Panel Report, EC – Approval and Marketing of Biotech Products , paras. 7.65-7.89;  and Panel 
Report, US – Shrimp (Article 21.5 – Malaysia) , para. 5.57.  
1915Appellate Body Report, EC – Computer Equipment , para. 93. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 363  
 
  agreement to which not all WTO Members are party.
1916  At the same time, we recognize that a proper 
interpretation of the term "the parties" must also take account of the fact that Article 31(3)(c) of the 
Vienna Convention is considered an expression of the "principle of systemic integration"1917 which, in 
the words of the ILC, seeks to ensure that "inter national obligations are inte rpreted by reference to 
their normative environment"1918 in a manner that gives "coherence and meaningfulness"1919 to the 
process of legal interpretation.  In a multilateral c ontext such as the WTO, when recourse is had to a 
non-WTO rule for the purposes of interpreting provis ions of the WTO agreements, a delicate balance 
must be struck between, on the one hand, taki ng due account of an individual WTO Member's 
international obligations and, on the other hand, en suring a consistent and harmonious approach to the 
interpretation of WTO law among all WTO Members. 
846. In this dispute, the resolution of the Eur opean Union's arguments regarding the 1992 
Agreement need not turn on the proper meaning to be  ascribed to the term "the parties".  Even 
accepting the European Union's argument that the 1992 Agreement is "applicable in the relations 
between the parties ", we recall that for the 1992 Agreement to qualify under Article 31(3)(c) of the 
Vienna Convention , it must be shown to be "relevant".  A rule is "relevant" if it concerns the subject 
matter of the provision at issue.1920  In this dispute, the essence of the European Union's claim is that 
Article 4 of the 1992 Agreement is relevant to the inte rpretation of the term "benefit" in Article 1.1(b) 
of the SCM Agreement .   
847. We observe that the subject matter of the 1992 Agreement relates closely to issues germane to 
this dispute and, in particular, the measures take n by the European Communiti es in the area of civil 
aircraft that the United States challenges under the SCM Agreement .  Prior to the negotiation of the 
1992 Agreement, a plurilateral Agreement on Trade in Civil Aircraft  concluded in 1979 under the 
                                                      
1916We note that Article 31(3)(b) requ ires a treaty interpreter to take in to account, together with context, 
"any subsequent practice in the application of  the treaty which estab lishes the agreement of the parties  regarding 
its interpretation". (emphasis added)  According to the Appellate Body in EC – Chicken Cuts , Article 31(3)(b) 
requires the agreement, whether expr ess or tacit, of all WTO Members fo r a practice to qualify under that 
provision.  The Appellate Body recognized that the ag reement of the parties regarding a treaty's interpretation 
may be deduced, not only from the actions of those actuall y engaged in the relevant practice, but also from the 
acceptance of other parties to the tr eaty through their affirmative reacti ons, or depending on the attendant 
circumstances, their silence.  (See Appellate Body Report, EC – Chicken Cuts , paras. 255-273) 
1917ILC Report on Fragmentation, supra , footnote 205, para. 413, and footnote 569 thereto (referring to 
J. Combacau and S. Sur, "P rincipe d'intégration", in Droit international public  (Paris: Montchrestien 2004), 
p. 175;  and C. McLachlan, "The Principle of Systemic Integration and Article 31(3)(c) of the Vienna Convention" (2005) 54 International and Comparative Law Quarterly  279) 
1918See ILC Report on Fragmentation, supra , footnote 205, para. 413.  
1919See ILC Report on Fragmentation, supra , footnote 205, para. 419.  
1920See, for instance, M.E. Villiger, Commentary on the 1969 Vienna Convention on the Law of 
Treaties (Martinus Nijhoff, 2009), p.  433.  WT/DS316/AB/R BCI deleted, as indicated [***] 
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  aegis of the GATT (the "1979 Agreement")
1921 established rules on trade in civil aircraft.  The 
1992 Agreement, which was signed in July 1992 between the then European Economic Community 
and the United States in furtherance of the 1979 Ag reement, was negotiated against a background of 
differences between these two parties over support me asures to their respective large civil aircraft 
industries.1922  One area which the parties sought to re gulate was the provision of government support 
to the large civil aircraft sector, as reflected in  two of the recitals in the Agreement's preamble1923, as 
well as in Article 3 (Production support), Article 4 (Development support), and Article 5 (Indirect 
government support).1924  
848. Article 4 of the 1992 Agreement is the provision identified by the European Union as being 
relevant to our interpretation of Article 1.1(b) of the SCM Agreement .  Article 4 of the 1992 
Agreement reads in full: 
Article 4 
Development support 
4.1. Governments shall provide support for the development of a 
new large civil aircraft programme only where a critical project appraisal, based on conservative assumptions, has established that there is a reasonable expectation of  recoupment, within 17 years from 
the date of first disbursement of su ch support, of all costs as defined 
in Article 6(2) of the Aircraft Agreement, including repayment of 
government supports on the terms and conditions specified below. 
4.2. As of entry into force of this Agreement, direct government 
support committed by a Party for the development of a new large civil aircraft programme or derivative shall not exceed: 
                                                     
 
1921Agreement on Trade in Civil Aircraft , done at Geneva on 12 April 1979 (BISD 26S/162), as 
subsequently modified, rectified, or amended (attached as Annex 4(a) to the WTO Agreement ).  The original 
parties to the 1979 Agreement were:  Austria;  Cana da;  the member States of the European Economic 
Community (at the time Belgium, Denmark, France, the Federal Republic of Germany, Ireland, Italy, 
Luxembourg, the Netherlands, and the United Kingdom);  the European Economic Community;  Japan;  
Norway;  Sweden;  Switzerland;  and the United States . (See GATT, Multilateral Trade Negotiations, Status of 
Acceptances of Protocols, Agreem ents and Arrangements, L/4914/Re v.1 (1 April 1 980), pp. 8-9) 
1922Panel Report, para. 7.67.   
1923Recitals two and four of the 1992 Agreement state: 
RECOGNIZING that the disciplines in the GATT Agreement on Trade in 
Civil Aircraft should be strengthened with a view to progressively reducing 
the role of government support, 
... 
IN PURSUIT OF their common goal of preventing trade distortions 
resulting from direct or indirect government support for the development and production of large civil aircraft and of introducing greater disciplines 
on such support and of encouraging the adoption of such disciplines 
multilaterally within the GATT{.} 
1924Article 2 of the 1992 Agreement excludes from these disciplines government support that was 
committed prior to the date the Agreement entered into force.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 365  
 
  (a) 25% of that programme's total development cost as estimated 
at the time of commitment (or of actual development costs, whichever is lower);  royalty payments on this tranche shall be set at the time of commitment of the de velopment support so as to repay 
this support at an interest rate no le ss than the cost of borrowing to 
the government within no more than 17 years from first 
disbursement;  plus  
(b) 8% of that programme's total development cost as estimated 
at the time of commitment (or of actual development costs, whichever is lower);  royalty payments on this tranche shall be set at 
the time of commitment of the de velopment support so as to repay 
such support at an interest rate no less than the cost of borrowing to 
the government plus 1% within no more than 17 years from first disbursement. 
 These calculations shall be made on the basis of the forecast 
of aircraft deliveries in the critical project appraisal. 
4.3. Royalty payments per aircraft shall be calculated at the time 
of commitment of the development support to be repaid on the following basis: 
(a) 20% of aggregate payments calculated in accordance with 
Article 4.2 is payable on the basis of the delivery of a number of 
aircraft corresponding to 40% of forecast deliveries; 
(b) 70% of aggregate payments calculated in accordance with 
Article 4.2 is payable on the basis of the delivery of a number of aircraft corresponding to 85% of forecast deliveries. 
The LA/MSF measures at i ssue in this dispute consist of govern ment support for the development of 
LCA projects.  In other words, the LA/MSF measur es fall within the category of government support 
to which Article 4 is addressed.  The European Un ion has pointed out that the repayment provisions 
of many of the LA/MSF contracts at issue in this dispute reflect the terms set out in Article 4.
1925   
849. While the 1992 Agreement obviously relates to support for the development of LCA, the 
specific question raised by the European Union's a ppeal is whether Article 4 is "relevant" to the 
determination of "benefit" under Article 1.1(b) of the SCM Agreement .  In Canada – Aircraft , the 
Appellate Body explained that th e determination of "benefit" requires an assessment of whether the 
financial contribution gives the recipient an advantag e as compared to what c ould have been obtained 
in the market.1926  The notion of "benefit" as defined by th e Appellate Body therefore encompasses a 
comparison with the marketplace, measured from the perspective of a recipient.   
                                                      
1925European Union's appellant's submission, para. 733 and footnote 909 thereto. 
1926Appellate Body Report, Canada – Aircraft , para. 157.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 366  
 
  850. We note that the European Union is not argui ng that the 1992 Agreement modifies the general 
standard for the assessment of benefit that  was set out by the Appellate Body in Canada – Aircraft .  
Instead, the European Union argues that "the refe rence to 'support' and the thresholds ('shall not 
exceed' and 'no less than') in Article 4 of the 1992 Agreement  ... speak to the existence of 'benefit' and 
thus to the existence of a subsidy and the obliga tion for the government conduct (i.e. not to exceed 
such a ceiling when providing development support)."
1927  The European Union further submits that 
"{i}n this sense, Article 4 of the 1992 Agreement  informs the meaning of the term 'benefit' in 
Article 1.1(b) of the SCM Agreemen t as well as the benefit analysis under that provision".1928  
851. The limitation imposed by Article 4 of th e 1992 Agreement on the amount of government 
support that may be provided by the parties for the development of new LCA programmes is 
concerned with the financial contri bution component of the definition of  subsidy in Article 1.1 of the 
SCM Agreement .  The SCM Agreement  does not limit the amount of financial contribution that a 
government may provide.  Instead, by imposing the re quirement that the financial contribution confer 
a benefit, the SCM Agreement qualifies as subsidies only those contributions that make the recipient 
"better off".  Article 4 of the 1992 Agreement also  sets out a minimum interest rate and a maximum 
term for repayment of this government support.  However, Article 4 does not distinguish between 
government support that places the recipient in a more advantageous position and government support 
that is neutral in the sense that the recipient could have obtained similar terms on the market.  
Therefore, the maximum ceiling on the development support that may be provided, the minimum 
interest rate, and the maximum term for repaymen t set out in Article 4 of the 1992 Agreement cannot 
be said to speak to the market-based concept of "benefit" as reflected in Article 1.1(b) of the 
SCM Agreement and the market-based benchmark reflected in Article 14(b).1929  For this reason, we 
do not consider Article 4 of the 1992 Agreement to be  relevant to the specific question that must be 
examined under Article 1.1(b) of the  SCM Agreement , that is, whether the amount to be paid by the 
recipient of the government loan is lower than the amount that would be paid for a comparable 
commercial loan.   
                                                      
1927European Union's appellant's submission, para. 723.  The European Union refers to a number of 
provisions of the WTO agreements that contain refere nces to "support", including Article 1.1(a)(2) of the 
SCM Agreement , Article XVI of the GATT 1994, and Article 3.2 of the Agreement on Agriculture .  The 
European Union refers to other provisions of the SCM Agreement  that it says were "drafted having in mind the 
idea of a threshold".  Specifically, the European Union refers  to footnote 1, Article 14(d) and items (g), (h), (i), 
and (k) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement . (Ibid., paras. 721 and 722) 
1928European Union's appellant's submission, para. 723.   
1929As the United States notes, the fact that both the SCM Agreement  and Article 4 of the 1992 
Agreement may use "thresholds" "does not make the indi vidual thresholds applicable from one ... agreement to 
another". (United States' appellee's submission, para. 234)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 367  
 
  852. In the alternative, the European  Union argues that the "existence and operation of Article 4 … 
{are} part of the facts to establish the relevant  market benchmark at the time the {LA/}MSF was 
granted".
1930  The European Union emphasizes, in this rega rd, that "the existence of benefit requires 
an examination of the specific market conditions existing at the time the financial contribution is 
granted."1931  
853. The Appellate Body has noted that "one accepte d definition of 'market' is 'the area of 
economic activity in which buyers  and sellers come together and the forces of supply and demand 
affect prices'".1932  We do not see how Article 4 of the 1992 Agreement is a "fact" that affected the 
market benchmark for assessing benefit at the time the LA/MSF was granted.  Article 4 of the 1992 
Agreement may have influenced the relationship between the member States and Airbus, because it 
determined how much support was provided by the member States and how Airbus was expected to 
pay it back.  However, Article 4 has no direct bearing on the financial market that is meant to be used 
as the benchmark to determine benef it.  This financial market is de fined by the interaction between 
the economic agents that are willing to provide fund s and those that seek to obtain funds.  We do not 
see how this interaction would have been affected by the existence and operation of Article 4 of the 
1992 Agreement.  Consequently, we are not persuade d that the "existence and operation" of Article 4 
is relevant "as part of the facts to establish th e relevant market benchmark at the time {LA/}MSF was 
granted".1933 
854. Finally, the United States refers to the fifth recital of the Preamble of the 1992 Agreement, 
which states that, upon entering into the 1992 Agreement, the European Economic Community and 
the United States intended to act "without prejudice to their rights and obligations under the GATT and under other multilateral agreemen ts negotiated under the auspices of the GATT".  This recital 
reflects an understanding that neither party intended the 1992 Agreement to modify or impair their 
rights and obligations under the GATT or under the agreements negotiated under the "auspices of the 
GATT".  As we have explained above, the 1992 Ag reement was negotiated against a background of 
differences on how to discipline subsid ies to the aircraft sector.  Accounts of the state of play of the 
Uruguay Round negotiations around 1992 suggest that the issue of disciplining such subsidies was one of the more difficult subjects dividing the Euro pean Communities and the United States, and that 
the relationship between the new SCM Agreement  and the 1992 Agreement was contentious and 
                                                     
 
1930European Union's appellant's submission, para. 730. 
1931European Union's appellant's submission, para. 731. 
1932Appellate Body Report, US – Upland Cotton , para. 408 (quoting Panel Report, US – Upland Cotton , 
para. 7.1236, in turn quoting Merriam-Webster Dictionary online, available at <http://www.merriam-
webster.com>). 
1933European Union's appellant's submission, para. 730.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 368  
 
  ultimately remained unresolved.
1934  It was agreed in Article 12 of the 1992 Agreement to negotiate a 
multilateral agreement on trade in civil aircraft.1935  T h e  SCM Agreement  itself reflects that, at the 
time of its conclusion, negotiations on multilateral ru les on trade in the civil aircraft sector were 
anticipated.1936  However, we note that no such multilate ral rules were ever agreed, except for the 
incorporation of the 1979 Agreement as a plurilateral agreement in Annex 4 to the WTO Agreement .  
The fifth recital of the preamble of the 1992 Agreement expresses the intention of the 
European Economic Community and the United States that this Agreement be "without prejudice" to 
their rights and obligations under the GATT and ot her multilateral agreements negotiated under its 
auspices.  This indicates that they did not intend th at their rights and obligati ons under Article 1.1(b) 
of the SCM Agreement  would be affected or modified by the 1992 Agreement. 
855. For the foregoing reasons, we find that Article 4 of the 1992 Ag reement is not a "relevant" 
rule of international law applicable in the rela tions between the parties, within the meaning of 
Article 31(3)(c) of the Vienna Convention , that informs the meaning of "benefit" under Article 1.1(b) 
of the SCM Agreement , and that Article does not form "part of the facts to establish the relevant 
market benchmark". 
(c) The Panel's approach to the determination of benefit 
856. Having disposed of the European Union's claims relating to Article 4 of the 1992 Agreement, 
we turn our attention next to the Panel's assessme nt of benefit.  Althoug h the Panel did not refer 
expressly to Article 14(b) of the SCM Agreement , the approach of the Panel generally reflects the 
guideline in that provision.  At the outset of its analysis, the Panel quoted the Appellate Body's interpretation of benefit in  Canada – Aircraft , which was reproduced above.
1937  It later elaborated on 
how it would approach the question of benefit, explaining: 
{W}e believe that it is appropriate  to resolve the question whether 
LA/MSF confers a benefit by examining whether the cost of the 
challenged LA/MSF contracts to Airbus is less than the cost that 
                                                      
1934See, for instance, Minutes of the GATT Committee on Trade in Civil Aircraft meeting held on 
16 July 1992, AIR/M/32, and meeting held on 8 October 1992, AIR/M/33. 
1935Article 12.2 of the 1992 Agreement provides that "{t}he Parties shall make their utmost efforts to 
ensure that these or similar discip lines are incorporated in to the Aircraft Agreement or adopted by key 
signatories at the earliest possible date".  Article 12.3  anticipates that "{i}f multilateralization has not been 
achieved in one year, the Parties shall review the ques tion of the continued application of this bilateral 
Agreement."   
1936Footnote 15 to (now expired) Article 6.1(a) of the SCM Agreement  states that, "{s}ince it is 
anticipated that civil aircraft will be subject to specific multilate ral rules, the threshold in this subparagraph does 
not apply to civil aircraft."  Moreover, footno te 24 to (now expired) Article 8.2(a) of the SCM Agreement  
provides that "{s}ince it is anticipated that civil aircraft will be subject to specific multilateral rules, the provisions of this subparagraph do not apply to that product." 
1937Panel Report, para. 7.382.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 369  
 
  Airbus would be faced with if it sought financing on the same or 
similar terms and conditions as LA/MSF from the market.  We therefore begin our benefit analysis by examining whether the rate of return obtained by the relevant EC member State governments when providing LA/MSF is less than the rate of return that would be asked 
by a market-based lender for financing on the same or similar terms 
and conditions as each provision of LA/MSF.
1938 
857. The first sentence quoted above correctly re flects the focus of the requirement in 
Article 1.1(b), as interpreted by th e Appellate Body, on the recipient of the benefit.  It is also 
consistent with the guideline set out in Article 14(b) of the SCM Agreement , which calls for a 
comparison of what the recipient pays for the govern ment loan with what it would have paid for a 
commercial loan.  As discussed in section VII.B.3 be low, the calculation of benefit in relation to 
prevailing market conditions demands an examination of behaviour on both sides of a transaction, and 
in particular of the conditions of supply and demand as they apply to that market.  The market rate of 
return on a commercial loan results from the disciplin e enforced by the market, which is reflective of 
the supply and demand of borrowers  and lenders.  In the second sentence of the excerpt quoted above, 
the Panel shifts focus from the recipient (Airbus) to the member State governments.  At first sight, this 
seems incompatible with the Appellate Body's inte rpretation that benefit must be assessed from the 
perspective of the recipient.1939  Nonetheless, in this case there is  no substantive error in the Panel's 
approach.1940  When referring to the rate of return of  the member State governments, the Panel was 
referring to how much Airbus would pay on each LA/MSF measure and hence how much the member 
States would receive from Airbus.1941  Thus, the Panel is actually considering how much Airbus had 
to pay for the LA/MSF financing.  We further note th at neither participant has asserted on appeal that 
the Panel's general approach departed from the guid eline in Article 14(b) or  is inconsistent with 
Article 1.1(b) of the SCM Agreement .1942 
                                                      
1938Panel Report, para. 7.401. 
1939Appellate Body Report, Canada – Aircraft , para. 156. 
1940The European Union has not raised an allegation of error in this respect.  In fact, in challenging 
other findings of the Panel, the European Union states: 
The return to a government is a relevant measure for assessing "benefit" 
only where a financial contribution under Ar ticle 1.1(a)(1)(i) is involved. ...  
Articles 14(a)-(c) provide specific guida nce for assessing against a market 
benchmark the government return involved in an equity infusion, a loan and 
a loan guarantee, respectively. 
(European Union's appellant's submission, para. 1067) 
1941In the analysis of an earlier issue,  for example, the Panel observed th at "the rate of return earned on 
each LA/MSF contract represents not only the envisaged financial gain fo r the lender (the EC member State 
governments), but also the apparent financial cost for Airbus." (Panel Report, para. 7.398) 
1942European Union's and United St ates' responses to questioni ng at the oral hearing. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 370  
 
  858. In order to make the comparison required by Artic le 1.1(b), the Panel first determined the IRR 
of each of the LA/MSF measures.
1943  As already noted above, neither the European Union nor the 
United States has questioned on appeal the Panel's determination of the maximum returns obtained by 
the member States on the LA/MSF, which are set out in Table 5 of the Panel Report.   
859. Also as already noted above, the European Un ion's appeal focuses exclusively on the second 
element of the Panel's comparison, that is, the rates of return that a market lender would have required 
to provide financing to Airbus.  As we explai n further below, both the United States and the 
European Communities sought to develop a proxy that , in their view, most accurately reflected the 
rate of return that would have been demanded by a market lender.  This proxy, and particularly one of 
its components, is at the heart of the European Un ion's appeal.  We discuss the alternative proxies 
developed by the United States and the European  Communities in the subsection that follows. 
(d) Alternative market benchmarks de veloped by the United States and 
the European Communities 
860. The United States put forward a proxy develo ped by its expert, Dr. Ellis, which was 
calculated by adding three components.  The first component stood for the government borrowing rate 
for each member State that provided LA/MSF.1944  The second component was intended to reflect the 
general corporate risk of Airbus, which was understo od as "the risk of default of the Airbus company 
carrying the launch aid repayment obligation".1945  Finally, the third variable was intended to reflect 
the project-specific risk.1946  This was defined as the "risk that the particular project will fail to 
perform as originally forecast and, therefore, that re payments, if any, will be insufficient to cover the 
full investment and interest".1947  The calculation performed by Dr. Ellis can be illustrated as follows:  
                                                      
1943We note that there are limitations to the IRR method and there may be reasons to prefer a method 
that focuses on the net present value (" NPV") of a project.  Nonetheless, this  aspect of the Panel's analysis has 
not been challenged on appeal by either participant. 
1944These government borrowing rates are sometimes referred to as "risk-free" rates.  See, for example, 
Panel Report, para. 7.432;  and Ellis Report, supra , footnote 760, p. 1. 
1945Ellis Report, supra , footnote 760, p. 6. 
1946Ellis Report, supra , footnote 760, p. 6.   
1947Ellis Report, supra , footnote 760, p. 6.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 371  
 
  mrr  = gr + cr + pr 
where: 
mrr is the rate of return that would be demanded by a market lender; 
gr is the government borrowing rate; 
cr is the general corporate risk premium,  i.e., the difference between the rate of 
return on a corporate bond and the government borrowing rate; and 
pr is the project-specific risk premium. 
 
861. Dr. Ellis derived the project-specific risk prem ium from the results of a 2004 empirical study 
of venture capital investments undertaken by Kerins, Smith, and Smith (the "KSS Study").1948  
Dr. Ellis explained before the Panel that "the K SS Study found returns on venture capital investments 
to range from 16.7% to 57.5%, depending on the diversification of the investor."1949  He indicated that 
he arrived at a project-specific risk premium of 700 basis points (or 7%) from the lowest return in this 
range (that is, 16.7%), which was said to represent th e return obtained by a "well diversified investor 
in both venture capital projects and other, less risky, equity investments represented by a stock market 
index".1950  Before the Panel, the United States characteri zed this project-specific risk premium "as the 
opportunity cost of capital for a well-diversified portfolio of venture capital investments including 
both debt and equity instruments."1951   
862. The European Communities put forward an alte rnative proxy calculated by its own expert, 
Professor Whitelaw.  In constructing this alterna tive proxy, Professor Whitelaw accepted the general 
framework developed by Dr. Ellis.  He also accep ted Dr. Ellis' determinations as to the first two 
components of the calculation, that is, the government  borrowing rate and the general corporate risk.  
However, Professor Whitelaw contested the manne r in which Dr. Ellis calculated the third 
component: the project-specific  risk premium.  Professor Whitelaw put forward an alternative project-
specific risk premium calculated "based on the antic ipated returns of risk-sharing suppliers that 
contributed to the development of the A380 on terms similar to those agreed to by the participating 
member States".1952  However, Professor Whitelaw did not question the appropriateness of adding a 
premium for project-specific risk.   
                                                      
1948F. Kerins, J.K. Smith, and R. Smith, "Opportunity Cost of Capital for Venture Capital Investors and 
Entrepreneurs" (June 2004)  39(2) Journal of Financial and Quantitative Analysis  385 (Panel Exhibit US-470 
(BCI)). 
1949Panel Report, para. 7.437. 
1950Panel Report, para. 7.437 (referring to Response to Whitelaw Report, supra , foonote 787, p. 7). 
1951United States' responses to Panel Questions 8 and 9. 
1952Whitelaw Report, supra , footnote 1881, p. 10. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 372  
 
  863. To derive the project-specific risk premium, Professor Whitelaw first calculated the return 
anticipated by each supplier as an IRR using the forecast component delivery schedule for the 
supplier, the agreed reimbursable cost, and the agr eed repayment per aircraft.  He then calculated the 
weighted average return of the suppliers a rriving at "a single benchmark for the A380".
1953  N e x t ,  
Professor Whitelaw took this "single benchmark" and deducted from it the government borrowing rate 
and general corporate risk premium calculated by Dr. Ellis for 2001.  At this point, Professor 
Whitelaw arrived at what he described as the "corrected project-specific risk premium".1954  Finally, 
Professor Whitelaw added this corrected project-sp ecific risk premium to the government borrowing 
rates and general corporate risk premia calculated by Dr. Ellis for the launch years of the LCA projects in question.  Professor Whitelaw expl ained that the "only difference between the 
{European Communities'} benchmark and the Ellis be nchmark is the use of a defensible project-
specific risk premium that reflects the risk of the aircraft programmes in exce ss of general corporate 
risk".
1955 
864. Dr. Ellis applied a constant project-specific ri sk premium of 7% to all of the LCA projects 
challenged by the United States.  He nevertheless recognized that the risk could vary between LCA 
projects, noting that "a 40% risk premium or someth ing of that order of magnitude would probably be 
quite appropriate for the earlier years of Airbus' existence given the high-risk of launch aid and the 
project-specific repayment during the early life of the company."1956  Professor Whitelaw derived a 
constant project risk premium from the risk-sharing suppliers of the A380, a nd applied this constant 
project risk premium also to the A320, A330/A340, A330-200, and the A340-500/600 
programmes.1957  The European Communities explained that it did so for "administrative 
convenience" and that, "{b}ecause the A320, A330 /A340, A330-200, and A340-500/600 programmes 
carried less risk than the A380, this assumption actu ally overstates the risk premium that would have 
applied to these earlier programmes, and illu strates the conservative nature of the 
{European Communities'} methodology."1958 
(e) Overview of the Panel's assessment of the Ellis and Whitelaw 
project-specific risk premia 
865. The Panel examined the project-specific risk premia put forward by both parties and had 
misgivings about both.  As regards the project-speci fic risk premium put forward by the United States, 
                                                      
1953Whitelaw Report, supra , footnote 1881, p. 11. 
1954Whitelaw Report, supra , footnote 1881, p. 11. 
1955Whitelaw Report, supra , footnote 1881, p. 11. 
1956Ellis Report, supra , footnote 760, footnote 28, p. 20. 
1957European Communities' response to Panel Question 64, footnote 40 to para. 71.   
1958European Communities' response to Panel Question 64, footnote 40 to para. 71.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 373  
 
  the Panel considered that it had "a number of defici encies" which, in its view, "imply that it probably 
overstates the appropriate level of project-specifi c risk that may be reasonably associated with 
LA/MSF provided for at least a number of the challenged Airbus LCA projects."
1959  As will be 
explained further below, the Panel also found that the benchmark proposed by the 
European Communities "under-estimate{d} the appropria te level of project-specific risk that may be 
reasonably associated with LA/MSF for all of the challenged measures."1960   
866. The Panel described the United States' proposed  risk premium as being "{i}n essence ... based 
on the alleged risk associated with holding a divers ified portfolio of venture capital investments."1961  
It went on to explain that "{w}hile it would not be inaccurate to characterize LA/MSF, because of its unsecured, success-dependent and gr aduated repayment terms, as a form of financing that is 
inherently speculative", it did "not  consider {that} this renders it entirely  comparable with venture 
capital investments."
1962  According to the Panel, "{t}here are sev eral reasons to believe that the level 
of risk associated with venture capital financing is  typically higher than th e risk associated with 
LA/MSF."1963  Referring to economic literature, the Panel further reasoned that "{v}enture capital 
organizations finance these high-risk, potentially hi gh-reward projects, purchasing equity or equity-
linked stakes while the firms are still privately held".1964  The Panel also noted that the economic 
literature described firms that receive venture capita l as "typically small and young, plagued by high 
levels of uncertainty and large differences between  what entrepreneurs and investors know" and as 
firms that "typically possess few tangible assets and ope rate in markets that change very rapidly".1965  
The Panel contrasted this with the fact that "b y the time of the launch of the A380, Airbus had 
developed into a relatively large firm with over 30 years experience, substantial capital assets and 
revenues, and a track record of successful LCA deve lopment, sometimes even exceeding expectations 
(although it is equally apparent that it is not entirely clear yet whether several of the Airbus LCA models developed immediately prior to the A 380 will be as successful as initially expected)."
1966  In 
response to the United States' argument that its project-specific risk premium was "conservative" 
because it reflected the "the risk associated with holding a well-diversified venture capital portfolio as 
opposed to the risk associated with financing indi vidual venture capital projects", the Panel reiterated 
                                                      
1959Panel Report, para. 7.461. 
1960Panel Report, para. 7.479. 
1961Panel Report, para. 7.462. 
1962Panel Report, para. 7.462. (original emphasis) 
1963Panel Report, para. 7.462. 
1964Panel Report, para. 7.463 (referring to P. Gompers and J. Lerner, "The Venture Capital Revolution" 
(2001) 15(2) Journal of Economic Perspectives  145 (Panel Exhibit EC-677), quoted in Robert Whitelaw 
Rebuttal Report (24 May 2007) (Panel Exhibit EC-656 (BCI)), para. 18). 
1965Panel Report, para. 7.463 (quoting Gompers and Lerner, supra , footnote 1964, quoted in Whitelaw 
Rebuttal Report, supra , footnote 1964, para. 18). 
1966Panel Report, para. 7.463. (footnotes omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 374  
 
  its view that "there are reasons to  believe that venture capital financi ng is inherently more risky than 
LA/MSF, even when considered in the form of a portfolio."
1967  
867. Another concern that the Panel expressed was that the United States sought "to apply one and 
the same project-specific risk premium to construct the market interest rate benchmarks associated 
with all models of LCA developed by Airbus."1968  The Panel acknowledged that the 
European Communities had not disputed "this aspect of the Ellis Report project-specific risk 
premia".1969  Nevertheless, the Panel said it was "not convinced that it is the best approach to 
identifying the most appropriate project-specific risk premium for each  of the challenged LA/MSF 
contracts."1970  The Panel explained: 
Various pieces of evidence and arguments presented by the parties 
indicate that the risk associated with LCA development will vary over time depending upon a variety of factors.  These factors include the conditions of competition in the aircraft industry and differences in the levels of technology associ ated with developing different 
models of LCA.  In our view, a project-specific risk premium may 
even vary over time because of the levels of risk that the finance industry is willing to accept at different moments in its own economic cycle.  Moreover, if the project-specific risk premium is intended to relate to the risk of default attached to LA/MSF for a 
particular LCA development project, it would seem to follow that, all 
things being equal, it should be greater for earlier LCA development 
projects, when Airbus had relatively less experience—or conversely, the risk premium associated with development of a later model of LCA should be lower in the light of successful prior experience.
1971 
(footnote omitted) 
The Panel observed that the Ellis Report appeared to recognize that the risk premium could vary by 
project.1972  The Panel concluded: 
All of the above considerations lead us to conclude that the 
United States' proposed project-speci fic risk premium may not be an 
appropriate proxy for the project-specific risk premium that a market 
lender would ask Airbus to pay in return for financing on the same or similar terms and conditions as LA/MSF for all of the challenged 
LA/MSF contracts.  In our view, in order to evaluate the suitability of the United States' proposed project-specific risk premium, it is 
important to bear in mind the nature of and circumstances 
surrounding each of the different LCA development projects financed under the challenged LA/MSF measures.  Thus, in respect of the 
                                                     
 
1967Panel Report, para. 7.464. 
1968Panel Report, para. 7.468. 
1969Panel Report, para. 7.468. 
1970Panel Report, para. 7.468. (original emphasis) 
1971Panel Report, para. 7.468.  
1972Panel Report, para. 7.469 (re ferring to Ellis Report, supra , footnote 760, footnote 28, p. 20).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 375  
 
  earliest models of Airbus LCA, namely, the A300 and A310, when 
Airbus was in its very early stages of  existence, a project-specific risk 
premium derived from the risk associated with investing in a well-diversified portfolio of venture capital investments, appeals to us as a reasonable proxy for the minimum  project-specific risk premium that 
it would be appropriate to associate with market financing 
comparable with LA/MSF.  However, for subsequent models of Airbus LCA, and in particular, the A320, A330/A340, A330-200 and 
A340-500/600, the project-specific risk premium proposed by the United States' probably overstates the maximum  that we believe the 
evidence before us suggests would be appropriate; whereas, because 
of the acknowledged technological challenges associated with the A380 project, our sense is that the Un ited States' project-specific risk 
premium could be reasonably accepted to represent the outer limit  of 
the risk premium that a market lender would ask Airbus to pay for 
financing on the same or similar terms and conditions as the A380 
LA/MSF contracts.
1973 (original emphasis) 
868. Having assessed the project-specific risk premium put forward by the United States, the Panel 
turned to the alternative risk premium advanced by the European Communities.  Initially, the Panel 
expressed some sympathy for the approach of the Eu ropean Communities, noting that "{i}n principle, 
we agree with the view that the returns associated with market financing actually provided to Airbus 
for the same project as LA/MSF would serve as an appr opriate basis from which to derive the relevant 
project-specific risk premium."1974  The Panel added that "such an a pproach would be preferable to the 
one used by the United States to calculate its  own proposed project-specific risk premium."1975  Yet, 
ultimately, the Panel was "not persuaded that the project-specific risk premium advanced by the 
European Communities is derived from data having these characteristics."1976  Presumably, the 
"characteristics" that the Panel was referring to were   those of "market financing actually provided to 
Airbus for the same project as LA/MSF".  The Panel gave the following reasons for its view: 
In the first instance, we not e that Professor Whitelaw used 
information from only a sample of the risk-sharing supplier contracts 
to construct the proposed project-specific risk premium.  Although Professor Whitelaw asserts that the contracts used amounted to 100% 
of those for which an {IRR} could be calculated, we have no way of 
verifying this assertion because the European Communities has 
submitted little if any of the underlying data used in Professor 
Whitelaw's calculations.  Specifi cally, the European Communities 
has provided a table summarizing various pieces of information that appear to be taken and derive d from the sampled risk-sharing 
supplier contracts, and five pages of one of those contracts.  Even on 
the basis of only the number of risk-sharing supplier contracts 
                                                     
 
1973Panel Report, para. 7.469. 
1974Panel Report, para. 7.480. 
1975Panel Report, para. 7.480. 
1976Panel Report, para. 7.480. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 376  
 
  actually sampled we find this to be clearly insufficient to substantiate 
the European Communities' assertions  in respect of the appropriate 
project-specific risk premium.  Moreover, we note that the one contract that the European Communities has submitted shows that there is at least one major difference between the repayment terms 
under this contract and LA/MSF which we believe reduces its 
relative level of risk.  We are also of the view that there is some logical merit to the United States' arguments suggesting that the risk-sharing suppliers had incentives to lower their expected rates of return.  We furthermore agree with  the view expressed by Brazil and 
the United States that government support for the A380 in the form 
of LA/MSF reduces the level of risk associated with risk-sharing supplier financing, thereby limiting its comparability with LA/MSF.  Moreover, there is information contained in the Airbus A380 business case which suggests that the risk-sharing participants' 
involvement in the A380 project may not have been on strictly 
market terms for all participants.
1977 (footnotes omitted) 
869. The Panel concluded that "notwithstanding its potential, the shortcomings in the evidence 
relied upon by Professor Whitelaw to derive the European Communities proposed project-specific 
risk premium and the notable differences between th e risks assumed by the risk-sharing suppliers 
compared with the EC member State governments, lead us to conclude that the European Communities' project-specific risk prem ium for the A380 is unreliable and understates the 
risk premium that a market operator would have reasonably demanded Airbus pay for financing on 
the same or similar terms as LA/MSF for this particular model of LCA".
1978  The Panel additionally 
noted that "as with the United States, the Eur opean Communities seeks to apply one and the same 
project-specific risk premium to construct the mark et interest rate benchmarks associated with all 
models of LCA developed by Airbus".1979  Recalling its earlier views, the Panel said it was "not 
convinced that this is the best approach to identifying the most appropriate project-specific risk 
premium for each of the challenged LA/MSF contracts" .  It explained that, "in order to assess the 
suitability of a project-specific risk premium for market financing comparable to LA/MSF, it is 
important to bear in mind the nature of and ci rcumstances surrounding each of the different LCA 
development projects financed under the challenged LA/MSF measures."1980  The Panel found that the 
project-specific risk premium advanced by th e European Communities for the A320, A330/A340, 
A330-200 and A340-500/600 "underestimates the reasonable project-specific risk premium that a 
market lender would have asked Airbus to pay for financing on the same or similar terms and 
conditions as LA/MSF for all of these models of LCA, as well as the A380."1981 
                                                      
1977Panel Report, para. 7.480. 
1978Panel Report, para. 7.481. 
1979Panel Report, para. 7.481. 
1980Panel Report, para. 7.481. (footnote omitted) 
1981Panel Report, para. 7.481.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 377  
 
  870. It is evident from the discussion summarized above that the Panel was not satisfied with either 
alternative put forward by the parties.  The Panel ha d two major concerns with respect to both proxies.  
First, the Panel criticized both the United Stat es and the European Comm unities for applying a 
constant risk premium to all LCA projects and in stead expressed a preference for a variable risk 
premium that took into account the particularities of the specific LCA projects.  Second, the Panel 
considered that the project-specific risk premia proposed by the United States and the 
European Communities did not accurately reflect th e risk of the LCA project because the former 
generally overstated the level of risk, while the latter underestimated it. 
(f) Do the European Union's allegations concern errors of application or 
errors under Article 11 of the DSU? 
871. For each aspect of the Panel's assessment that it challenges, the European Union has made 
parallel claims under Article 1.1(b) of the  SCM Agreement , alleging an error of application, and under 
Article 11 of the DSU, alleging a failure by the Panel to make an objective assessment of the facts.  At 
the oral hearing, the European Un ion suggested that an appellant was entitled to make parallel claims 
and that it would be for the Appellate Body to determine which was the proper characterization of 
those claims.  
872. The Appellate Body has noted that "an appellant  is free to determine how to characterize its 
claims on appeal".
1982  Furthermore, we recognize that it is often difficult to distinguish clearly 
between issues that are purely legal or purely factual, or are mixed issues of law and fact.  We also 
recognize that a failure to make a claim under Artic le 11 of the DSU on an issue that the Appellate 
Body determines to concern a factual assessment may have serious consequences for the appellant.1983  
An appellant may thus feel safer putting forward both a claim that the Panel erred in the application of 
a legal provision and a claim that the Panel failed to make an objective assessment of the facts under 
Article 11 of the DSU.  In most cases, however, an issue will either  be one of application of the law to 
the facts or an issue of the objective assessment of facts, and not both.  
873. In order to determine whether the issues rai sed by the European Union are more properly 
characterized as one of application of law to facts or one of objective assessment of the facts, it is first 
necessary to recall the requirements of Article 1.1(b) of the SCM Agreement  before we explain our 
reasoning.  Article 1.1(b) requires that a financial contribution confer a "benefit" in order for such 
financial contribution to constitute a subsidy.  Article 1.1(b) does not provide a particular 
                                                      
1982Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 177 (referring to 
Appellate Body Report, Japan – Apples , para. 136).   
1983See Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 274. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 378  
 
  methodology to determine whether a benefit is confe rred.  The Appellate Body has determined that 
the assessment of benefit involves a comparison w ith the marketplace and that such assessment is 
intended to identify whether the reci pient of the financial contribution is "better off" than it would 
otherwise have been, absent the financial contribution.
1984  Article 14 of the  SCM Agreement  provides 
certain guidelines applicable to the calculation of benefit in countervailing duty investigations, but 
which may also be of contextual assistance to WTO pa nels confronted with subsidy claims.  The most 
relevant guideline in this particular case, given the Panel's characterization of the LA/MSF as loans, is 
Article 14(b), which provides that "a loan by a gove rnment shall not be considered as conferring a 
benefit, unless there is a difference between the am ount that the firm receiving the loan pays on the 
government loan and the amount the firm would pay on a comparable commercial loan which the firm 
could actually obtain on the market". 
874. In its appeal, the European Union is not alle ging that the Panel incorrectly interpreted 
Articles 1.1(b) or 14(b) of the SCM Agreement .  On the contrary, the European Union accepts that the 
assessment of benefit in this case called for a comparison of the rates of return of the LA/MSF 
measures with the rates of return  that would have been demanded by  a market lender.  Furthermore, 
the European Union does not challenge the fact that the Panel relied on a constructed proxy to 
determine those rates of return.1985  The European Union also accepts, in principle, the formula used 
by the Panel and acknowledges that this formula is capable of yielding a market proxy that can 
properly be used to make an assessment of benefit that is consistent with Article 1.1(b) of the 
SCM Agreement .1986  The European Union even accepts the amounts determined by the Panel for two 
of the three components of the formula.  The distinc tive target of the European Union's appeal is the 
third component of the Panel's formula, that is, the project-specific risk premium.  The 
European Union accepts that it was appropriate for th e Panel to have included a project-specific risk 
premium as part of the formula for constructi ng the proxy.  It disagrees, however, with the 
quantification made by the Panel of the project ri sk specific to each LCA project, with the manner in 
which the Panel chose relevant f actors and applied them in making this quantitative assessment, and 
with the reasons given by the Panel to justify applying  a particular level of project risk to the various 
LCA projects.   
875. The European Union first complains that "alt hough the Panel finds that the project-specific 
risk premium should vary from product to produc t, it considered jointly, and made findings 
collectively, for (i) the A300 and the A310 project s, and (ii) the A320, A330/A340, A330-200 and 
                                                      
1984Appellate Body Report, Canada – Aircraft , para. 157.  
1985European Union's response to questioning at the oral hearing. 
1986European Union's response to questioning at the oral hearing.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 379  
 
  A340-500/600 projects."
1987  On appeal, the European Union do es not question the Panel's use of a 
variable project risk premium.1988  Instead, the European Union ch allenges the Panel's reasoning as 
internally inconsistent because, having opted for a variable project risk premium, the Panel then 
applied the same project risk premium within the two groupings of LCA projects mentioned above.  
Implicit in the European Union's argument is the proposition that the quantum of risk of the LCA 
projects within each grouping is different.   
876. Second, the European Union criticizes the Panel for failing to take into account two factors 
that the Panel had "found to aff ect the level of project risk"1989, namely (i) changes in the "conditions 
of competition in the aircraft industry" and (ii) chang es in "the level of risk that the finance industry is 
willing to accept at different moments of its own economic cycle".1990  The European Union does not 
call into question that the Panel was permitted to examine these two factors as relevant to an 
assessment of benefit under Article 1.1(b) of the SCM Agreement .1991  Rather, the European Union is 
again identifying an apparent incoherence and a lack of explanation in the Pane l's reasoning.  It argues 
that the Panel identified the two factors as relevant to the assessment of the level of risk, but nevertheless failed to examine those factors in respect of certain models or groupings.  The 
implication is that consideration of the two factors would have influenced the quantum of project risk.  
877. Third, the European Union makes several alle gations concerning the manner in which the 
Panel applied the relative experience of Airbus a nd the technological challenges of the LCA projects 
as factors relevant to the assessment of the level of  risk.  The European Union argues that the Panel 
applied relative experience only to the A300 and A310  and the technological challenges factor only to 
the A380.
1992  It complains that the Panel did not take into account the relative experience of Airbus 
when it assessed the level of risk of the A380.1993  These allegations also concern an apparent 
contradiction in the Panel's reasoning that affects the quantum of risk assigned by the Panel to the 
projects.  They also concern an alleged lack of even-handedness by the Panel in the application of 
                                                      
1987European Union's appellant's submission, para. 760. (footnote omitted) 
1988European Union's appellant's submission, footnote 969 to para. 759. 
1989European Union's appellant's submission, para. 761. 
1990European Union's appellant's submission, para. 761. 
1991We note that the situation concerning the relevant risk factors for the quantif ication of risk differs 
from the examination of the criteria set out in GATT and WTO case law for determining likeness under 
Article III of the GATT 1994.  The Appellate Body has noted that the "determination of whether imported and domestic products are 'like products' is a process by which legal rules have to be applied to facts".  (Appellate 
Body Report, Canada – Periodicals , p. 22, DSR 1997:I, 449, at 468)  "Like products" is a legal category 
established under the GATT 1994.  By contrast, as we e xplained earlier, calculation of  the project-specific risk 
premium is not expressly required under Articles 1.1(b) or 14(b) of the SCM Agreement , but is rather a function 
of the particular methodology chosen by the parties in this case to calculate the amount that Airbus would have 
paid for a comparable commercial loan.  
1992European Union's appellant's submission, para. 763. 
1993European Union's appellant's submission, para. 770. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 380  
 
  certain factors when making this quantitative assess ment because they were relied upon only when 
they led to an increase in the level of risk, and not  when their application would have resulted in a 
decrease in the risk.   
878. Fourth, the European Union alleg es that the Panel erred in applying the same level of risk to 
the A320 and A330/A340 LCA projects, on the one hand, and to the A330-200 and A340-500/600, on 
the other hand, despite the latter being de rivatives with lower developments costs.
1994   
879. Finally, the European Union complains that the Panel applied the project-specific risk 
premium proposed by the United States to the A300 and A310 and to the A380, even though the Panel had said that that the premium proposed by the United States was based on venture capital financing 
that is "inherently more risky than LA/MSF, even  when considered in the form of a portfolio".
1995  
Like the others, these claims concern an alleged contradiction, lack of even-handedness, and the 
absence of sufficient explanation in the Panel's reasoning1996 and, therefore, the failure to consider in 
an internally consistent manner the relevant factors in the quantification of the risk of particular LCA 
projects. 
880. In sum, we view the European Union's challenge of the quantification of the level of project 
risk, the choice of relevant factors for quantificati on, and the reasoning of the Panel as relating to the 
objectivity of the Panel's assessment of factual dete rminations within the meaning Article 11 of the 
DSU.1997  The European Union's allegations concern ho w the Panel reasoned over disputed facts.  
These allegations appear to us to be claims about the objectivity of the Panel's assessment of the facts 
and thus are more in the nature of clai ms made under Article 11 of the DSU.   
881. Pursuant to Article 11 of the DSU, "a panel is charged with the mandate to determine the facts 
of the case and to arrive at factual findings".1998  The Appellate Body has repeatedly stated that it will 
not "interfere lightly" with the panel's fact-finding authority1999, and has also emphasized that it 
"cannot base a finding of inconsistency under Article 11 simply on the conclusion that {it} might have 
                                                      
1994European Union's appellant's submission, para. 766-769. 
1995European Union's appellant's submission, paras. 772-775. 
1996See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil ), paras. 292 and. 294. 
1997Our conclusion applies also to the European Union's appeal in relation to the French LA/MSF for 
the A330-200.  We recall that  the European Union requests us "to reverse each of the Panel's findings on the 
project-specific risk premium", yet concedes that "{o}th er than {the French LA/MSF} for the A330-200, such 
reversal would not, however, constitute a reversal of the Panel's finding that the {LA/ }MSF loans at issue confer 
a benefit, within the meanin g of Article 1.1(b) of the SCM Agreement , and thus constitute subsidies". 
(European Union's appellant's submission, paras. 788 and 790 (referring to Panel Report, paras. 7.489 
and 7.490))  
1998Appellate Body Report, Korea – Dairy , para. 137. 
1999See, for example, Appellate Body Report, US – Wheat Gluten , para. 151;  Appellate Body Report, 
EC – Sardines , para.. 299;  and Appellate Body Report, US – Carbon Steel , para. 142.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 381  
 
  reached a different factual finding from the one the panel reached".
2000  Instead, for a claim under 
Article 11 to succeed, we must be satisfied that th e panel has exceeded its authority as the trier of 
facts.2001  As an initial trier of facts, a panel must provide a "reasoned and adequate" explanation for 
its findings2002 and coherent reasoning.2003  It has to base its findings on  a sufficient evidentiary basis 
on the record2004, may not apply a double standard of proof2005, and a panel's treatment of the evidence 
must not lack "even-handedness".2006 
(g) The Panel's assessment of the project-specific risk premium proposed 
by the United States 
882. As noted earlier, the Panel divided the LCA projects into three groups, each of which 
comprised the following LCA projects:  (i) the A300 and A310;  (ii) the A320, A330/A340, 
A330-200, and A340-500/600;  and (iii) the A380.2007  The Panel determined ranges for the risk 
premium applicable to each group of LCA projects that it had identified.2008  These ranges can be 
summarized as follows, where "pr" is the project-specific risk premium, 7% is the project-specific risk 
premium put forward by the United States, and "W" is the project-specific risk premium put forward 
by the European Communities, the exact figure being HSBI: 
Group Range  
A300 and A310 7% <  pr  
A320, A330/A340, A330-200, and 
A340-500/600 W < pr < 7% 
A380 W < pr <  7% 
 
883. Before turning to the Panel's assessment of the project-specific risk premium proposed by the 
United States, we note that we do not consider that it was inappropriate per se  for the Panel to have 
arranged the LCA projects into groups and to have determined a range for the project-specific risk 
premium applicable to the LCA projects within each group.  As we explained earlier, under Article 1.1(b) of the SCM Agreement , panels have a degree of discre tion in selecting the appropriate 
                                                     
 
2000Appellate Body Report, US – Wheat Gluten , para. 151. 
2001Appellate Body Report, US – Wheat Gluten , para. 151. 
2002See Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 97. 
2003See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 293 and footnote 618 
thereto, and para. 294. 
2004See Appellate Body Report, US – Continued Zeroing , para. 338. 
2005See Appellate Body Report, Korea – Dairy , para. 137. 
2006See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 292. 
2007See, for example, Panel Report, paras. 7.469, 7.481, and 7.485-7.487. 
2008Panel Report, para. 7.488, Table 7.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 382  
 
  methodology to determine "benefit" provided the me thodology is not inconsistent with the guideline 
in Article 14(b).  Pursuant to Article 11 of th e DSU, the Panel had a duty to "make an objective 
assessment of the matter before it, including an ob jective assessment of the facts of the case".  This 
means that the Panel was not under an obligation to accept the parties' approach of calculating a 
constant risk premium for all LCA projects.  On the contrary, it was the Panel's duty to assess, based 
on the evidence on record, whether the application of  a constant project risk premium was the most 
appropriate approach and, to the extent that it was not, to consider alternative approaches.  Thus, it 
was not impermissible for the Panel to have attempted to assemble the various LCA projects into various groupings according to the projects' level of risk.
2009   
884. However, we have serious concerns about the Panel's assessment of the project-specific risk 
premium proposed by the United States.  Our main concern is that the Panel relied on the project-
specific risk premium proposed by the United States as a boundary for the range that it established for 
the risk premium of each of the three groupings,  despite having expressed strong reservations about 
the extent to which it reflected the level of ri sk of the LCA projects that received LA/MSF.  
885. The Panel identified several aspects of the pr oject-specific risk premium proposed by the 
United States that, in the Panel's view, limited its su itability as a proxy reflecting the level of risk of 
the LCA projects financed with LA/MSF.  First,  the Panel highlighted differences between the 
features of the LA/MSF and those of venture capita l financing—the type of financing from which 
Dr. Ellis derived the project-specific risk premiu m proposed by the United States—that impact on the 
level of risk of each type of financing.  The Pane l noted that "{w}hile it would not be inaccurate to 
characterize LA/MSF, because of its unsecured, su ccess-dependent and graduated repayment terms, 
as a form of financing that is inherently sp eculative, we do not consider this renders it entirely  
comparable with venture capital investments."2010  The Panel further observed that "{t}here are 
several reasons to believe that the level of risk associated with venture capital financing is typically 
higher than the risk associated with LA/MSF."2011  The Panel also explained that, "while 
LA/MSF may be considered to have some equity -like qualities, such as the fact that lender 
governments have no recourse in the event of non-repayment, LA/MSF contracts are generally 
conceived as amortizing loans repaid out of project revenue."2012  Second, the Panel referred to a 
journal article that described firms that receive ve nture capital as "typically small and young, plagued 
by high levels of uncertainty and large differen ces between what entrepreneurs and investors know" 
                                                      
2009Panel Report, para. 7.468. 
2010Panel Report, para. 7.462. (original emphasis) 
2011Panel Report, para. 7.462. 
2012Panel Report, para. 7.462.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 383  
 
  and as firms that "typically possess few tangible assets and operate in markets that change very 
rapidly".
2013  Third, the Panel was not persuaded by the United States' assertion that the project-
specific risk premium that it proposed was "conserva tive" because it reflected "the risk associated 
with holding a well-diversified venture capital portfolio as opposed  to the risk associated with 
financing individual venture capital projects."2014  The Panel responded to this assertion stating that 
"there are reasons to believe that venture capital financing is inherently more risky than LA/MSF, 
even when considered in the form of a portfolio."2015  Finally, the Panel expressed concerns that the 
700 basis points figure that the United States had put forward as the project-specific risk premium could also improperly include management fees.
2016 
886. Notwithstanding these reservations, which call into  question the appropriateness of using the 
rates of return of venture capital financing as a proxy to derive the risk premium of the projects 
financed by LA/MSF, the Panel used the project-sp ecific risk premium proposed by the United States 
as a boundary in each of the ranges it established for the three groupings of LCA projects.   
887. We recognize that some of the Panel's statemen ts leave some room for the application of the 
United States' proposed project-specific risk pr emium.  For example, the Panel said that the 
United States' proposed project-specific risk premiu m "probably overstates the appropriate level of 
project-specific risk that may be reasonably associated with LA/MSF provided for at least a number of the challenged Airbus LCA projects".
2017  It concluded that the "United States' proposed project-
specific risk premium may not be an appropriate proxy for the project-specific risk premium that a 
market lender would ask Airbus to pay in return  for financing on the same or similar terms and 
conditions as LA/MSF for all of the challenged LA/MSF contracts".2018  The Panel specifically found 
that "in respect of the earliest models of Airbus LCA, namely, the A300 and A310, when Airbus was in its very early stages of existence, a project-sp ecific risk premium derived from the risk associated 
with investing in a well-diversif ied portfolio of venture capital investments, appeals to us as a 
reasonable proxy for the minimum  project-specific risk premium that it would be appropriate to 
associate with market financing comparable with LA/MSF."
2019  
                                                      
2013Gompers and Lerner, supra , footnote 1964, quoted in Whitelaw Rebuttal Report, supra , footnote 
1964, para. 18. 
2014Panel Report, para. 7.464. 
2015Panel Report, para. 7.464. 
2016Panel Report, para. 7.464. 
2017Panel Report; para. 7.461.  
2018Panel Report, para. 7.469. (original italics;  unde rlining added)  Additional examples include the 
statements "we do not consider this renders it entirely  comparable with venture capital investments" and "the 
level of risk associated with venture capital financing is typically  higher than the risk associated with LA/MSF." 
(Panel Report, para. 7.462 (original italics;  underlining added)) 
2019Panel Report, para. 7.469. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 384  
 
  888. Arguably, at the time Airbus launched the A 300, its first LCA project, Airbus would have 
been most similar to the "small and young" firms that  are "plagued by high levels of uncertainty" that 
the Panel noted were the type of firms that t ypically obtain venture capital financing.  The 
European Communities raised the issue of the previous  experience of the firms that formed the Airbus 
consortium, an issue that the Panel did not explicitly address in its Report.  Yet, ultimately, the Panel's 
use of the United States' proposed project-speci fic risk premium as the minimum boundary of the 
range established for the A300 project cannot be reconciled with statements by the Panel that 
generally call into question the suitability of vent ure capital financing as a source from which the risk 
of the projects financed by LA/MSF could be derive d.  In particular, we see a clear inconsistency 
between the Panel's reliance on the project-specifi c risk premium proposed by the United States and 
the Panel's statement that "venture capital financin g is inherently more risky than LA/MSF, even 
when considered in the form of a portfolio".
2020  The latter statement can only be understood as a 
rejection of venture capital financing as a basis from  which to derive a proxy for the risk of the 
projects that received LA/MSF.  The inconsistency also  applies to the Panel's assessment of the risk of 
the A310 project.  Airbus was less inexperienced at  the time it launched the A310 in 1978, given that 
this project followed the launch of the A300.  Moreover, the A310 was a derivative of the A3002021, 
and the Panel found that launching derivative models was less risky than developing a new 
aircraft.2022  Thus, the Panel's use of the United States' proposed project-specific risk premium, which 
was based on venture capital financing, as a minimu m risk premium for the A300 and A310 cannot be 
reconciled with its view that venture capital fi nancing is inherently riskier than LA/MSF. 
889. There is a further difficulty with the range for the project-specific risk premium that the Panel 
established for the A300 and A310 LCA projects.  We recall that this range was composed of the 
United States' proposed project-specific risk premiu m as a lower boundary, while the Panel left the 
maximum level of risk unbound.  The absence of an  upper limit means that the risk premium for the 
A300 and A310 projects could potentially be very high.   It could even be higher than the rates of 
return for venture capital financing indicated in the KSS Study on which Dr. Ellis relied to derive the 
project-specific risk premium proposed by the United States.  The fact that, under the range 
                                                      
2020Panel Report, para. 7.464. 
2021Panel Report, footnote 5657 to para. 7.1940. 
2022In footnote 5657 to paragraph 7.1940 of its Report, the Panel quotes a study by G. Klepper "Entry 
into the Market for Large Transport Aircraft" (1990) 34 European Economic Review  775 (Panel Exhibit 
US-377), submitted by the United States, which states: 
{S}ome production stages are not specific to a particular type of aircraft, such that learning effects which are realized in the production of a generic 
aircraft can influence marginal cost of producing another generic aircraft.   
Referring to this study, the Panel explained that "{t} he fact that such cross e ffects are strong for updated 
versions of an aircraft, the so-called derivatives, is illustrated for the Airbus A300 and its derivative the A310 in 
Klepper, Exhibit US-377, p. 778."    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 385  
 
  established by the Panel, the risk premium for th e A300 and A310 projects can exceed the level of 
return of venture capital financing is clearly at odds  with the Panel's statem ent that venture capital 
financing is "inherently more risky than LA/MSF".  
890. The use of the project-specific risk premium proposed by the United States as a boundary for 
the range established for the second grouping is also problematic.  As with the A300 and A310, there 
is a contradiction between the Panel's statement th at venture capital is "inherently more risky than 
LA/MSF" and its use of the project-specific ri sk premium proposed by the United States as a 
maximum boundary, even if it was an external one.  Also, the differences between Airbus and firms 
that typically receive venture capital financing b ecome sharper with respect to the LCA projects 
launched subsequent to the A310.  There is a 13- year difference between the launch of the A320 and 
the launch of the A340-500/600.  When Airbus  launched the A320 in 1984 it had previously 
developed two LCA projects (A 300 and A310), while when it la unched the A340-500/600 it had 
developed five LCA projects (A300, A310, A320,  A330/A340, and A330-200).  There is no 
explanation in the Panel Report as to how the Pane l accounted for the experience acquired by Airbus 
with each successive launch.  Moreover, as the European Union emphasizes, the second grouping 
includes both projects that involved the developmen t of new aircraft and projects that involved 
derivative models, which the Panel recognized were less ri sky.  The Panel stated in this regard that the 
A330-200 and the A340-500/600 "were derivative airc raft which entailed much  smaller development 
costs and a much lower level of risk to Airbus' overall operations."
2023  There is an inconsistency 
between the Panel's recognition that the project risk  is reduced as a firm gains experience and its 
acknowledgement that derivate LCA projects have a lower risk, on the one hand, and its use of the 
project-specific risk premium derived from vent ure capital financing as the upper boundary for the 
range it established for the second grouping.   
891. There are inconsistencies in the Panel's reasoni ng with respect to the project-specific risk 
premium for the A380 as well.  The Panel included the project-specific risk premium proposed by the 
United States as the internal upper limit of the range  for the risk premium that it determined for the 
A380 project.  The Panel did so despite having said earlier that "the level of risk associated with 
                                                      
2023Panel Report, para. 7.1947;  see also paras. 7.1940 and 7.1941.  In paragraph 7.1940, the Panel 
stated: 
… LCA have a complex production technology which results in strong learning effects.  Knowledge and expe rience gained in the development and 
production of one model of aircraft will lower the costs of development and 
production of subsequent aircraft launches.  This is particularly true for derivative aircraft, where the subsequently launched model is a variant of an 
existing model, as is the case with these LCA models. (footnote omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 386  
 
  venture capital financing is typically higher than the risk associated with LA/MSF".
2024  T h e  
inconsistencies in the Panel's reasoning are par ticularly stark in the case of the A380 because the 
Panel made a point of contrasting the situation of a typical firm that receives venture capital and the 
situation of Airbus at the time it launched the A380.  Quoting from an article in an economic journal, 
the Panel said—as already noted above—that "venture capital is provided to firms that are 'typically 
small and young, plagued by high levels of uncertainty and la rge differences between what 
entrepreneurs and investors know. ... {T}hese firms typically possess few tangible assets and operate 
in markets that change very rapidly.'"2025  The Panel then contrasted this with the situation of Airbus at 
the time it launched the A380, noting that Airbus had by then "developed into a relatively large firm 
with over 30 years experience, substantial capital asse ts and revenues, and a track record of successful 
LCA development, sometimes even exceeding expectations".2026  Having identified the differences in 
the levels of risk of venture cap ital financing and LA/MSF, and between a typical firm that receives 
venture capital financing and Airbus at the time it launched the A380 project, it is difficult to see on what basis the Panel could rely, without further ex planation, on the project-specific risk premium 
proposed by the United States as the internal upper bo undary of the range for the risk premium that it 
determined for the A380 project.   
892. The Panel treated the A380 differently to ho w it treated the LCA projects in the second 
grouping because of the "acknowledged technologi cal challenges associated with the A380 
project".
2027  Yet, the Panel did not explain or provide evidentiary support for its statement about the 
"acknowledged technological challenges associated with the A380 project".2028  Admittedly, the A380 
project was a very large project, and there is some support on the Panel record for the Panel's 
statement that it was technologically challenging.2029  However, there are also statements on the 
record contradicting the notion that the A380 proj ect was more technologically advanced than some 
                                                      
2024Panel Report, para. 7.462. 
2025Panel Report, para. 7.463 (quoting from P. Gompers and J. Lerner, "The venture capital revolution", 
(2001) 15(2) Journal of Economic Perspectives  145 (Panel Exhibit EC-677), quoted in Whitelaw Rebuttal 
Report, supra , footnote 1964, para. 18). 
2026Panel Report, para. 7.463.  
2027Panel Report, para. 7.469. 
2028Panel Report, para. 7.469. 
2029For example, in a press article submitted to the Panel by the European Union, an executive of 
Airbus is quoted as saying: "The A380 is the first fundamentally new Airbus to be developed since the A320".  
The press article goes on to describe the A380 as the "bigge st technology leap" in the history of Airbus. (Airbus, 
Aircraft Families/Product Viewer, A340-300, A340-500, A340-600 (Panel Exhibit EC-372), p. 12)  A report by Morgan Stanley refers to the "wake vortex" problem, which has to do with the distance required between 
airplanes and which some feared would affect the attractiveness of using th e A380 in certain airports. (Morgan 
Stanley, "EADS, The A380 Debate" (5 September 2006) (Panel Exhibit EC-409), p. 15)  The critical project appraisal of the A380 performed by the UK Department of Trade and Industry refers to two technological 
challenges.  This information, however, is HSBI.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 387  
 
  of the prior LCA projects.
2030  We presume the Panel gave more weight to some of the statements than 
to others.  This was within the Panel's authority as the trier of facts.2031  However, the Panel could 
have provided more explanation a nd identified the evidence on the Pa nel record that supported its 
statement.   
893. Finally, there is an inconsistency between th e project-specific risk premium proposed by the 
United States—and used by the Panel as a boundary fo r the ranges for the project-specific risk premia 
that it determined—and the discount rate used by Dr. Gary Dorman in a report submitted by the 
United States for purposes of its claims of seri ous prejudice.  As described more fully in 
section IX.D.1 of this Report, Dr. Dorman conducte d a simulation of "the cash flows generated by a 
high-volume wide-body airplane program under a variety of circumstances".2032  In this simulation, 
Dr. Dorman used an annual discount rate of 10%.2033  The European Communities had alerted the 
Panel to the fact that the project-specific risk premium proposed by the United States was higher than 
that reflected in the discount ra te used by Dr. Dorman.  This was because deducting the government 
borrowing rate and corporate risk premium used by  Dr. Ellis for 2000—the year used by Dr. Dorman 
as his temporal baseline—from the 10% discount ra te applied by Dr. Dorman yielded a project-
specific risk premium lower than the 7% proposed by the United States.  As the European Union 
points out2034, the Panel noted the European Communities' argument in the section of the Panel Report 
that summarizes the parties' arguments, but did not address it in the assessment of project-specific risk premium proposed by the United States.  Although pa nels are not required to address every argument 
made by a party, given the centrality of the proj ect-specific risk premium for the disposition of the 
benefit issue before it, we believe it was important  in this case for the Panel to have addressed the 
apparent contradiction between  the figure calculated by Dr. Ellis and the figure used by 
Dr. Dorman.
2035   
894. In sum, the Panel's reasoning in relation to the United States' proposed project-specific risk 
premium is internally inconsistent.  The Panel dismissed venture capital financing as a source from 
which to derive the project risk of the projects financed with LA/MSF because it considered venture 
capital financing to be "inherently more risky than  LA/MSF".  At the same time, the Panel used the 
                                                      
2030The same Morgan Stanley report explains that th e A380 is not as technologically innovative in the 
use of materials, being constructed mostly of trad itional metal and not using as much composites as the 
Boeing 787 and the planned A350XWB. (Panel Exhibit EC-409, supra , footnote 2029, p. 24) 
2031See, for example, Appellate Body Report, EC – Hormones , para. 132;  and Appellate Body Report, 
Korea – Alcoholic Beverages , para. 161. 
2032Dorman Report, supra , footnote 1042, p. 3. (footnote omitted) 
2033The discount rate is the rate of interest used to determine the present value of future cash flows or 
revenues, that is, the interest rate that makes future cash flows or revenues comparable to today's values.   
2034European Union's additional memorandum following the first session of the oral hearing, para. 72. 
2035Appellate Body Report, Dominican Republic – Import and Sales of Cigarettes , para. 125. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 388  
 
  project-specific risk premium proposed by the Un ited States—which had been derived by Dr. Ellis 
from the returns of venture capital financing—as a boundary for the ranges of project-specific risk 
premia that it established for the three groupings of LCA projects.  The Panel's error is compounded 
in the case of the A300 and A310 because it left th e upper limit of the range of the project-specific 
risk premium unbounded, thus potentially going beyond the level of the risk premium associated with 
venture capital financing.  In the case of the sec ond grouping, the Panel determined the same upper 
boundary for a diverse set of LCA projects, some of which were new aircraft, while others were 
derivatives.  It also included projects launched in  a time span of 13 years, during which Airbus had 
different levels of experience.  And for the A380,  the Panel used the United States' proposed project-
specific risk premium as an inner boundary desp ite recognizing that, by the time the A380 was 
launched, Airbus was a very different company from the typical firm that receives venture capital.  
There are thus clear inconsistencies in the Panel's reasoning.  This type of internally inconsistent 
reasoning cannot be reconciled with the Panel's dut y to make an objective assessment of the facts 
under Article 11 of the DSU.
2036  The Panel also failed to comply with its duties under Article 11 of 
the DSU by not engaging with the European Commu nities' argument as to the inconsistency between 
the project-specific risk premium proposed by the United States and the discount rate used in the 
Dorman Report.  
895. Consequently, we reverse  the Panel's findings, in paragra phs 7.481 and 7.488 of the Panel 
Report, that the United States' proposed project-ri sk premium constituted the minimum project risk 
for the A300 and A310, the exterior upper boundar y of the range of project risk for the A320, 
A330/A340, A330-200, and A340-50 0/600, and the internal upper boundary of the range of project 
risk for the A380. 
(h) The Panel's assessment of the project-specific risk premium proposed 
by the European Communities 
896. The European Union also requests us to review the Panel's finding that "the 
European Communities' project-specific risk prem ium for the A380 is unreliable and understates the 
risk premium that a market operator would have reasonably demanded Airbus pay for financing on 
the same or similar terms as LA/MSF for this particular model of LCA".2037  The European Union 
challenges each of the reasons given by  the Panel in support of its finding. 
                                                      
2036Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 292 and 295. 
2037Panel Report, para. 7.481.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 389  
 
  897. We recall that the European Communities pr oposed a project-specific risk premium 
"constructed by Professor Whitelaw on the basis of the returns the Airbus 'risk-sharing suppliers' 
expected to achieve on the financing they prov ided for the purpose of developing the A380."
2038  The 
term "risk-sharing suppliers" refers to certain suppliers of Airbus th at "agreed to perform development 
work on the A380, with repayment of devel opment costs upon delivery of the component for 
inclusion in an A380 aircraft".2039 
898. With the exception of two narrow issues in which it alleges the Panel erred in the 
interpretation and application of Article 1.1(b) of the SCM Agreement , the European Union's appeal of 
the Panel's assessment of the European Communitie s' proposed project-specific risk premium is 
premised on Article 11 of the DSU.  As noted ear lier, under Article 11 of the DSU, the Appellate 
Body will not interfere lightly with a panel's assessment of the facts.   
899. We begin with the Panel's finding "that govern ment support for the A380 in the form of 
LA/MSF reduces the level of risk associated with ri sk-sharing supplier financi ng, thereby limiting its 
comparability with LA/MSF."2040  We understand the Panel to ha ve been concerned about how the 
LA/MSF influences the perception of risk of Airbus ' suppliers.  From an ec onomic perspective, the 
problem can be explained as follows.  Risk sharing suppliers are rational, that is, profit-maximizing, 
entities.2041  The terms that these suppliers negotiate with  Airbus depend on how risky they perceive 
the specific project being undertaken to be—this is why they are called "risk-sharing" suppliers in the first place.  LA/MSF reduces the risk that the project will fail (by, for example, reducing the risk that 
it will run into financial difficulties) and that it will not generate the revenues necessary to pay 
suppliers.
2042  Thus, it was reasonable from an economic pers pective to consider that, all things being 
                                                      
2038Panel Report, para. 7.470. 
2039Whitelaw Report, supra , footnote 787, para. 36.  Professor Whitelaw explained that, while member 
States are repaid on delivery of an airc raft, the risk-sharing suppliers are repa id on delivery of a part, system or 
component.  He asserted that, "although there is a small difference in timing of repayment, there is no difference 
in risk as both the member States' and the risk suppliers ' repayment is contingent on the ultimate sale of an 
aircraft". ( Ibid., footnote 29) 
2040Panel Report, para. 7.480. 
2041For purposes of this illustration, we are assuming that the risk-sharing suppliers have not themselves 
received LA/MSF. 
2042The European Communities explained that risk-s haring suppliers will not be repaid for any 
non-recurring costs if Airbus fails to meet its delivery fo recast.  Risk-sharing suppliers "cannot institute 'default' 
proceedings if a shortfall in deliveries preclud es full recovery of principal and interest". 
(European Communities' response to Panel Question 171, para. 15) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 390  
 
  equal, the risk sharing suppliers will require a lower rate of return to participate in a project that 
receives LA/MSF compared to a project that does not receive LA/MSF.
2043   
900. The Appellate Body has said that the confe rral of a "benefit", within the meaning of 
Article 1.1(b) of the SCM Agreement , means that "the 'financial contribution' makes the recipient 
'better off' than it would otherwise have been, absent the contribution".2044  For such a comparison to 
be meaningful, the benchmark that is used to determ ine whether the recipient is "better off" must not 
itself be distorted by the financial contribution.  Rather, the benchmark must reflect conditions in the 
market "absent the contribution".  Otherwise, it would not be possible to determine whether the financial contribution placed the recipient in an advantageous position, because the benchmark used 
in the comparison itself reflects the financial contribution.  Given that the LA/MSF affects the terms on which the suppliers participate in the Airbus project , the suppliers' rate of return cannot be used to 
determine whether Airbus is "better off" than it w ould have been absent the financial contribution as 
required under the SCM Agreement .
  
901. The European Union asserts that "neither the United States and Brazil nor the Panel explain 
the linkage between the receipt of {LA/}MSF for the A380 and an alleged reduction in the risk that 
risk-sharing suppliers actually faced for the A380, or that such reduction, in fact, affected returns".2045 
Thus the European Union complains that the Panel provided " no analysis  of {Brazil's and the 
United States'} arguments, and no explanation , whether reasoned and adequate or otherwise, of its 
evidentiary basis."2046   
902. Since the project-specific risk premium derive d from risk-sharing suppliers was put forward 
by the European Communities, the latter had so me burden to persuade the Panel about its 
appropriateness.  Moreover, as we explained above, it was reasonable for the Panel to consider that 
the risk equation of Airbus' suppliers is likely to be affected by the LA/MSF.  While the Panel 
expressed its agreement with Brazil and the United States very succinctly, we understand the Panel to 
                                                      
2043The United States provides a similar ex planation in its appellee's submission: 
... the Panel's finding in this regard  is reasonable and uncontroversial—it 
found elsewhere that LA/M SF reduced the risk asso ciated with development 
of large civil aircraft, and that risk  would obviously affect the company's 
ability to pay other debt, including risk-sharing supplier financing.  Thus, 
the risk faced by risk-sharing suppliers financing Airbus would differ 
substantially from the risk faced by the governments providing LA/MSF to Airbus, preventing the use of one as a valid benchmark for the other. 
(United States' appellee's submission, para. 222) 
2044Appellate Body Report, Canada – Aircraft , para. 157. 
2045European Union's appellant's submission, para. 825. 
2046European Union's appellant's submission, para. 826. (original emphasis; footnote omitted)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 391  
 
  have made its assessment on that basis.
2047  The United States made a similar point before the Panel, 
arguing that: 
{t}his is a logical proposition wh ich the Panel should take into 
account in its consideration of the RSS{—risk sharing suppliers—} 
benchmark.  Contrary to the {European Communities'} suggestion, 
the strength of that proposition does not depend on evidence of the internal decision-making processes of particular suppliers.
2048 
903. The European Union points out that Professor Whitelaw responded to Brazil's and the 
United States' allegations by pointing out that s uppliers "do not know whether or on what terms" 
Airbus will receive the LA/MSF.2049  In addition, the European Unio n argued that "to the extent that 
{risk-sharing suppliers} relied on publicly-available evidence, these suppliers probably shared the 
commonly-held view that the subsid y associated with {LA/}MSF loans is de minimis  or zero."2050  We 
do not consider that this provides a sufficient basis to disturb the Panel's finding.  It is implausible that 
risk-sharing suppliers were not aware of the possi bility that Airbus would receive LA/MSF given the 
publicity surrounding the launch of the A380 project, and considering the evidence on record that 
some of the risk-sharing suppliers may have themselves received LA/MSF.2051  Furthermore, it is not 
necessary for the risk-sharing suppliers to have kno wn the exact terms of the LA/MSF or to have 
considered the subsidy component of the LA/MSF to  be significant.  How much of the details the 
suppliers knew could be relevant if one wanted to calculate the exact amount by which the LA/MSF 
altered the suppliers' risk perception of the A380 project.  However, the general expectation that 
Airbus would receive LA/MSF for the A380 would have meant that the risk-sharing suppliers 
considered the project less risky than it would have been without the LA/MSF.   
                                                      
2047Panel Report, para. 7.480. 
2048United States' comments on the European Communities' response to Panel Question 174, para. 45. 
2049European Union's appellant's submission, para. 824 (quoting Professor Whitelaw in 
European Communities' oral statement at th e second Panel meeting (BCI), para. 92). 
2050European Communities' response Panel Question 174, para. 67.  To support its contention that this 
was a "commonly-held view", the European Communities pointed to a single document, a Citigroup report that speculated about the United States' WTO complaint and obs erved that "we find it hard to see launch aid as a 
significant subsidy".  The Citigroup re port also said some companies had ma de little use of launch aid in recent 
years because of its costs and described German launch aid as not being "generous". ("EADS – Off we go to the WTO", Citigroup Report  (6 October 2004) (Panel Exhibit EC-875), p. 3) 
2051Panel Report, para. 7.480.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 392  
 
  904. At the oral hearing, the European Union emph asized that LA/MSF operates to shift risk from 
Airbus to the member State governments, but does not affect the level of overall risk of the project.  
As a consequence, the European Union asserts that LA/MSF cannot have altered the risk perception 
of risk-sharing suppliers.
2052   
905. We are not persuaded by the European Union's ar gument.  First, we note that the premise of 
the European Union's argument is that LA/MSF does not affect the development and marketing risks 
of the LCA project.2053  Yet, the very purpose of LA/MSF is to provide funding for the development 
of an LCA model.2054  The European Communities pointed out before the Panel that one of the 
"outstanding features" of the LCA industry is its  "enormous start-up costs for new LCA models" and 
emphasized that "{t}he development costs are high  and have to be invested a long time before 
revenue is generated."2055  LA/MSF provided the financial means to undertake the development of an 
LCA project.  By providing funding for a significant share of the development costs, LA/MSF makes 
it more likely that the project will be developed,  and the successful development of a project means 
that there will be an LCA to sell, thereby reducin g the marketing risk of the project.  Indeed, the 
European Communities expressly acknowledged before the Panel that the nature of LA/MSF is to 
reduce development and marketing risk.2056   
906. Moreover, contrary to what the Europ ean Union argues, LA/MSF does more than 
"{a}meliorat{e} the pain of failure for any single participant".2057  In its argumentation, the 
European Union appears to be assuming that de velopment costs funded by the LA/MSF could be 
financed by Airbus and thus it is merely a questio n of whether the additiona l financial burden is on 
Airbus or on the member State governments.  Howe ver, this assumption is contradicted by factual 
findings of the Panel.  The Panel found that "because of the significant amount of debt that developing 
its previous models of LCA would have generated, we consider Ai rbus would not have been in a 
                                                      
2052See also European Union's additional memorandum fo llowing the first session of the oral hearing, 
paras. 91 ff. 
2053European Union's additional memorandum following the first session of the oral hearing, para. 91. 
2054See Panel Report, paras. 7.367 and 7.369. 
2055European Communities' first written submission to the Panel, para. 27. 
2056European Communities' comments to the United States' response to Panel Question 162, para. 222:  
"Nature: Although {LA/}MSF loans reduce development and market risk, the amount of this risk is limited." 
2057European Union's additional memorandum following the first session of the oral hearing, para. 96.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 393  
 
  position to obtain market financing for the A380, had it not financed the development of its earlier 
model LCA in significant part through LA/MSF."
2058   
907. Therefore, we consider that the Panel had a pr oper basis to conclude that that the rate of 
return demanded by the risk-sharing suppliers fo r the A380 was not an appropriate benchmark for 
purposes of determining benefit in this case.  We  agree with the Panel that LA/MSF provided to 
Airbus results in a rate of return of the risk-sha ring suppliers that understates the level of risk that 
would be factored in by a market lender in the absence of LA/MSF.  
908. Another reason that the Panel gave for re jecting the European Communities' proposed 
project-specific risk premium concerned the sampli ng technique used by Professor Whitelaw to derive 
it.  The European Union criticiz es the Panel for having "failed to consider Professor Whitelaw's 
evidence that the sample met the sta ndard statistical tests for adequacy".2059  We note that the Panel 
explained that it was unable to verify Professor Whitelaw's assertion concerning the sample used 
"because the European Communities has submitted little  if any of the underlying data used in 
Professor Whitelaw's calculations."2060  On appeal, the European Union did not refute this, although it 
also appears that the Panel did not specifically ask for the data.  Yet, the European Union seems to 
have expected the Panel to have taken Professor White law's testimony at face value.  In our view, the 
Panel's expressed preference for verifying the sample  was consistent with its duty under Article 11 of 
the DSU to make an objective assessment of the facts.  
909. Nevertheless, there are other aspects of the Pane l's analysis that are troubling.  The Panel 
gives no indication as to why it cons idered that the sample size for calcu lating the rate of return of the 
risk sharing suppliers was too small.  The size of  a sample does not necessarily disqualify it, provided 
that the data used in the sample are well chosen .  Moreover, as the European Union underscores, 
Professor Whitelaw provided explanations to the Pane l on the robustness of the sample.  He specified 
the number of suppliers included in the sample, and explained that the rate of return could not be 
calculated for the rest of the risk-sharing supp liers.  Professor Whitelaw added that the sample 
represented 42.09% of the value of non-recurring cost s of all A380 risk-sharing supplier contracts.  
                                                      
2058Panel Report, para. 7.1948.  The European Union also distinguishes between the launch of an LCA 
project and its subsequent development.  Based on this distinction, the European Union argues that the LA/MSF 
affects the decision to launch an LCA,  but does not alter the risks at the development stage.  (European Union's 
additional memorandum following the first session of the or al hearing, paras. 91 and 99)  However, before the 
Panel, the European Communities asserted that through the provision of LA/MSF the member State 
governments "agree to fund a portion of the development cost of an aircraft that has been launched and is being actively marketed."  It further stated that "{g}overnments generally do not provide this financing until after the 
commercial launch of a new aircraft." (European Communitie s' first written submission to the Panel, paras. 302 
and 305 (original emphasis)) 
2059European Union's appellant's submission, para. 798.  
2060Panel Report, para. 7.480.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 394  
 
  He further stated that the standard erro r was 0.87% for a 90% confidence interval.
2061  The Panel 
should have, at the very least, provided reasons  why it was not persuaded by Professor Whitelaw's 
explanations.  After questioning the appropriateness of the size of the sample, the Panel went on to 
say that "{e}ven on the basis of only the number of  risk-sharing supplier contracts actually sampled 
we find this to be clearly insufficient to substan tiate the European Communities' assertions in respect 
of the appropriate project-specific risk premium."2062  The Panel provides no explanation for its 
conclusion.  
910.  An additional reason given by the Panel to re ject the European Communities' project-specific 
risk premium was that it saw "some logical merit to  the United States' arguments suggesting that the 
risk-sharing suppliers had incentives to lo wer their expected rates of return".2063  The European Union 
submits that the Panel's statement about suppliers having an incentive to lower their expected rates of 
return "appears to be premised on a suggestion that the actions of a market actor that has an existing 
business relationship with a company that is alle gedly subsidised cannot serve as a benchmark 
because they would somehow be tainted."2064  Referring to the Appellate Body report in Japan – 
DRAMs (Korea)2065, the European Union contends that, for "risk-sharing supplier agreements 
negotiated at arm's length, there is simply no jus tification to conclude that the agreed rates do not 
reflect the market."2066  Thus, the European Union alleges that the "Panel's criticism amounts to an 
error in the interpretation and app lication of Article 1.1(b) of the SCM Agreement ."2067  
                                                      
2061See European Communities' oral statement at the second Panel meeting (BCI), paras. 84-88.   
2062Panel Report, para. 7.480.   
2063Panel Report, para. 7.480. 
2064European Union's appellant's submission, para. 811. 
2065In particular, the European Union refers to the Appellate Body's statement that:  "{w}e also do not 
consider that there are different stan dards applicable to inside and to outside investors.  There is but one 
standard—the market standard—according to which rational investors act". (Appellate Body Report, Japan – 
DRAMs (Korea) , para. 172) 
2066European Union's appellant's submission, para. 811 (referring to Whitelaw Rebuttal Report, supra , 
footnote 1964, para. 34;  and Euro pean Communities' second written submi ssion to the Panel (HSBI Appendix), 
paras. 23-25). 
2067European Union's appellant's submission, para. 811.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 395  
 
  911. In addressing the question of whether the risk-s haring suppliers had incentives to lower their 
expected rates of return, the Panel summa rized the United States' argument as follows: 
The Ellis Report also argues that for various reasons, the {IRRs} on 
the supplier contracts are typically lo wer than the true expected rates 
of return to the suppliers.  The Ellis Report bases this view on the 
assertion that the expected return on a manufacturing project typically includes a number of potential sources of return, such as future business opportunities that incr ease the expected return of the 
project above the calculated {IRR} and reduce its risk.  Firms also 
engage in bidding strategies such th at the price bid for a particular 
contract may reflect other opportunities with the same customer.  Also, unlike the capital provided by banks or financial institutions, a supplier's capital is tied up to the input that the supplier is manufacturing.  Because suppliers have a narrower range of choices 
than investors, their required rate of  return will be lower than that of 
investors.
2068 (footnote omitted) 
912. We do not agree with the European Union that the Panel based its conclusion on a distinction 
between inside and outside investors, contra ry to the Appellate Body's statement in Japan – DRAMs 
(Korea)  that such distinction was not "helpful".2069  Rather, we understand the Panel to have referred 
to broader aspects of the relationship between the risk-sharing suppliers a nd Airbus and strategic 
considerations that could influence the rate of retu rn of the risk-sharing suppliers.  Having said that, 
we agree with the European Union that the Panel's an alysis of this particular issue is lacking.  The 
Panel summarized the United States' argument and o ffers a conclusory statement agreeing with the 
United States' position.  The Panel, however, provides no explanation for its conclusion and no 
indication that it independently assessed th e evidence submitted by the United States.2070  Nor does 
the Panel Report indicate that the Panel considered  the rebuttal of the Eur opean Communities or how 
the Panel reconciled its conclusion with that evidence.   We observe, in this regard, that before the 
Panel, the European Communities rejected the proposition that "risk-sharing suppliers are not 
fully-fledged market actors".  The European Comm unities also rejected the relevance of whether 
risk-sharing suppliers "have fewer options for their investment capital than investors such as banks 
                                                      
2068Panel Report, para. 7.476.  In a footnote to the Panel statement challenged by the European Union, 
the Panel referred to the United States' comments on the European Communities' response to Panel Question 174. ( Ibid., footnote 2712 to para. 7.480)  The Panel may have inadvertently placed this footnote at the 
end of the wrong sentence.  The United States' comments refe rred to the argument that the risk of suppliers was 
altered by the LA/MSF given to Airbus. 
2069Appellate Body Report, Japan – DRAMs (Korea) , para. 172. 
2070According to the European Union, "the United States offered no evidence  that the sampled risk-
sharing suppliers had actually lowered their returns; it me rely asserted that there were reasons why risk-sharing 
suppliers might  have reduced their required returns". (European Union's appellant's submission, para. 812. 
(original emphasis)) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 396  
 
  and pension funds"
2071  It further argued that there is no "r eason to believe that the prospect of 
obtaining future contracts with Airbus would ha ve affected the terms of the supply agreements".2072 
913. The United States suggests that the Panel may ha ve found it difficult to explain its assessment 
because "most of the relevant information in this respect" was HSBI and "most of the more detailed 
discussions between the parties took the form of HSBI".2073  We have sympathy for the challenges 
posed by the HSBI.  Yet, the fact that some of the information was designated as HSBI did not 
prevent the Panel from summarizing the arguments of th e parties.  Thus, we ar e not persuaded that the 
HSBI character of the information precluded the Panel from providing an explanation of its assessment of the arguments and evidence submitted by the parties.   
914. A further reason given by the Panel for re jecting the European Communities' proposed 
benchmark was that "there is information contai ned in the Airbus A380 business case which suggests 
that the risk-sharing participants' involvement in  the A380 project may not have been on strictly 
market terms for all participants."
2074  In a footnote, the Panel refers to Exhibit EC-362, which is 
HSBI, and to Dr. Ellis' assertion that "a number of  the suppliers used in the Whitelaw analysis 
                                                      
2071Panel Report, para. 7.478. 
2072Panel Report, para. 7.478. The European Communities explained to the Panel that "Airbus SAS 
conducts a separate bidding and evaluation process for each {risk-sharing supplier} contract; there are no 
'package deals'".  It further alleged that risk-sharing suppliers have two additional sources of uncertainty:  (i) no guarantee of being selected for that work package and (ii) no guarantee of obtaining work on future LCA 
programmes.  Thus, the European Communities asserted that "{t}he notion that a supplier would accept a 
below-market return on a long-term contract, in the fain t hope of obtaining work on future contracts (for which 
it has no guarantee of selection), is unsupported and speculative." (European Communities' comments on the 
United States' response to Panel Question 215, para. 356)  Professor Whitelaw, the European Communities' 
expert, also testified before the Panel that " there is no aftermarket for the aerostructures developed by the risk-
sharing suppliers whose returns info rm the {European Communities'} benchm ark.  ... {T}hese suppliers develop 
products ... that are rarely, if ever, replaced.  The risk-sharing suppliers ... are not producing consumables such as tires and engines, which regularly wear out and gene rate substantial aftermarket sales over the life of an 
aircraft."  He added that "Airbus risk-sharing suppliers do not have an incentive to reduce their {non-recurring 
costs} returns to gain recurring cost ... work or afterm arket sales.  To the contrary, .... suppliers have an 
incentive to increase  their return on {non-recurring costs} at the expense of recurring cost work or aftermarket 
sales". (European Communities' oral statement at the second Panel meeting (BCI), para. 97 (original emphasis)) 
2073United States' appellee's submission, para. 219.  Th e United States also argues that its own "ability 
to offer any additional evidence demonstrating reduce d risk was of course a result of the European 
{Communities'} failure to provide the full information necessary for it do so" and asserts that "{n}either the 
Panel nor the United States can be faulted for that". ( Ibid., para. 220)  We agree w ith the United States that 
neither the Panel nor the United States should be blamed for any failure by the European Communities to 
provide information.  That is not, however, our concern with the Panel's assessment.  Our concern is that there is 
no indication that the Panel independently engaged with the information that was submitted by the European Communities. 
2074Panel Report, para. 7.480.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 397  
 
  received 'launch aid-like financing or other governme nt subsidies which reduces their cost of capital 
and therefore the returns required on contracts with Airbus'."
2075   
915. On appeal, the European Union asserts that "t here was no evidence that any {LA/}MSF, to 
the extent it was, in fact, received {by the risk-sharing suppliers}, was provided on terms that constitute subsidies".
2076  It further argues that "even if risk-sharing suppliers received {LA/}MSF on 
subsidised terms, they had little or no in centive to share any benefit with Airbus".2077  Referring to the 
testimony of Professor Whitelaw, the European Union adds that "even if the entirety  of any benefit to 
risk-sharing suppliers would be pass ed through to Airbus, the effect on the expected return was small" 
and "below the US project-specific risk premium".2078  The actual estimate calculated by Professor 
Whitelaw is HSBI. 
916. The European Union does not contest that some risk-sharing suppliers received LA/MSF.  
Instead, the European Union cha llenges the Panel's conclusion as to the impact that the LA/MSF 
provided to risk-sharing suppliers has on the rate of return those suppliers demanded to participate in 
the A380 project.  The European Union is correct that, from an economic perspective, any subsidies 
that the risk-sharing suppliers may have received need not have been necessarily passed on to Airbus 
in the form of a lower rate of return.  Whether any subsidy given to the risk-sharing suppliers passed 
through to Airbus would have depended on Airbus' market power or negotiating leverage.  The 
European Communities' expert, Professor Whitelaw, ra ised this issue before  the Panel and asserted 
that the risk-sharing suppliers had considerable  negotiating power because of their proprietary 
technologies and limited number.2079  Furthermore, Professor Whitelaw provided calculations that 
sought to show that any subsidy passed through to Ai rbus would be very small.  There is no indication 
that the Panel engaged with this evidence.  The Panel summarized the testimony of Professor 
Whitelaw, but then agreed with the United Stat es without explaining why it was not persuaded by 
Professor Whitelaw's testimony.  In our view, the Panel had a duty to explain why it was not 
persuaded or how it otherwise re conciled its conclusion with the rebuttal argumentation submitted by 
the European Communities.   
                                                      
2075Panel Report, footnote 2713 to para. 7.480 (quoting Response to Whitelaw Report, supra , 
footnote 787, p. 24). 
2076European Union's appellant's submission, para. 831. 
2077European Union's appellant's submission, para. 831. 
2078European Union's appellant's submission, para. 831. (original emphasis) 
2079At the first meeting with the Panel, the European Communities observed that "the bargaining power 
could well lie with the suppliers—not Airbus" and that "many of these suppliers possess unique technology that makes them the only viable source for certain contracts". (European Communities' closing statement at the first 
Panel meeting (BCI), para. 17) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 398  
 
  917. Finally, the European Union questions the Panel' s statement that the "one contract that the 
European Communities has submitted shows that there is at least one major difference between the 
repayment terms under this contract and LA/MSF wh ich we believe reduces its relative level of 
risk."
2080  The Panel was referring to the Risk-Sharing Supplier Contract Re A380, Exhibit EC-117, 
which is HSBI.  The main point made by the European Union on appeal is that it provided testimony by Professor Whitelaw rebutting the notion that any difference in the terms of the contracts would 
have resulted in a lower risk for the risk-sharing s uppliers.  Like it did for other evidence provided by 
the European Communities, the Panel summarized Professor Whitelaw's testimony, but never engaged with it.  We recognize that the HSBI natu re of the evidence would have made it difficult for 
the Panel to have provided a full exposition of its r easoning on this point.  However, we note that the 
Panel also had an obligation to do more than to simply summarize Prof essor Whitelaw's testimony 
and refer to the contract in a footnote.  The Panel was under an obligation to engage with the evidence 
provided by Professor Whitelaw, which was clearly of  central importance, and explain why it did not 
consider that evidence persuasive, even if it only referred to this evidence in abstract terms.  
918. We have identified several flaws in the Panel's analysis of the project-specific risk premium 
proposed by the European Communitie s.  These flaws concern all but one of the Panel's criticisms of 
the European Communities' proposed proxy, namely, the finding that "government support for the A380 in the form of LA/MSF reduces the level of risk  associated with risk-sharing supplier financing, 
thereby limiting its comparability with LA/MSF".
2081  The Panel's other criticisms—that is, the 
sampling technique used by Professor Whitelaw, the contract submitted by the 
European Communities, the risk-sharing suppliers' in centives to lower their exp ected rates of return, 
and the impact of any LA/MSF given to the risk-s haring suppliers themselves—do not indicate that 
the Panel made an objective assessment of the arguments and evidence submitted by the 
European Communities.  The Panel summarized th e European Communities' rebuttal arguments and 
evidence, but did not engage with them.  Nor di d the Panel explain how it reconciled its conclusion 
with the rebuttal arguments and evidence.  This type  of reasoning is not cons istent with the Panel's 
duty to make an objective assessment of the facts under Article 11 of the DSU.2082   
919. The United States has noted that "a panel is under no obligation—under Article 11 of the 
DSU or anywhere else—to discuss in its report each and every argument presented by the parties or, 
for that matter, each and every fact to which the parties refer, whether relevant or not".2083  To support 
                                                      
2080Panel Report, para. 7.480. (footnote omitted) 
2081Panel Report, para. 7.480. 
2082Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 292. 
2083United States' appellee's submission, para. 211.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 399  
 
  its argument, the United States referred to the following ruling by the Appellate Body in EC – 
Poultry : 
Just as a panel has the discretion to address only those claims  which 
must be addressed in order to dispose of the matter at issue in a 
dispute, so too does a panel have the discretion to address only those 
arguments  it deems necessary to resolve a particular claim.  So long 
as it is clear in a panel report that a panel has reasonably considered a claim, the fact that a particular argument relating to that claim is not specifically addressed in the "Findings" section of a panel report will 
not, in and of itself, lead to the conc lusion that that panel has failed to 
make the "objective assessment of th e matter before it" required by 
Article 11 of the DSU.
2084 (original emphasis) 
920. The problem in this case is th at the Panel simply summarized the rebuttal testimony submitted 
by the European Communities and did not engage w ith it.  The Panel reached conclusions without 
explaining how it had taken into account the rebuttal testimony submitted by the 
European Communities.  There is therefore no indi cation of how the Panel reconciled its conclusion 
with the submissions made by the European Communities.  Thus, the s ituation in this case is different 
from the situation examined by the Appellate Body in EC – Poultry . 
921. The errors that we have identified, however , do not invalidate the Panel's overall conclusion 
about the reliability of the project-specific risk pr emium proposed by the European Communities.  It 
was reasonable for the Panel to conclude that LA /MSF reduces the level of risk of an LCA project 
perceived by the risk-sharing suppliers.  As a resu lt, risk-sharing suppliers would be expected to 
demand a lower rate of return on their participat ion in an LCA project than they would have 
demanded in the absence of LA/MSF.  Therefore, in our view, deriving the project risk from the rate 
of return of the risk-sharing suppliers will under estimate the project risk premium that would be 
demanded by a market lender in the absence of LA/M SF.  Under Article 1.1(b), interpreted in the 
light of Article 14(b) of the SCM Agreement , a benefit is conferred where the amount paid by the 
recipient for the government loan is less than what the recipient would have paid on a comparable 
commercial loan that it could have actually obtained on the market.  Because the rate of return of the 
risk-sharing suppliers is distorted by the LA/MSF r eceived by Airbus, it cannot be used to derive a 
benchmark that reflects the terms of a comparable commercial lo an that Airbus could have actually 
obtained on the market.  The rate of return of th e risk-sharing suppliers, and thus the project risk 
derived from it, will be lower than that demanded by a market lender in the absence of LA/MSF.   
                                                      
2084Appellate Body Report, EC – Poultry , para. 135.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 400  
 
  922. Accordingly, we reject this aspect of the Europ ean Union's appeal and we do not consider that 
our concerns with certain aspects of the Panel's reasoning warrant disturbing the Panel's finding that 
the project-specific risk premium proposed by the European Union underestimates the appropriate 
level of project-specific risk associated with the challenged LA/MSF measures.
2085 
(i) Conclusion on the Panel's finding of benefit 
923. In subsection (g) above, we ha ve found that the Panel did not make an objective assessment 
of the facts under Article 11 of the DSU when it de termined that the project-specific risk premium 
proposed by the United States constituted the mini mum project-specific risk premium for the A300 
and A310 projects, the external upper boundary of the range for the project-specific risk premium for 
the A320, A330/A340, A330-200, and A340-500/600 pr ojects, and the internal upper boundary of the 
range for the project-specific risk premium determined  for the A380 project.  We have also found, in 
subsection (h), aspects of the Panel's reasoning con cerning the project-specific risk premium proposed 
by the European Communities to be inconsistent wi th Article 11 of the DSU.  However, we upheld 
the Panel's conclusion that the European Commu nities' proposed project-specific risk premium 
understates the risk premium that a market operato r would have reasonably demanded Airbus pay for 
financing on the same or similar terms as LA/MSF for the A380.2086  The question that arises is: how 
do our findings affect the Panel's ultimate conclu sion that the LA/MSF measures confer a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement ?   
924. As described earlier, the Europ ean Communities did not contest before the Panel the first two 
components of the formula used by Dr. Ellis to cal culate the proxy put forward by the United States 
—that is, the government borrowing rate and the genera l corporate risk premium.  We note that, even 
leaving aside the project-specific risk premium, the rates of return obtained by the member States on 
all but two of the challenged LA/MSF measures ar e below a benchmark composed of only these two 
components.2087  In other words, there is a positive spread, and consequently a benefit, with respect to 
all but two of the challenged LA/MSF measures even  if the project-specific risk premium is set at 
zero.  This is illustrated in Table 3, which shows th e rates of return of each of the challenged LA/MSF 
measures as determined by the Pa nel (column 1), the market benchmark that would result by adding 
the corporate risk premium to the government borro wing rates (column 2), and the difference between 
                                                      
2085Panel Report, para. 7.479. 
2086Panel Report, paras. 7.479 and 7.481. 
2087We also recall the Panel's finding that, "even re lying on the European Communities' own estimates 
of the rates of return and market interest rate benchmarks , it is clear that the financial contributions provided in 
the form of LA/MSF conferred a benefit on Airbus." (Panel Report, para. 7.490 (footnote omitted))  Furthermore, we note that the European Union did not submit an alternative project risk premium for the A300 
and A310 projects during the Panel proceedings. ( Ibid., para. 7.485)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 401  
 
  the two figures (column 3 = column 2 – column 1).  With two exceptions, column 3 shows that the 
market benchmark (even excluding the project-specifi c risk premium) would have been higher than 
the rates of return obtained by  the member State governments. 
Table 3.  LA/MSF rates of return 
1 2 3 
  
LA/MSF contract LA/MSF  
rate of return Market benchmark  
(gr + cr)  
pr = 0 Spread  
(positive = benefit) 
A300 0% n/a > 0 
A310 0% n/a > 0 
A320 [***%] [***%] [***%] 
A330/A340 [[HSBI]] [***%] > 0 
A330-200 [***%] [***%] [***%] 
A340-500/600 [***%] [***%] [***%] FRANCE 
A380 [***%] [***%] [***%] 
A300 0% n/a > 0 
A310 0% n/a > 0 
A320 [***%] [***%] [***%] 
A330/A340 [***%] [***%] [***%] GERMANY 
A380 [***%] [***%] [***%] 
A300 0% n/a > 0 
A310 0% n/a > 0 
A320 [***%] [***%] [***%] 
A330/A340 [***%] [***%] [***%] 
A340-500/600 [***%] [***%] [***%] SPAIN 
A380 [***%] [***%] [***%] 
A320  [***%] [***%] [***%] 
A330/A340 [***%] [***%] [***%] UK 
A380 [***%] [***%] [***%] 
Source :  Panel Report (BCI), para. 7.488, Table 7;  Panel Exhib it EC-597 (HSBI) "Measurement of Internal Rates of Return 
on MSF Agreements" (chart);  Panel Exhibit EC-11 (HSBI/BCI) "Economic Assessment of Member  State Financing" Expert 
statement of Robert Whitelaw, NYU-STERN. 
 
925. As for the two LA/MSF measures for which the ra tes of return obtained by the Member state 
governments are higher than the government borrowing rate plus the general corporate risk (namely 
the French LA/MSF for the A330-200 and the UK  LA/MSF for the A380), they yield a positive 
spread2088 once the project-specific risk premium proposed by the European Communities is 
                                                      
2088By "spread", we refer to the difference between the market benchmark and the rate of return of the 
member State governments.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 402  
 
  considered.  Put differently, the rates of retu rn obtained on these two LA/MSF measures are lower 
than a benchmark calculated using the project-sp ecific risk premium derived by Professor Whitelaw 
and submitted by the European Communities to the Panel as an appropriate proxy for the project-
specific risk premium for the A320, A330/A340, A330-200, A340-500/600, and A380 projects.  We further note that the Panel made the alternative finding that "even relying on the European Communities' own estimates of the rates of re turn and market interest rate benchmarks, it is 
clear that the financial contributions provided in the form of LA/MSF conferred a benefit on 
Airbus."
2089 
926. At the oral hearing, the European Union seeme d to step back from its position taken before 
the Panel2090 that the project-specific risk premium deri ved by its expert, Professor Whitelaw, applied 
not only to the A380 project, but also to th e A320, A330/A340, A330-200, and A340-500/600 LCA 
projects.2091  The European Union suggest ed that the risk premium for these LCA projects could be 
lower than the risk premium calculated by Prof essor Whitelaw.  This also represented a departure 
from the European Union's position in  its appellant's submission, wh ich only called into question the 
benefit finding for the French LA/MSF for the A330-200.2092  A claim under Article 11 is concerned 
with a panel's reasoning based on the record as it st ands.  The Appellate Body examines the issues of 
law raised by an appellant in the light of the ev identiary record of the panel proceedings and the 
factual findings of the Panel.  New assertions of fa ct or expert opinion cannot be introduced at the 
appellate stage.  Even if it were permissible to raise new facts, we do not see on what basis the prior 
factual statements by the European Communities woul d no longer hold true.  The evidentiary record 
in this case indicates that the Eu ropean Communities agreed that  a market lender would have 
demanded a rate of return for the A320, A330/A 340, A330-200, and A340-500/600 LCA projects that 
was not lower than the rate calculated by Pr ofessor Whitelaw on the basis of the risk-sharing 
suppliers.  We reiterate that the Panel found that the rate of return expected by the member State 
governments under the LA/MSF measures provided to the A320, A330/A340, A330-200, and 
A340-500/600 LCA projects are in all cases lower than the benchmark calculated by Professor 
Whitelaw.2093   
                                                      
2089Panel Report, para. 7.490. 
2090In Whitelaw Report, supra , footnote 1881, paras. 39 and 40 and Exhibit 3 thereto. 
2091The European Union stood by the project-specific risk premium ca lculated by Professor Whitelaw 
in relation to the assessment of benefit for the LA/MSF provided to the A380.   
2092European Union's appellant's submission, para. 790 (referring to Panel Report, paras. 7.489 
and 7.490). 
2093We further note that Table 7 of the Panel Re port shows that, except for two of the LA/MSF 
measures, the rate of return obtained by the member State governments was lower than the rate of return that 
would have been demanded by a market lender even with the project-specific risk set at zero.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 403  
 
  927. In addition, we recall that, although we have found several flaws in the Panel's analysis of 
Professor Whitelaw's project-specific risk premium, we have upheld the Panel's conclusion that this 
risk premium underestimates the level of risk.  Thus, the appropriate level of risk premium for these 
projects is somewhere above the level calculated by Professor Whitelaw.  Since the appropriate project-specific risk premia—and consequently the rate  of return that would have been demanded by a 
market lender—are higher than the level calcula ted by Professor Whitelaw and submitted by the 
European Communities, it necessarily follows that the LA/MSF measures were provided at a rate of 
return that was below the market benchmark and, consequently, conferred a benefit.   
928. Finally, we note that in its appellant's subm ission, the European Union conceded that other 
than the French LA/MSF for the A330-200, reversal of the Panel's assessment "would not, however, 
constitute a reversal of the Panel's finding that the {LA/}MSF loans at issue confer a benefit, within 
the meaning of Article 1.1(b) of the SCM Agreement , and thus constitute subsidies".
2094  As indicated 
above, the Panel found with regard to the French LA/MSF for the A330-200 that the rate of return 
obtained by the French government is below a be nchmark calculated using the project-specific risk 
premium derived by Professor Whitelaw and whic h the European Communities argued before the 
Panel was appropriate for purposes of the assessment  of benefit of that LCA project.  We have 
explained above why it would be improper for us to undertake our assessment on a different basis.2095  
Consequently, there is no reason for us to interfere  with the Panel's finding that the French LA/MSF 
provided to the A330-200 conferre d a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement . 
929. For these reasons, we uphold  the Panel's findings, in paragra phs 7.489 and 7.490 of the Panel 
Report, that the challenged LA/MSF measures confer a benefit within the meaning of Article 1.1(b) of 
the SCM Agreement .  As the European Union has not challe nged on appeal the Panel's findings that 
these measures constitute financial contributions unde r Article 1.1(a) or the Panel's analysis of 
specificity under Article 2, the Panel's conclusi on that "each of the ch allenged LA/MSF measures 
constitutes a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement" stands.
2096 
                                                      
2094European Union's appellant's submission, para. 790 (referring to Panel Report, paras. 7.489 
and 7.490). 
2095See supra , para. 926. 
2096Panel Report, para. 8.1(a)(i). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 404  
 
  4. The Panel's Statement about the Relevance of the Number of Sales over 
which Full Repayment is Expected  
930. The Panel stated, in paragraph 7.397 of its Re port, that "the number of sales over which full 
repayment is expected says little, if anything, about th e appropriateness of the rate of return that will 
be achieved by the lender".2097  To the extent that the Appellate Body considers this statement a 
finding, the European Union seeks its review by th e Appellate Body.  The European Union submits 
that the Panel's statement "flies in the face of ec onomic logic" because "it is inconceivable that the 
number of sales for repayment does not affect the risk of non-repayment of the {LA/}MSF loan in 
question."2098  In addition, the European Union asserts that  the Panel's statement "is in contradiction 
with the Panel's earlier conclusion ... when it accepts that an unreasonable repayment forecast may 
signal that a loan confers a benefit."2099  The European Union further argues that the Panel's approach 
is "contradicted by its approach to other arguments concerning {LA/}MSF".2100  Moreover, the 
European Union notes that the Panel accepted "that many sorts of circumstances external  to the 
provisions of an {LA/}MSF contract will have an imp act on the appropriateness of the rate of return", 
yet as regards the level of the sales forecast for re payment, which the European Union describes as 
"one of the key elements of the terms and condition{ s} of the {LA/}MSF contract itself  for determining 
the level of risk", the Panel concluded that it "will have little, if any, impact on the appropriateness of 
the rate of return".2101 
931. The United States does not consider that the Panel erred in making the statement challenged 
by the European Union.  According to the United States, the Panel was "correct in finding that a 
reasonable payment forecast sheds little li ght on the appropriate rate of return".2102  The United States 
explains that "a reasonable forecast in no way elimin ates the risk implicit in long-term, extraordinarily 
costly financing".2103   
932. The statement that the European Union is cha llenging was made by the Panel in the context of 
examining the European Communities' argument that  the "reasonableness of the repayment forecasts" 
                                                      
2097European Union's appellant's submission, para. 842.  The European Union "acknowledges that the 
Panel's consideration of this issue did not affect the Panel's conclusion since it aimed to compare {LA/}MSF with loans having the same or similar conditions, including a comparable schedule of repayment". ( Ibid., 
para. 841) 
2098European Union's appellant's submission, para. 843. 
2099European Union's appellant's submission, para. 844. (original emphasis) 
2100European Union's appellant's submission, para. 845. 
2101European Union's appellant's submission, para. 846. (original emphasis) 
2102United States' appellee's submission, para. 225. 
2103United States' appellee's submission, para. 225. (emphasis omitted)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 405  
 
  is the "decisive factor" for determining whether certain LA/MSF measures conferred a benefit.
2104  
The European Communities had argue d before the Panel that footnote 16, which is attached to 
Article 6.1(d) of the SCM Agreement , supports the view that "the drafters of the SCM Agreement  
looked at the level of forecast sales as the d ecisive factor of royalty-based financing."2105  
Article 6.1(d) and footnote 16 provide: 
Serious prejudice in the sense of pa ragraph (c) of Article 5 shall be 
deemed to exist in the case of:  ... 
(d) direct forgiveness of debt, i.e. forgiveness of government-
held debt, and grants to cover debt repayment.16 
16Members recognize that where royalty-b ased financing for a civil aircraft 
programme is not being fully repaid due to the level of actual sales falling 
below the level of forecast sales, this  does not in itself constitute serious 
prejudice for the purposes of this subparagraph. 
933. The full paragraph of the Panel Report wh ich includes the statement with which the 
European Union takes issue is reproduced below: 
At most, we consider that the language  of footnote 16 may be read to 
imply that when actual aircraft sales do not fall below the level of 
forecast sales under a royalty-based financing instrument (i.e., the 
situation the European Communiti es suggests evidences the existence 
of a "reasonable repayment forecast"), it would be inaccurate to characterise that instrument as pr oviding for direct forgiveness of 
debt.  However, this is not the same as saying that all instances of 
royalty-based financing granted on the basis of a "reasonable 
repayment forecast" do not confer a benefit within the meaning of 
                                                     
 
2104Panel Report, para. 7.390.  The European Communities explained the logic of its position as 
follows: 
Reasonable forecasts inform the analys is whether the repayment provisions 
confer a benefit on the recipient or no t.  If repayment provisions are based 
on reasonable forecasts, they ensure a high probability that {LA/}MSF loans 
are fully paid back, thereby reducing the element of risk to be factored into 
the terms and conditions of the contract, including the rate of return. 
(European Communities' response to Panel Question 62, para. 45)    The "reasonableness" standard put forward by the European Communities is tied to the 1992 
Agreement, which states in Article 4(1): 
Governments shall provide support for the development of a new large civil aircraft programme only where a criti cal project appraisal, based on 
conservative assumptions, has establis hed that there is a reasonable 
expectation of recoupment, within 17 years from the date of first disbursement of such support, of all costs as defined in Article 6(2) of the 
Aircraft Agreement, including repayment of government supports on the 
terms and conditions specified below. 
2105European Communities' first written submission to the Panel, para. 455.  The 
European Communities acknowledged that footnote 16 "is not directly linked to the determination of a subsidy 
under Article 1" but considered that it nevertheless "indirectly  supports the view that the forecast and repayment 
mechanism of this instrument is at the heart of any legal assessment under the SCM Agreement ". 
(European Communities' response to Panel Question 63, para. 55 (original underlining)) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 406  
 
  Article 1.1(b) of the SCM Agreement.  In our view, a reasonable 
repayment forecast, in the terms advanced by the 
European Communities—i.e., a reasonable number of sales over which a market lender could expect full repayment of loaned principal plus interest – cannot al one be determinative of whether a 
royalty-based financing instrument (in this case LA/MSF) confers a 
benefit for the purpose of the SCM Agreement.  While we can accept that an unreasonable repayment forecast may signal that a loan 
confers a benefit, we do not belie ve the opposite will necessarily be 
the case when LA/MSF is gr ounded on a reasonable repayment 
forecast.  This is because the number of sales over which full 
repayment is expected says little, if anything, about the appropriateness of the rate of return that will be achieved by the lender.
2106 (original emphasis; footnote omitted) 
934. The European Union has not appealed the Pa nel's findings concerning the relevance of 
footnote 16, nor does it seek review of the Panel's rejection of the reasonableness of the forecast as the "decisive factor" for the determin ation of benefit.  The European Union's request is focused 
exclusively on the last sentence in the paragraph reproduced above. 
935. In subsection 3(a) above, we observed that the assessment of benefit under Article 1.1(b) of 
the SCM Agreement  calls for a comparison of the terms and conditions of the LA/MSF measures with 
the terms and conditions that would have been of fered on the market at that time the challenged 
LA/MSF measures were granted.
2107  Where, as in the case of the LA/MSF measures, the re-payment 
of a loan depends on the number of sales, the expected  number of sales will be a fundamental element 
in the computation of the rate of return of the loan.  This is because the rate of return is a function of 
the number of sales that are forecast.  Although th e Panel's reasoning is not altogether clear, we 
understand the Panel to have taken an ex ante  approach to the calculation of the rates of return of the 
member State governments, that is, the Panel calculated the rates of re turn expected at the time the 
LA/MSF measures were provided.  The European Uni on and the United States confirmed at the oral 
hearing that they too understand the Panel as having taken an ex ante  approach.   
936. The Panel did not explain why it considered that "the number of sales over which full 
repayment is expected says little, if anything, about th e appropriateness of the rate of return that will 
be achieved by the lender".  It may be that what  the Panel meant is that the number of sales over 
which repayment is expected is not dispositive of  the question of whether the rate of return 
demonstrates that the loan confers a benefit.  Unde rstood in this way, the statement would be correct 
given that the assessment of benefit would require a comparison with the rate of return that would 
                                                      
2106Panel Report, para. 7.397. 
2107The European Union and the United States agreed w ith this approach at the first session of the 
substantive oral hearing.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 407  
 
  have been demanded by a market lender.
2108  The Panel's statement, however, can also be understood 
to suggest that the number of sales is irrelevant to the calculation of the rate of return of the member 
State governments.  As we explained above, this would be incorrect.  Given the potential that the 
Panel's statement could be misused in the future, we reverse  this statement. 
VII. Non-LA/MSF Measures 
A. The EC Framework Programmes 
937. We now turn to the European Union's appeal of  the Panel's finding that certain R&TD grants 
provided to Airbus pursuant to the Second (1987-1991), Third (1990-1994), Fourth (1994-1998), Fifth (1998-2002), and Sixth (2002-2006) EC Framework Pr ogrammes were "specific"  within the meaning 
of Article 2.1(a) of the SCM Agreement .  We first provide a summary of the Panel's findings in 
respect of these measures before assessing the European Union's claims on appeal.
2109   
1. The Panel's Findings  
938. The Panel explained at the outset that it was focusing its evaluation on the United States' 
claims that the challenged grants were specific with in the meaning of subparagraph (a) of Article 2.1 
of the SCM Agreement .  According to the Panel, a finding of sp ecificity under Article 2.1(a) "requires 
the establishment of the existence of a limitation that expressly and unambiguously restricts the 
availability of a subsidy to 'certain enterprises', and thereby does not make the subsidy 'sufficiently 
                                                      
2108The European Communities acknowledg ed before the Panel that "reas onable forecasts  alone do not 
make an {LA}/MSF loan subsidy-free".  Instead, the European Communities explained the relevance of the 
forecasts as follows: 
However—and this is our point—where forecasts are reasonable, the risk 
for a government not to recoup its capital is significantly lower. That again 
reduces the need to ask for a high risk-premium. If they get this element of an {LA/}MSF loan right, governments will eliminate a good deal of risk at 
the outset and be well on the way to ensuring full repayment of {LA/}MSF. 
Let me explain this point in more detail. The European Communities has never pretended that the fact that the 
repayment target for sales is set at a conservative level is by itself  sufficient 
demonstration of the absence of a subsidy. Clearly, there has to be an adequate return  for the government which covers the cost of raising the 
money plus a reasonable premium for the risk of non-repayment. ... 
However, the European Communities insists that if the repayment target is set for a sufficiently low number of sales, thus removing most of the risk of 
non-repayment, then the government, as a responsible investor, is entitled to 
take its own view  of the remaining risk and to set the interest rate 
accordingly. 
(European Communities' oral statement at the second Panel meeting, paras. 83-85 (original italics and 
boldface)) 
2109Although relevant details concerning the EC Fram ework Programmes are set out in this section of 
our Report, we note that Part IV contains a more detailed description of the challenged measures.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 408  
 
  broadly available throughout an economy'."
2110  The Panel examined the EC Decisions that 
established each of the EC Framework Programmes and each of the "specific programmes"2111 
adopted for the purposes of implementation.  The Pa nel found that these EC Decisions constituted the 
"legal regime" for the granting of R&TD  funding under the EC Framework Programmes.2112  T h e  
Panel observed that the EC Decision establishi ng each EC Framework Programme set out overall 
guidelines, but did not indicate how funds aut horized under the programme could be accessed by 
individual applicants;  rather, the Panel found th at the detailed rules and methodologies for the 
distribution of funds were set out in the EC Decisions concerning the "specific programmes".2113  
Thus, although the Panel found that the overall aims of each EC Framework Programme "were 
expressed in terms of advancing EC R&TD activities in  general", the Panel considered that "the legal 
regimes giving effect to these objectives did so, at least partly, by channelling dedicated amounts of 
funding to sector-specific research areas that were  implemented in accordance with specific work 
programmes".2114   
939. In respect of the challenged grants, the Panel noted that an amount of funding dedicated to 
research for "aeronautics" or "aeronautics and sp ace" was provided for under each of the relevant 
EC Framework Programmes.2115  The Panel stated that the effect  of creating such allocations was 
"equivalent to setting aside a portion of a budget that  is ostensibly intended to fund research activities 
in all sectors of the economy for the sole purpose of  the research efforts of enterprises or industries 
active in the aeronautics sector".2116  In doing so, the Panel added, "the legal regimes under which the 
European Commission operated, explicitly limited acces s to a dedicated portion of the subsidy grants 
made available under the Framework Programmes to only those enterprises or industries undertaking 
research in the field of aeronautics."2117  This, the Panel maintained, created "a closed system of 
subsidization that focused on 'aeronautics' or 'aeronautics and space'".2118   
940. The Panel considered that "the allocation of funds to certain exclusive research activities 
under an umbrella subsidy programme is not incomp atible with Article 2.1(a), provided that  
the availability of those funds is not e xplicitly limited to certain enterprises."2119  T h e  P a n e l  
concluded, however, that the evidence before it  indicated that "amounts of subsidization were 
                                                      
2110Panel Report, para. 7.1512. (footnote omitted) 
2111Panel Report, paras. 7.1517, 7.1526, 7.1536, 7.1546, 7.1547, and 7.1557. 
2112Panel Report, para. 7.1562.  
2113Panel Report, paras. 7.1517, 7.1526, 7.1536, 7.1546, 7.1547, and 7.1557. 
2114Panel Report, para. 7.1563 (referring to paras. 7.1518, 7.1527, 7.1537, 7.1547, and 7.1558). 
2115Panel Report, para. 7.1563 (referring to paras. 7.1519, 7.1528, 7.1538, 7.1548, and 7.1559).  
2116Panel Report, para. 7.1563.  
2117Panel Report, para. 7.1563.  
2118Panel Report, para. 7.1563.   
2119Panel Report, para. 7.1566. (emphasis omitted)    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 409  
 
  explicitly set aside under each of the relevant Fr amework Programmes for the research efforts of 
'certain enterprises'."
2120  The Panel therefore found that R&TD subsidies granted to Airbus under 
each of the Framework Programmes were specific within the meaning of Article 2.1(a) of the 
SCM Agreement .  
2. The Interpretation of Specificity under Article 2.1 of the SCM Agreement  
941. We begin our analysis by examining Article 2.1 of the SCM Agreement , which sets out the 
core requirements for specificity: 
2.1 In order to determine whether a subsidy, as defined in 
paragraph 1 of Article 1, is specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as "certain enterprises") within the ju risdiction of the granting authority, 
the following principles shall apply: 
(a) Where the granting authority, or the legislation pursuant to 
which the granting authority opera tes, explicitly limits access to a 
subsidy to certain enterprises, su ch subsidy shall be specific. 
(b) Where the granting authority, or the legislation pursuant to 
which the granting authority operates,  establishes objective criteria or 
conditions
2 governing the eligibility for, and the amount of, a 
subsidy, specificity shall not exist, provided that the eligibility is 
automatic and that such criteria and conditions are strictly adhered to.  The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification. 
(c) If, notwithstanding any appearance of non-specificity 
resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the 
subsidy may in fact be specific, other factors may be considered.  
Such factors are:  use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the 
granting of disproportionately large amounts of subsidy to certain 
enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy.
3  In applying 
this subparagraph, account shall be taken of the extent of 
diversification of economic activiti es within the jurisdiction of the 
granting authority, as well as of the length of time during which the 
subsidy programme has been in operation. 
2Objective criteria or conditions, as used  herein, mean criteria or conditions 
which are neutral, which do not favour certain enterprises over others, and 
which are economic in nature and horizontal in application, such as number 
of employees or si ze of enterprise. 
                                                      
2120Panel Report, para. 7.1566.   WT/DS316/AB/R BCI deleted, as indicated [***] 
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  3In this regard, in particular, information on the frequency with which 
applications for a subsidy are refused or approved and the reasons for such 
decisions shall be considered. 
942.   The Appellate Body recently addressed certain relevant issues regarding the interpretation of 
Article 2.1 of the SCM Agreement  in US – Anti-Dumping and Countervailing Duties (China) .  It noted 
that the chapeau of Article 2.1 frames the central i nquiry as a determination as to whether a subsidy is 
specific to "certain enterprises" w ithin the jurisdiction of the granti ng authority, and that "certain 
enterprises" refers to a single enterprise or industr y or a class of enterprises or industries that are 
known and particularized.2121  The Appellate Body further noted that the use of the term "principles" 
in the chapeau—instead of, for in stance, "rules"—suggests that subparagraphs (a) through (c) are to 
be considered within an analy tical framework that recognizes and accords appropriate weight to each 
principle.  As a result, the application of one of the subparagraphs of Article 2.1 may not by itself be 
determinative in arriving at a conclusion that  a particular subsidy is or is not specific.2122   
943. The Appellate Body also observed that subpara graphs (a) and (b) of Article 2.1 set out 
indicators as to whether the conduct or instrument s of the granting authority discriminate or not.  
Subparagraph (a) identifies circumstances in wh ich a subsidy is specific because it describes 
limitations on eligibility that favour certain en terprises;  whereas subparagraph (b) establishes 
circumstances in which a subsidy shall be regard ed as non-specific because it describes criteria or 
conditions that guard against selective eligibility.2123  At the same time, subparagraphs (a) and (b) 
identify certain common elements in the analysis of the specificity of a subs idy.  For instance, the 
reference in both provisions to "the granting auth ority, or the legislation pursuant to which the 
granting authority operates" was viewed as critical  because it situates the analysis for assessing any 
limitations on eligibility in the particular legal instrument or government conduct effecting such 
limitations.  This also suggests a focus on whether ce rtain enterprises are eligible for the subsidy, not 
on whether they in fact receive it.2124  In addition, because both provisions turn on indicators of 
eligibility  for a subsidy, there may be situations in which assessing the eligibility for a subsidy will 
give rise to indications of specificity and non-specific ity as a result of the application of Article 2.1(a) 
and (b).2125   
                                                      
2121Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , paras. 366 and 373. 
2122Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 366.  
2123Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 367.   
2124Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 368.   
2125Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 369.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 411  
 
  944. As the Appellate Body further noted, subpara graph (c) of Article 2.1 provides that, 
"notwithstanding any appearance of non-specificity resulting from the application of the principles 
laid down in subparagraphs (a) a nd (b)", other factors may be considered if there are reasons to 
believe that a subsidy may, in fact, be specific in a particular case.  The reference in Article 2.1(c) to 
"any appearance of non-specificity" supports the view  that the conduct or instruments of a granting 
authority may not clearly satisfy the eligibility requirements of Article 2.1(a) or (b), but may 
nevertheless give rise to specificity in fact.  Since an "appearance of non-specificity" under 
Article 2.1(a) and (b) may still result in specificity in  fact under Article 2.1(c), this reinforces the view 
that the principles in Article 2.1 are to be interpreted together.
2126 
945. The Appellate Body concluded in US – Anti-Dumping and Countervailing Duties (China) that 
a proper understanding of specificity under Article 2. 1 must allow for the concurrent application of 
the principles set out in that Article to the various  legal and factual aspects of a subsidy in any given 
case.  While there may be instances in which the evidence under consideration unequivocally 
indicates specificity or non-specificity under one of the subparagraphs of Artic le 2.1, the Appellate 
Body cautioned against examining specificity on th e basis of the application of a particular 
subparagraph of Article 2.1, when the potential for application of other subpara graphs is warranted in 
the light of the nature and content of measures challenged in a particular case.2127 
3. The Panel's Assessment under Article 2.1 of the SCM Agreement  
946. The European Union maintains on appeal th at, because the reference to "subsidy" in 
Article 2.1(a) must mean the subsidy programme as  a whole, the Panel was required to rely on each 
EC Framework Programme as a whole as the be nchmark for determining the existence of 
                                                      
2126Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 370.   
2127Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 371.  We 
consider that a failure properly to interpret Article  2.1 creates the potential fo r aberrant results.  The 
European Union warns that the term "subsidy" in Article 2.1(a) must refer to the entire programme pursuant to 
which a subsidy is granted, and that conducting the sp ecificity analysis "below the level of the subsidy 
programme as a whole will, at a certain level, inevita bly indicate specificity". (European Union's appellant's 
submission, para. 1188)  The European Union adds that it is pointless to refer to the individual subsidy 
transaction as a benchmark since each individual grant is , by definition, limited to a single recipient. The 
European Union also posits the scenario in which a subs idy programme would escape a finding of specificity if 
it allocated funding to generic research "even if the granting government decided (but did not make public) that 
100% of the funding of such an ap parent generic research would benefit aeronautics and space, and this turns 
out to be the case". ( Ibid., para. 1192)  We do not consider that either result follows from a proper understanding 
of Article 2.1.  Any grant, even at th e level of the individual subsidy transaction, may be found not to be specific 
if administered in accordance with objective criteria or  conditions within the meaning of Article 2.1(b).  
Likewise, even where there is an appearance of non-sp ecificity, subsidies benefiting certain enterprises by 
means of non-transparent government conduct could still properly be found to be specific in fact by virtue of the 
"other factors" prescrib ed by Article 2.1(c). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 412  
 
  specificity.
2128  The European Union thus considers that specificity does not resu lt from the allocation 
of funding to aeronautics-related research becau se each EC Framework Programme as a whole 
establishes "a broad-based allocation that ensures equal access to a wide range of sectors and 
enterprises".2129  As the European Union explains:  
While it is true that the funding amounts so allocated could not be 
accessed by entities seeking support for types of R&TD projects other than those concerning aeronautics, it is equally true that entities involved in aeronautics-related R&TD projects could not access 
funds under the remainder (and therefore the great majority) of the 
Framework Programme budgets.
2130   
947. The United States disagrees with the European  Union's contention that, because support to 
Airbus is organized under the EC Framework Programme s, the analysis of specificity must occur at 
that level.  The United States argues that, under such  an approach, "the bureaucratic organization of 
subsidy programs, rather than the substance of how they limit funding, dictates whether they are 
specific."2131  The United States further maintains that the facts do not support, and the Panel findings 
contradict, the European Union's contention "t hat the Framework Programmes were non-specific 
because companies in all sectors, including the aerosp ace sector, faced the same situation of access to 
sector-specific funds but exclusion from other funds".2132   
948. We do not consider that the European Uni on's characterization of the EC Framework 
Programmes is supported by the Panel's findings.  As  the Panel stated, each of the EC Framework 
Programmes appears to divide up funding into those research areas that are sector-specific—such as 
the allocations to "aeronautics" and "aeronau tics and space"—and those that are "of a general 
horizontal nature, potentially cutting acr oss a variety of business segments".2133  Thus, each 
EC Framework Programme targets funding to economic activities "at both horizontal and sector-specific levels".
2134  In the light of these findings, we do not find support for the contention that 
entities involved in aeronautics-related R&TD coul d not access funding under the remainder of the 
EC Framework Programme budgets , and therefore do not consider that the EC Framework 
Programmes ensured "equal access" to funding.2135   
                                                      
2128European Union's appellant's submission, paras. 1185-1187.  
2129European Union's appellant's submission, para. 1189.   
2130European Union's appellant's submission, para. 1189.  
2131United States' appellee's submission, para. 446.  
2132United States' appellee's submission, para. 457.    
2133Panel Report, paras. 7.1515, 7.1524, 7.1534, 7,1544, and 7.1554.   
2134Panel Report, paras. 7.1517, 7.1526, 7.1536, 7,1546, and 7.1557.   
2135European Union's appellant's submission, para. 1189.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 413  
 
  949. Moreover, we do not consider that explicit lim itations on access to a subsidy to entities active 
in one sector of the economy will produce a different result under Article 2.1(a) by virtue of the fact 
that separate groupings of entiti es have access to other pools of funding under that programme.  
Certainly, if access to the same subsidy is limited to some grouping of enterprises or industries, an investigating authority or panel would be required to assess whether the eligible recipients can be 
collectively defined as "certain enterprises".  Where access to certain funding under a subsidy 
programme is explicitly limited to a grouping of enterprises or industries that qualify as "certain 
enterprises", this in our view leads to a provisiona l indication of specificity within the meaning of 
Article 2.1(a), irrespective of how other fundi ng under that programme is distributed.  The 
European Union does not challenge the Panel's conc lusion that the entities eligible for R&TD grants 
in the aeronautics sector may be consider ed to constitute "certain enterprises".
2136  We also consider 
that, on the basis of the evidence before it, the Pane l could properly have concluded that those eligible 
to receive funding allocated to research in the aeronautics sector qualified as "certain enterprises".2137  
For these reasons, we see no grounds to disturb th e Panel's conclusion that the evidence before it 
"indicate{d} that amounts of subsidization were explicitly set aside under each of the relevant 
Framework Programmes for the research efforts of 'certain enterprises'."2138 
950. It may be that a provisional indication in r espect of specificity within the meaning of 
Article 2.1(a) will require further analysis under Ar ticle 2.1(b).  As the Appellate Body stated in US – 
Anti-Dumping and Countervailing Duties (China) , "an initial indication of specificity under 
Article 2.1(a) may need to be considered further if additional evidence demonstrates that the subsidy 
in question is available on the basis of objectiv e criteria or conditions within the meaning of 
Article 2.1(b)."2139  We note that, in this case, neither party advanced arguments before the Panel 
concerning the applicability of Article 2. 1(b) to the EC Framework Programmes.2140   
951. We do not consider that the Panel record calls for a review of objective criteria or conditions 
within the meaning of Article 2.1(b).  The funding at issue in this dispute was granted pursuant to a 
                                                      
2136At the oral hearing, the European  Union acknowledged its argument before the Panel that some of 
the funding for aeronautics-related research activities went  to research institutes an d universities. (See Panel 
Report, para. 7.1511)  The European Union did not, however, provide a basis for distinguishing between those 
recipients and aeronautics co mpanies, or identify other recipients th at were not aeronautics companies, in a 
manner that would support the argument that those eligible for such research funding did not qualify as "certain enterprises".   
2137This finding of the Panel is to be contrasted with its assessment of loans provided by the EIB, where 
the Panel found that "the wide array of economic sectors covered by the EIB's explicit lending objectives means that its operations are expressly intended to benefit recipients well beyond a particular enterprise or industry or 
group of enterprises or industries." (Panel Report, para. 7.931) 
2138Panel Report, para. 7.1566.  
2139Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 369. 
2140Panel Report, paras. 7.1505-7.1511.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 414  
 
  legal regime consisting of at least four layers of authorizing documents.  As the Panel explained, for 
each EC Framework Programme there is an EC Decision setting out the overall guidelines for the 
programme, as well as separate EC Decisions establishing the "specific programmes" that implement 
each EC Framework Programme.  In addition, the Pa nel noted that funding allocated to aeronautics 
research is also implemented in accordance with sp ecific "work programmes", and that certain work 
programmes were administered through project-specific "calls for proposals".
2141  During the oral 
hearing, the participants confirmed that the Pane l record did not contain any documents setting out 
criteria and conditions for eligibility for aeronautics research funding.  In the absence of arguments or 
evidence reflecting the existence of objective criteri a or conditions in respect of R&TD grants for 
aeronautics research, we do not see that application of  Article 2.1(b) to the challenged measures alters 
the analysis in respect of specificity.  Finally, b ecause the foregoing analysis does not give rise to an 
"appearance of non-specificity", we do not consider that further analysis under Article 2.1(c) is 
warranted.  
952. For these reasons, we do not consider that th e Panel erred in applying the principle under 
Article 2.1(a) to determine that the allocation of  R&TD subsidies to the aeronautics sector was 
specific.  Accordingly, we uphold  the Panel's finding, in paragraph 7.1566 of the Panel Report, that 
the R&TD subsidies granted to Airbus under each of  the EC Framework Programmes were "specific" 
within the meaning of Article 2.1(a) of the SCM Agreement . 
B. Infrastructure Measures 
953. We now turn to the European Union's appeal of  the Panel's finding that certain infrastructure 
measures constituted subsidies within the meaning of Article 1 of the SCM Agreement .  These 
measures related to the Mühlenberger Loch industria l site in Hamburg, the extension of the airport 
runway in Bremen, and the Aéroconstellation industr ial site in Toulouse.  Below we summarize the 
findings of the Panel in respect of each set of infrastructure measures before assessing the 
European Union's claims on appeal.2142 
                                                      
2141Panel Report, paras. 7.1520, 7.1530, 7.1540, 7.1 550, 7.1560, and 7.1563.  However, the only such 
evidence before the Panel consisted of  examples of the work programmes for the Fifth and Sixth EC Framework 
Programmes. ( Ibid., footnote 4891 to para. 7.1563) 
2142Although relevant details concerning  the infrastructure measures are set out in this section of our 
Report, we note that Part IV contains a more detailed description of the challenged measures.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 415  
 
  1. The Panel's Findings
 
(a) The Mühlenberger Loch industrial site 
954. In evaluating whether the infrast ructure at the Mühlenberger Loch industrial site constitutes a 
financial contribution, the Panel considered the European Communities' argument that the project 
consisted of three distinct elements:  (i) the co nversion of wetlands into usable land;  (ii) the 
construction of certain flood protec tion measures;  and (iii) the build ing of special purpose facilities.  
The Panel stated that there was no requirement th at it separate these elements in its analysis, and 
found that the land reclamation was "part of an integr ated project to provide a site adjacent to Airbus' 
existing Finkenwerder site for expansion of its facilities".2143  The Panel therefore proceeded to 
analyze the entire project as a single measure.  In doing so, the Panel further found that "the 
reclamation of the wetlands adjacent to the existing Airbus facility in Finkenwerder was undertaken 
not merely in the awareness that Airbus w ould be the 'first user', as argued by the 
European Communities, but specifically in order to enable Airbus to expand its existing facilities in a 
way it could not do without the creation of the new land."2144  The Panel added that there was "simply 
no evidence to suggest that any of this development would have been undertaken at the time were it 
not necessary in order to enable Airbus to expand  its existing facilities to allow for assembly of the 
A380 at that site".2145  In the Panel's view, the Mühlenberger Loch industrial site "was tailor-made for 
Airbus"2146, and the Panel therefore found that the creation and provision of that site was not a 
provision of general infrastructure, but rath er constituted a financial contribution, under 
Article 1.1(a)(1)(iii) of the SCM Agreement , in the form of the provision of goods or services other 
than general infrastructure. 
955. The Panel recalled that a "benefit" will be cons idered to have been conferred pursuant to 
Article 1.1(b) of the SCM Agreement  "whenever a financial contributio n is granted to a recipient on 
terms more favourable than those availa ble to the recipient in the market".2147  In determining whether 
a financial contribution in the form of goods or  services other than general infrastructure had 
conferred a benefit, the Panel considered that th e appropriate question was "whether a market actor 
would have provided the good or service to the recipi ent at the time, on the same terms and conditions 
as the government provision at issue".2148  The Panel maintained that  the parties agreed that no 
commercial investor would have undertaken the pr oject, and that they were in general agreement 
                                                      
2143Panel Report, para. 7.1078. 
2144Panel Report, para. 7.1080. (footnote omitted) 
2145Panel Report, para. 7.1080.  
2146Panel Report, para. 7.1084.  
2147Panel Report, para. 7.1091. 
2148Panel Report, para. 7.1091.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 416  
 
  regarding the market value of industrial land in Hamburg and the value of the Mühlenberger Loch 
land.  The Panel considered that a market-based re ntal of industrial land in Hamburg was "necessarily 
far less than would be a market based rental  on an investment in land worth {€}750 million".
2149  In 
the Panel's view, "a market actor who invested {€ }750 million in land, whether by purchasing it or by 
creating it through reclamation, would, in renting the property, seek a return on that investment."2150   
956. The Panel regarded as irrelevant the European  Communities' contention that Airbus pays 
market rates for the land and special  purpose facilities.  The Panel stated that it was clear that the rent 
paid by Airbus did not provide a market rate of return on the investment by the Hamburg authorities 
to create the Mühlenberger Loch site.  Accordingly,  the Panel considered that the Mühlenberger Loch 
site conferred a benefit on Airbus "in an amount equivalent to the ex tent of the difference between the 
actual rent paid by Airbus for the land and facilities in question, and a reasonable rate of return on the 
investment of the Hamburg authorities in creating that land and those facilities".2151  The Panel 
concluded that the investment by Hamburg authori ties "was many times greater" than the value of the 
site reflected in the rental amounts paid by Airbus , and that the provision of the Mühlenberger Loch 
site thus "conferred a very  large benefit to Airbus".2152 
(b) The Bremen airport runway extension 
957. In evaluating whether the extension of th e Bremen airport runway was a financial 
contribution, the Panel first addressed the European  Communities' argument that the extension of the 
runway and the noise-reduction measures had to be c onsidered separately in determining whether they 
constitute general infrastructure.  The Panel found that "the noise reduction measures were considered 
only as a result of the decision to extend the runway, and even in th at context were not considered 
necessary, but were undertaken as a matter of c hoice in connection with the runway project"2153, and 
therefore considered the runway extension and associated noise-reduction measures together in its 
analysis.  The Panel further found that these measures "were undertaken by the Bremen city 
authorities specifically for Airbus' needs", and that "use of the full length of the extended runway is 
limited to Airbus by regulation".2154  The Panel therefore concluded, on the basis of "the specific 
limitations on access to, i.e., use of the extended r unway, and the clear evidence demonstrating that 
the runway extension was undertaken for the use of Airbus", that the runway extension and associated 
                                                      
2149Panel Report, para. 7.1094.  
2150Panel Report, para. 7.1094. 
2151Panel Report, para. 7.1096.  
2152Panel Report, para. 7.1096.  
2153Panel Report, para. 7.1114. (footnote omitted) 
2154Panel Report, paras. 7.1116 and 7.1118. (footnote omitted)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 417  
 
  noise reduction measures constituted a financial cont ribution, under Article 1.1(a)(1)(iii) of the 
SCM Agreement , in the form of the provision of goods or services other than general infrastructure.
2155 
958. In its analysis of "benefit", the Panel a ddressed the European Communities' argument that 
Airbus paid for runway use in accordance with th e general fee schedule applicable at the Bremen 
airport, and that Airbus' right to use the extended runway was not on more favourable terms than those in the market.  Because the Panel considered  that the financial contribution at issue was not 
limited to the use of the extended runway, but rather  encompassed the entire investment by the City of 
Bremen in extending the runway and the associated noise-reduction measures, the Panel stated that it 
did not consider that an evaluation of the fees paid  by Airbus for runway use at the Bremen airport 
affected its assessment of benefit.  The Panel neve rtheless found that it was "undisputed that Airbus 
pays runway fees in accordance with the regular fee schedule, applicable to all users of the airport, 
with no additional charges for the use of the runw ay extensions, which only Airbus is permitted to 
use, and only for certain flights".
2156  The Panel thus concluded that "there is no return to the City of 
Bremen on its investment in the runway extensio n and noise reduction measures", and that a benefit 
was thereby conferred on Airbus.2157  
(c) The Aéroconstellation industrial site 
959. In evaluating whether the infrastructure at th e Aéroconstellation industr ial site constituted a 
financial contribution, the Panel first addressed the European Communities' argument that certain 
facilities—known as " équipement d'intérêt général " (EIG) facilities—should be considered separately 
from the land provided at the Aéroconstellation s ite.  Noting that the European Communities' own 
arguments indicated that the EIG facilities were a necessary part of the development of the industrial 
site, the Panel found that "the EIG facilities constitute  an integral part of the Aéroconstellation site", 
and therefore considered them together in its analysis.2158  The Panel further found, on the basis of the 
evidence before it, that development of the site "was undertaken specifically to enable Airbus to 
situate an A380 final assembly line in an advantage ous location, in France", and that the site was 
"from the outset, uniquely adapted to Airbus' needs, from its situation next to and connection to the 
Toulouse-Blagnac airport, to the highly specific EIG facilities".2159  The Panel accordingly found that 
the creation and provision of the ZAC Aéroconstella tion site, including the EIG facilities, constituted 
                                                      
2155Panel Report, para. 7.1121. 
2156Panel Report, para. 7.1133.  
2157Panel Report, para. 7.1133. 
2158Panel Report, para. 7.1175.  
2159Panel Report, para. 7.1177. (footnote omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 418  
 
  a financial contribution, under Article 1.1(a)(1)(iii) of the SCM Agreement , in the form of the 
provision of goods or services other than general infrastructure.
2160 
960. In respect of whether a benefit was conferred, the Panel considered that the sales price for 
land at the Aéroconstellation site w ould not have provided an adequate return to cover the investment 
in developing the land for industrial use, and t hus "a commercial land de veloper would not have 
undertaken the project".2161  The Panel stated that it was clear, and uncontested by the 
European Communities, that the price paid by Airbus did not provide a market rate of return on the 
investment by French authorities to develop th e site, including the EIG facilities.  The Panel 
concluded that, even if the lease for the EIG facilitie s is commensurate with a market benchmark, this 
would not "save the provision of the site, including the EIG facilities, from conferring a substantial 
benefit on Airbus".2162 
2. The Panel's Assessment under Article 1.1(a)(1)(iii) of the SCM Agreement  
961. The Panel stated that the disagreement between the parties focused on the "central question" 
of whether the challenged infrastructure constitutes th e provision of "other than general infrastructure" 
within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement .2163  On appeal, however, the 
European Union directs its challenge to a different  issue.  Stating that the Panel posed the "wrong 
question"2164 by asking whether the challenged infrastru cture measures constituted the provision of 
"other than general infrastructure" , the European Union maintains that the Panel ignored its argument 
"that a distinction must be made between, on the one hand, the creation of infrastructure and, on the 
other hand, the provision of infrastructure to the recipient."2165  The European Union thus submits that 
the Panel erred in its interpretation and application of Article 1.1(a)(1 )(iii) by failing to recognize that 
the relevant transaction for purposes of its analysis under Article 1.1(a)(1)(iii) was the provision  of 
goods or services in the form of infrastructure to Airbus Deutschland and Airbus France, not the creation  of that infrastructure.
2166   
                                                      
2160Panel Report, para. 7.1179.  
2161Panel Report, para. 7.1188.  
2162Panel Report, para. 7.1190. 
2163Panel Report, para. 7.1035.  
2164European Union's appellant's submission, para. 1025.  
2165European Union's appellant's submission, para. 1026. 
2166European Union's appellant's submission, para. 1007.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 419  
 
  962. Article 1.1(a)(1)(iii) of the SCM Agreement  provides as follows: 
1.1 For the purpose of this Ag reement, a subsidy shall be 
deemed to exist if: 
(a)(1) there is a financial contribution by a government or any 
public body within the territory of  a Member (referred to in this 
Agreement as "government"), i.e. where: 
... 
(iii) a government provides goods or services other than general 
infrastructure, or purchases goods; 
963. Article 1.1(a)(1)(iii) thus stipulates that a fi nancial contribution exists where a government 
provides goods or services other than general infr astructure.  The ordinary meaning of the verb 
"provide" is to "{s}upply or furnish for use;  make available".
2167  The reference to "goods or services 
other than general infrastructure" indicates that the term "goods or services" encompasses certain 
types of infrastructure.  Infrastructure that is "oth er than general" is covered by the definition of a 
financial contribution in Article 1.1(a)(1)(iii), wh ereas infrastructure that is "general" is not.   
964. The European Union submits that government  conduct in creating infrastructure is not 
disciplined by the SCM Agreement .  Specifically, the European Union contends that government 
creation of infrastructure—"such as the development of agricultural land into urban or industrial land, 
the creation of natural parks, the creation or improve ment of infrastructures, such as roads, railways, 
land"—does not qualify as a "financial contribution".2168  T h e  creation  of infrastructure, the 
European Union explains, benefits society as a whole and therefore reflects legitimate economic 
development policies with which, so long as the infrastructure is not provided  to a recipient, the 
SCM Agreement  does not interfere.  In the European Union's view, "{o}nly the provision  to an 
economic operator (as opposed to creation) of infrast ructures 'other than general infrastructures' is 
captured by the notion of financial contribution sin ce this government action is capable of distorting 
trade."2169  We agree that, when a good or service has not been provided  by a government, there 
cannot be a financial contribution c ognizable under Article 1.1(a)(1)(iii). 
965. This proposition, however, differs in our view  from the European Union's corollary argument 
that focusing on a government's provision  of goods or services necessarily excludes considerations in 
respect of their creation .  As the European Union argues, "actions taken by the government prior  to 
                                                      
2167Shorter Oxford English Dictionary , 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University 
Press, 2007), Vol. 2, p. 2383.   
2168European Union's appellant's submission, para. 1029.   
2169European Union's appellant's submission, para. 1030. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 420  
 
  the provision of the good or service in question are not relevant for the notion of 'financial 
contribution' in Article 1.1(a)(1)(iii)."
2170  While government action concerning the creation of a good 
or service may not be relevant if that good or service is not ultimately provided to a recipient, we do 
not understand on what basis such actions would necessarily be excluded in assessing what has been 
provided.  Recalling the meaning of the term "p rovide" set out above—supply or furnish for use; 
make available—we consider that this term permits taking into account what was involved in 
supplying or furnishing that infrastructure.  The creation of infrastructure is a precondition, and thus 
necessary, for the provision of that  infrastructure.  We therefore do not view the use of the term 
"provision" in Article 1.1(a)(1)(iii) as excluding th e possibility that circumstances of the creation of 
infrastructure may be relevant to a proper charact erization of what it is that is provided.  
966. On the basis of this understanding of Article 1. 1(a)(1)(iii), we do not agree with the Panel's 
characterization of the financial contributions at issu e.  We note, for instance, that the Panel described 
the financial contribution in Hamburg as cons isting of "the creation and provision of the 
Mühlenberger Loch industrial site".2171  Airbus was provided the Mühlenberger Loch site by means of 
a leasing arrangement.2172  Although circumstances in respect of the creation of the Mühlenberger 
Loch site may be relevant to a proper understanding  of the lease provided to Airbus, we consider it 
inconsistent with Article 1.1(a)(1)(iii) to ch aracterize what was provided as consisting of the 
"creation" of the Mühlenberger Loch site.  For th is reason, we deem simi larly over-inclusive the 
Panel's characterization of the financial contribu tion in Toulouse as consisting of "the creation and 
provision of the ZAC Aéroconstellation site and EIG facilities".2173  There, Airbus was provided land 
at the Aéroconstellation site and a lease of the EIG facilities.2174  It is therefore similarly inconsistent 
with Article 1.1(a)(1)(iii) to characterize the fina ncial contribution that was provided as consisting of 
the "creation" of that infrastructure.  Regardi ng the measures at the Bremen airport, the Panel 
concluded that the financial cont ribution consisted of "the entire project, extending the runway, the 
                                                      
2170European Union's appellant's submission, para. 1031. (original emphasis)  
2171Panel Report, para. 7.1084.  In paragraph 8.1(b)(i) of its Report, the Panel concluded that "the 
provision of the Mühlenberger Loch site constitutes a sp ecific subsidy within the meaning of Articles 1 and 2 of 
the SCM Agreement". We understand this conclusion in  the light of the Panel's analysis and findings in 
paragraphs 7.1072-7.1097 of its Report. 
2172Panel Report, para. 7.1049.  
2173Panel Report, para. 7.1179.  In paragraph 8.1(b)(iii) of its Report, the Panel concluded that "the 
provision of the ZAC Aéroconstellation site and associ ated EIG facilities constitutes a specific subsidy within 
the meaning of Articles 1 and 2 of the SCM Agreement".  We understand this conclusion in the light of the 
Panel's analysis and findings in paragraphs 7.1172-7.1191 of its Report. 
2174Panel Report, para. 7.1139.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 421  
 
  associated noise reduction measures, and the right of exclusive use".
2175  What was actually provided 
to Airbus, however, consisted of the right to excl usive use of the extended runway in exchange for 
certain fees.2176  However, because the Panel's description id entifies features of the infrastructure that 
were not provided to Airbus—for instance, the cr eation of the runway extension and related noise 
reduction measures—we also consider that this description is inconsistent with the focus of 
Article 1.1(a)(1)(iii) on what a government actually provides.   
967. For these reasons, we modify  the Panel's characterization, in paragraphs 7.1084, 7.1121, 
and 7.1179 of the Panel Report, of the infrastru cture measures constituting a financial contribution 
under Article 1.1(a)(1)(iii) of the SCM Agreement .  On the basis of our review of the Panel record, we 
consider that a proper characterization of the financia l contributions provided to Airbus consists of the 
following:  (i) the lease of land and special purpose f acilities at the Mühlenberger Loch industrial site;  
(ii) the right to exclusive use of the extended runway  at the Bremen airport;  and (iii) the sale of land 
and the lease of facilities at the Aéroconstellation industrial site.  
968. The European Union requests, if we were to reverse the Panel's findings that the challenged 
infrastructure as characterized by the Panel constitute d financial contributions within the meaning of 
Article 1.1(a)(1)(iii) of the SCM Agreement , that we also reverse, and declare moot and of no legal 
effect, the reasoning set out in paragra phs 7.1034 to 7.1044 of the Panel Report.2177  Because we have 
decided only to modify the Panel's findings, we express no view on the reasoning contained in the 
referenced paragraphs.   
3. The Panel's Assessment under Article 1.1(b) of the SCM Agreement  
969. The Panel found that the provision of infrastructure relating to the Mühlenberger Loch 
industrial site in Hamburg, the airport runway in Bremen, and the Aéroconste llation industrial site in 
Toulouse, conferred a benefit on Airbus because eac h government's investment in that infrastructure 
exceeded its return on that investment.2178   
970. The European Union argues on appeal that the Pa nel erred in its interp retation and application 
of the term "benefit", within the meaning of Article 1.1(b) of the SCM Agreement , because it assessed 
the existence of a benefit on the basis of whether costs incurred by the gove rnment were in excess of 
                                                      
2175Panel Report, para. 7.1121.  In paragraph 8.1(b)(ii) of its Report, the Panel concluded that "the 
provision of the lengthened Bremen Airport Runway constitutes a specific subsidy within the meaning of 
Articles 1 and 2 of the SCM Agreement".  We understand this conclusion in the light of the Panel's analysis and 
findings in paragraphs 7.1113 to 7.1134 of its Report. 
2176Panel Report, paras. 7.1100 and 7.1133.  
2177European Union's appellant's submission, para. 1037.   
2178Panel Report, paras. 7.1096, 7.1133, and 7.1190.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 422  
 
  the returns generated by Airbus' purchase and/or lease payments.
2179  Specifically, the 
European Union contends, the Panel asked "whether  the returns enjoyed by the granting governments 
were sufficient, relative not to the market value of the land or facilities sold or  leased or the exclusive 
right of use provided, but to the returns a market investor creating that land or facilities would have sought."
2180  Thus, central to the European Union's app eal is its contention that the Panel erred in 
relying on a "return-to-government" standard, which th e European Union considers to be equivalent to 
the "cost-to-government" standard re jected by the Appellate Body in Canada – Aircraft .  As the 
European Union explains, "{w}hether that standard is  characterised as a 'cost' or, instead, a 'return' to 
the government is immaterial.  A cost to th e government is simply a negative return."2181  T h e  
European Union additionally maintains that this  error apparently resulted from the Panel's 
consideration of the government as an investor, in stead of, as required by Article 1.1(a)(1)(iii), as a 
provider of a good or service.  The European Union argues that the use of the term "provides" in 
Article 1.1(a)(1)(iii) requires that any benefit "be measured against the market value of that good or 
service provided, not the cost of creating it".2182  Moreover, where the financial contribution consists 
of a government-provided good or service, the Eur opean Union adds that Article 14(d) of the 
SCM Agreement  supports assessing the "benefit" based on mark et value and price, rather than the 
return earned.2183 
971. The United States contends that the Panel did not  apply a "cost-to-government" standard.  In 
the United States' view, the Panel "simply ask{ed} what 'price' a commercial real estate developer, 
under the same circumstances would have demande d to provide a tailor-made site, a runway 
extension, or facilities exclusively fo r a certain company or companies."2184  The United States adds 
that the best proxy for that market price is what a commercial investor would have sought as a return on that investment, namely recovery of its cost plus  a certain profit.  The United States thus maintains 
that the cost to the government of de veloping the infrastructure involved "was a factor  in determining 
whether Airbus would have had to pay more on the market to receive the same thing it actually 
received from the governments.  It was not itself the standard  against which the Panel determined the 
existence of a benefit."
2185  The United States also considers that  the standard under Article 14(d) is 
not generalized market value, but the adequacy of  the remuneration received by the government that 
                                                      
2179European Union's appellant's submission, para. 1063.   
2180European Union's appellant's submission, para. 1067.   
2181European Union's appellant's submission, footnote 1426 to para. 1063.  
2182European Union's appellant's submission, para. 1067.   
2183European Union's appellant's submission, para. 1067.   
2184United States' appellee's submission, para. 383.   
2185United States' appellee's submission, para. 383.  (original emphasis;  footnote omitted)    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 423  
 
  provided the infrastructure.  The United States adds that, "{b}y examining what a commercial 
investor would expect, the Pa nel satisfied that standard."
2186 
972. We begin by considering the issue of "benefit" under Article 1.1(b) of the SCM Agreement , 
and the guidance offered by Article 14(d) of the SCM Agreement  concerning the provision of goods or 
services by a government.  In order for a subsidy to  be found to exist, Article 1.1(b) requires the 
conferral of a "benefit".  We recall that, although Article 14 relates to the calculation of benefit for 
purposes of Part V of the SCM Agreement , it nevertheless provides relevant context for the 
interpretation of "benefit" in Article 1.1(b).2187  Article 14(d), which concerns the calculation of 
benefit in respect of government-provided goods or services, states as follows: 
{T}he provision of goods or services or purchase of goods by a 
government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration.  The adequacy of remuneration shall be determined in relation to 
prevailing market conditions for the good or service in question in 
the country of provision or purchase (including price, quality, availability, marketability, transportation and other conditions of purchase or sale). 
973. In Canada – Aircraft , the Appellate Body addressed Canada's contention that a "benefit" 
cannot exist unless the granting of a financial contribution imposes a net cost on the government.  Examining Articles 1.1(b) and 14, the Appellate Body  considered that the i nquiry should be focused 
on the benefit to the recipient, and not on the cost to government.
2188  The Appellate Body further 
considered that the term "benefit" implies a comp arison.  As the Appellate Body explained, the 
question of whether a benefit has been conferred is  thus a comparative exercise requiring a panel to 
determine whether the recipient of the financial cont ribution has been advantaged or made "better off" 
than it would otherwise have been absent that contri bution.  The Appellate Body considered that "the 
marketplace provides an appropriate basis for compar ison in determining whether a 'benefit' has been 
'conferred'."2189  The Appellate Body also found relevant cont ext for its view in Article 14, noting that 
a "benefit" arises under each of the guidelines set out in that provision if the recipient has received a 
financial contribution on terms more favourable than  those available to the recipient on the market.2190   
                                                      
2186United States' appellee's submission, para. 387.   
2187Appellate Body Report, Canada – Aircraft , para. 155.  
2188Appellate Body Report, Canada – Aircraft , paras. 154-156.   
2189Appellate Body Report, Canada – Aircraft , para. 157.  
2190Appellate Body Report, Canada – Aircraft , para. 158.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 424  
 
  974. The Appellate Body Report in Canada – Aircraft  thus stands for the proposition that a 
"benefit" is to be determined, not by reference to whether the transaction imposes a net cost on the 
government, but rather by reference to whether th e terms of the financial contribution are more 
favourable to what is available to the recipient on the market.  The manner in which an investigating 
authority or panel evaluates market evidence will be a function of the particular context of each case, 
and of what information is adduced by the parties to a dispute.  In every instance, however, that 
analysis remains focused on locating a proper comparator in the market.  In Japan – DRAMs (Korea) , 
the Appellate Body stated the following in assessing whether a challenged government investment 
conferred a benefit under Articles 1.1(b) and 14 of the SCM Agreement : 
The terms of a financial transaction must be assessed against the 
terms that would result from unconstr ained exchange in the relevant 
market.  The relevant market may be  more or less developed;  it may 
be made up of many or few participants. ...  In some instances, the market may be more rudimentary.  In other instances, it may be 
difficult to establish the relevant market and its results.  But these 
informational constraints do not alter the basic framework from which the analysis should proceed. ... There is but one standard—the market standard—according to which rational investors act.
2191 
975. We find instructive the Appellate Body's consid eration of Articles 1.1(b) and 14 because it 
underscores that every benefit determination requi res a comparison of the terms of a financial 
contribution to a market benchmark.  Article 14(d) s tipulates that a benefit is not conferred so long as 
the good or service is provided for "adequate remunera tion".  It moreover provides that the adequacy 
of remuneration is to be determin ed "in relation to prevailing mark et conditions", and lists a number 
of such market conditions, including "price, quality , availability, marketability, transportation and 
other conditions of purchase or sale".  This langua ge highlights that a proper market benchmark is 
derived from an examination of the conditions pursua nt to which the goods or services at issue would, 
under market conditions, be exchanged.   
976. There is no disagreement between the participants that the market is the appropriate 
benchmark in determining benefit within the meaning of Artic le 1.1(b), and that Article 14(d) 
confirms the importance of examining the value of the financial contribution in relation to "prevailing 
market conditions".  The principal question is whet her, having nominally endorsed a market standard, 
the Panel nevertheless erred in fa iling to determine benefit in c onformity with that standard. 
                                                      
2191Appellate Body Report, Japan – DRAMs (Korea) , para. 172.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 425  
 
  977. In respect of each of the three infrastructure me asures at issue on appeal, the Panel found that 
the costs of the government in providing the infr astructure exceeded the amounts the government 
received in return for that investment.  For the Mü hlenberger Loch site, the Panel thus found that a 
benefit was conferred in an amount equal to "the di fference between the actual rent paid by Airbus for 
the land and facilities in question, and a reasonable ra te of return on the investment of the Hamburg 
authorities in creating that land and those facilities."
2192  For the Bremen airport runway extension, the 
Panel found that a benefit was conferred because "the re is no return to the City of Bremen on its 
investment in the runway extension and noise reduction measures".2193  And for the Aéroconstellation 
site, the Panel found that a benefit was conferre d because the amounts paid by Airbus "{did} not 
provide a market rate of return on the investme nt by the French authorities to develop the site, 
including the EIG facilities".2194 
978. In arriving at its findings, the Panel rejected  the European Communities' arguments that it was 
resorting to a "cost-to-government" standard.  Referr ing to the Mühlenberger Loch site, for instance, 
the Panel asserted that the investment by Hamburg in the project was relevant in the Panel's assessment of whether a benefit was conferred.  Th e Panel maintained that this therefore did not 
constitute, as the European Communities argued, a dete rmination of the amount of benefit on the basis 
of the cost to government.  Rather, the Panel expl ained, it simply reflected "the basis on which a 
market actor would determine the amount of rent to be charged for that particular parcel of land, and 
thus the appropriate 'market' benchmark".
2195  The Panel made a similar assertion in respect of the 
Aéroconstellation site.2196 
979. We consider that the Panel's assertions that it was not relying on the costs to the government 
to determine benefit are belied by its analysis.  The Panel stated that, in respect of the Mühlenberger 
Loch site, the benefit was equivalent to the diffe rence between the amount Airbus paid for the land 
and facilities and a reasonable return on the investment of the Hamburg authorities in creating that 
land and those facilities.2197  For the Panel, the investment by Hamburg authorities consisted of the 
                                                      
2192Panel Report, para. 7.1096.  
2193Panel Report, para. 7.1133.   
2194Panel Report, para. 7.1190.  
 2195Panel Report, para. 7.1093.   
2196In respect of the Aéroconstellation site, the Panel made the following statement at paragraph 7.1188 
of its Report:  
As previously discussed, this does not constitute, as argued by the 
European Communities, a determinati on of the amount of benefit on the 
basis of cost to the government.  Rather, it is simply a reflection, in the 
particular circumstances of this case,  of the basis on which a market actor 
would determine the price to be charged for the land to be sold, and thus the appropriate "market" benchmark. 
2197Panel Report, para. 7.1096.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 426  
 
  costs of the development of the Mühlenberger Loch site in the amount of approximately €750 
million.
2198 As the Panel explained, "a market actor w ho invested {€}750 million in land, whether by 
purchasing it or by creating it through reclamation, would, in renting the property, seek a return on 
that investment."2199  In respect of the Bremen airport r unway extension, the task was somewhat 
simpler under the Panel's logic because it found that, notwithstanding Airbus' right to exclusive use of 
the extended runway, Airbus did not pay higher airport fees for use of the extended runway.  
Accordingly, the Panel found that there was "no return  to the City of Bremen on its investment in the 
runway extension and noise reduction measures".2200  In respect of the Aéroconstellation site, the 
Panel noted the United States' assertion that French authorities invested €158 million in the 
preparation of the site.2201  Although the Panel did not make a finding as to the amount of the 
investment by French authorities, it found that th e amount paid by Airbus for the land and facilities 
"{did} not provide a market rate of return on the investment by the French authorities to develop the 
site, including the EIG facilities".2202   
980. We acknowledge that, in certain circumstances, a seller's costs may be a relevant factor to 
consider in assessing whether goods or services were provided for less than adequate 
remuneration.2203  As we see it, however, the difficulty with the Panel's analysis is not that it referred 
to these costs as a factor in its analysis, but rather as the sole basis for its fi ndings.  Indeed, the Panel 
stated that a government's investment costs are th e basis on which a market actor would determine the 
price, or the amount of rent, to be charged.2204  We see no indication that the Panel relied on any 
considerations other than investment costs, a nd the Panel points to none, in arriving at its 
determination of a market benchmark.  We therefor e consider that, in its analysis, the Panel equated 
the government's investment costs with market va lue.  We moreover cons ider that the Panel's 
conclusion that the relevant authorities did not recoup their investment is equivalent to stating that 
those investments conferred a benefit because they resu lted in a net cost to the government.  We reject 
this reasoning for the reasons expressed by the Appellate Body in Canada – Aircraft .2205  
                                                      
2198Panel Report, para. 7.1089.  
2199Panel Report, para. 7.1094.  
2200Panel Report, para. 7.1133.  
2201Panel Report, para. 7.1186.  
2202Panel Report, para. 7.1190.  
2203In US – Softwood Lumber IV , the Appellate Body explained that "alternative methods for 
determining the adequacy of remune ration could include ... proxies constr ucted on the basis of production 
costs". (Appellate Body Report, US – Softwood Lumber IV , para. 106) 
2204Panel Report, paras. 7.1093 and 7.1188. 
2205Appellate Body Report, Canada – Aircraft , paras. 149-161.  See supra , paras. 973 and 974.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 427  
 
  981. Moreover, we are concerned that the Panel's de termination of the value of the infrastructure 
measures on the market was made wholly in refe rence to, in this case, the perspective of the 
government as a seller or lessor.  The market place to which the Appellate Body referred in Canada – 
Aircraft  reflects a sphere in whic h goods and services are excha nged between willing buyers and 
sellers.  A calculation of benefit in relation to  prevailing market conditions thus demands an 
examination of behaviour on both sides of a transacti on, and in particular in relation to the conditions 
of supply and demand as they apply to that market .  A market price is not determined solely by 
reference to either supply-side or demand-side cons iderations without reference to the other.  Even 
where a market is limited for a particular good or servi ce, that market price is not dictated solely by 
the price a seller wishes to charge, or by what a b uyer wishes to pay.  Rather, the equilibrium price 
established in the market results from the discipline en forced by an exchange that is reflective of the 
supply and demand of both sellers and buyers in that market.  The costs to the government of an 
investment in creating a particular good or service cannot itself determine the market price because actual expenditures by the government may not necess arily be redeemed, or be redeemable, on the 
market. 
982. The Panel's analysis does not adhere to this mark et logic.  For example, the Panel stated in 
respect of the Mühlenberger Loch site that, "i n {its} view, a market actor who invested {€}750 
million in land, whether by purchasing it or by creating it through reclamation, would, in renting the property, seek a return on that investment ".
2206  The fact that a market actor would seek a return on its 
investment does not mean that it could necessarily obtai n that return on the market.  Indeed, the rent a 
market actor can charge will be constrained by market conditions even if  the rent does not cover its 
costs.  Accordingly, we do not consider that it is c onsistent with Articles 1.1(b) and 14(d) to establish 
a market benchmark for a good or service by referring  to the demands or expectations only of a seller 
or lessor, or, alternatively, only of a buyer or lessee.  The price of a good or service must reflect the 
interaction between the supply-side and demand- side considerations under prevailing market 
conditions.   
983. For the foregoing reasons, we consider that the investment costs borne by the relevant 
authorities in these circumstances are an insufficient basis upon which to establish the market value of 
the sale or lease of the infrastructure at issue, and that the Panel committed error in relying 
exclusively on those costs to estab lish the existence and amount of benefit.  Whether characterized as 
a "return to government" or a "cost to government",  the Panel established that a benefit had been 
conferred because the government did not recover its costs in providing the infrastructure in question.  
                                                      
2206Panel Report, para. 7.1094. (emphasis added)   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 428  
 
  This approach fails to comport with the requirement  that a "benefit" be determined by reference to 
whether a financial contribution has been provided on terms more favourable than those available on 
the market.  Accordingly, we reverse  the Panel's findings, in paragra phs 7.1096, 7.1133, and 7.1190 
of the Panel Report, that the infrastructure measures at issue conferred a benefit on Airbus within the 
meaning of Article 1.1(b) of the SCM Agreement . 
4. Completion of the Analysis
 
984. Having reversed the Panel's findings in respect of benefit, we turn to consider whether we can 
complete the analysis and find that the infrastructur e measures at issue conferred a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement .  In previous disputes, the Appellate Body has 
emphasized that it can complete the analysis "only if the factual findings by the panel, or the undisputed facts in the panel record" provide a su fficient basis for the Appellate Body to do so.
2207  
Where this has not been the case, the Appellate Body has declined to complete the analysis.2208   
985. Regarding the Mühlenberger Loch industrial s ite, the Panel determined that "the City of 
Hamburg undertook to turn 20 percent of the wetlands  in the Mühlenberger Loch and Rüschkanal, 
adjacent to Airbus' existing facilities in  Finkenwerder, into usable land."2209  The Panel further 
considered it "clear" from the evidence that the land reclamation "was undertaken in order to make 
possible the expansion of Airbus' existing facilities, and not for any independent purpose.  Thus, it is 
part of an integrated project to provide a site  adjacent to Airbus' existing Finkenwerder site for 
expansion of its facilities."2210  These statements support the Pane l's finding that the Mühlenberger 
Loch industrial site was "tailor-made for Airbus"2211, and that it was provided adjacent to Airbus' 
facility in Finkenwerder and for the purpose of expa nding those existing facilities.  We consider these 
critical elements in assessing the market value of th e lease of the relevant infrastructure.  As we 
understand it, Airbus was not leasing a tract of land available anywhere in Hamburg, but was seeking 
the lease of the very site contiguous to its exis ting facilities that would enable it to engage in the 
                                                      
2207Appellate Body Report, US – Hot-Rolled Steel , para. 235.  See also Appellate Body Report, EC – 
Hormones , paras. 222 ff;  Appellate Body Report, EC – Poultry , paras. 156 ff;  Appellate Body Report, 
Australia – Salmon , paras. 117 ff and 193 ff;  Appellate Body Report, US – Shrimp , paras. 123 ff;  Appellate 
Body Report, Japan – Agricultural Products II , paras. 112 ff;  and Appellate Body Report, EC – Asbestos , 
paras. 133 ff.  
2208See Appellate Body Report, Australia – Salmon , paras. 209 ff, 241 ff, and 255;  Appellate Body 
Report, Korea – Dairy , paras. 91 ff and 102 ff;  Appellate Body Report, Canada – Autos , paras. 133 ff 
and 144 ff;  Appellate Body Report, Korea – Various Measures on Beef , paras. 128 ff;  Appellate Body Report, 
EC – Asbestos , paras. 78 ff;  and Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , 
paras. 98 ff.  
2209Panel Report, para. 7.1049.  
2210Panel Report, para. 7.1078.   
2211Panel Report, para. 7.1084.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 429  
 
  production of the A380 aircraft.  We consider that the lease of infrastructure that  is prepared to meet 
the demands of a particular customer, and built adj acent to that customer's existing operations, would 
command a certain premium in the market. 
986. In respect of the value of the Mühle nberger Loch land, the Panel stated: 
The parties are in general agreem ent as to the market value of 
industrial land in Hamburg, and the value of the Mühlenberger Loch land—between {€}71,600,000 and {€}85,900,000, according to the United States, or approximately [***], according to the EC.
2212 
(footnotes omitted) 
987. The United States' figure is based on a repor t by a German real estate surveyor that 
determined the market value of land in the vicinity of the Hamburg site.2213  On the basis of 
benchmark land values in the Finkenwerder district of  Hamburg, the report stated that "the City of 
Hamburg could have expected to raise approximately  €50 to €60 per square meter had it sold the site 
created in the Mühlenberger Loch to a third part y as industrial … or other commercial … land at fair 
market value in 2000."2214  For its part, the figure advanced by  the European Communities reflected a 
valuation set out in a report by the Committee of Experts for Property Values in Hamburg for 
comparable industrial land in the vicinity of the Mühlenberger Loch site.2215  It was on the basis of 
this valuation that the report established that the c ontractually agreed lease payments made by Airbus 
were consistent with the market rent.2216   
988. The difficulty with these valuations, as we see it,  is that they are based on the value of 
generally available industrial land in Hamburg.  An appropriate benchmark for the Mühlenberger 
Loch site, however, is not the value of a lease for industrial land situated anywhere in Hamburg or in 
the vicinity of the Mühlenberger Loch site, but th e market lease value for land adjacent to existing 
property of a particular commercial user that is prepar ed for the particular needs of that user.  Airbus 
did not seek any industrial land in Hamburg, because such land would not have enabled it to expand 
                                                      
2212Panel Report, para. 7.1094.  
2213United States' first written submission to the Panel, para. 432.  
2214Dr.-Ing. Keunecke and Dipl.-Ing. Stoehr, Expert Opinion No. 27649/06, "Benchmarks for Land 
Values concerning Hamburg Airbus Site 'Mühlenberger Loch', Kreetslag 10, 21129 Hamburg-Finkenwerder" 
(9 October 2006) (Panel Exhibit US-189), p. 5.  
2215Committee of Experts for Property Values in Hamburg, Expert Opinion No. G 03.0058 M21, 
"Report relating to the Mühlenberger Loch and Rüsch Peninsula Airbus extension land, located at Kreetslag 79, 
Hamburg-Finkenwerder" (Panel Exhibit EC-563 (BCI)), pp. 4-5.  See also  European Communities' first written 
submission to the Panel, para. 801.  Although we do not identify the precise amounts of the valuations set out in 
the Panel record, which have been designated BCI, we not e that the Panel considered the United States and the 
European Communities to be in "general agreement" regarding the land valuations. (Panel Report, para. 7.1094)   
2216Report of the Committee of Experts for Property Values, supra , footnote 2215, pp. 6-7.  The Panel 
determined that the full rent paid by Airbus for the land at the Mühlenberger Loch site was €5,619,588 per year. 
(Panel Report, para. 7.1089) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 430  
 
  its existing facilities as was necessary for the production of the A380.  Rather, it sought a particular 
piece of land contiguous to its existing facilities that wa s prepared to its specifications.  The lease of 
land that is suited to the particular needs of a particular commercial customer will, under prevailing 
market conditions, be worth more to that user than  the value that attaches to the lease of industrial 
land that is generally available in that area.  We do not see in the property valuations on the Panel 
record that account was taken of any premium in  the lease price associated with these features. 
989. We consider that the findings of the Panel est ablish a sufficient foundation for us to complete 
the analysis and determine that a benefit was c onferred, even though we are not in a position to 
quantify that benefit.  As noted, in order for the infrastructure associated with the Mühlenberger Loch 
site to have been provided for ade quate remuneration, the value of a lease of that site to Airbus should 
have reflected the market value of the rental of  comparable industrial land in Hamburg, plus a 
premium due to the contiguity and customization of that land for Airbus.  However, because the Panel 
erroneously sought to assess the value of industrial land in Hamburg based on the amount the City of 
Hamburg invested in the development of the Mühle nberger Loch site, the Panel did not quantify that 
premium.  We nevertheless conclude, on the basis of the Panel's findings regarding the value of 
generally available industrial land in Hamburg a nd the location and customized features of the 
Mühlenberger Loch industrial site, that there was a certain premium that was not included in the rent 
that Airbus actually paid to lease industrial land at that site.   
990. The European Union argues that, even if the market would have dictated a higher value for 
the lease of the land at the Mühlenberger Loch site , such a transaction would never have taken place 
because Airbus would instead have consolidated  the entire A380 final assembly line in Toulouse.
2217  
However, we note that the Panel's factual findings do not support the European Union's argument, and 
we therefore do not consider that this alters our analysis.2218  Accordingly, we find that the provision 
of the lease of the land at the Mühlenberger Loch industrial site conferred a benefit on Airbus within 
the meaning of Article 1.1(b) of the SCM Agreement .  Because there is not a sufficient basis on the 
                                                      
2217European Union's appellant's submission, para. 1078.  
2218The Panel stated that the fact that Airbus had other options but chose to expand its existing facilities 
in Hamburg supported its view "that the financial contri bution of the Hamburg authorities in reclaiming the land 
and building special purpose facilities for Airbus' us e conferred a benefit on Airbus". (Panel Report, 
para. 7.1095)  The Panel added in footnote 4008 thereto: 
Moreover, not only did the Hamburg authorities have incentive to keep 
Airbus active at its existing facility, which might not have been the case had 
the expansion for purposes of the A380 project not been possible, but Airbus had incentive to site A380 production operations at the site, in order 
to ensure that it obtained LA/MSF from the German government.   
In the light of the Panel's finding that Airbus had certa in incentives to expand its facilities in Hamburg unrelated 
to the price of the lease of the land,  we are not convinced by the European Union's assertion that Airbus would 
not have leased the Mühlenberger Loch site had the price of that lease been higher.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 431  
 
  Panel record for us properly to compare the mark et value of the special purpose facilities with the 
amounts paid for those facilities, we are unable to complete the analysis in respect of whether the 
lease of those facilities conferred a benefit on Airbus. 
991. In respect of Airbus' right to use the extende d runway at the Bremen airport, the Panel 
considered the European Communities' arguments th at Airbus paid higher runway fees commensurate 
with its use of the extended runway, and therefore di d not receive a benefit.  The Panel stated that, 
based on the arguments and evidence advanced by the European Communities, there was "no factual 
basis on which {it} could conclude that Airbus pa {id} a higher fee for use of the extended runway 
than other users pa{id} for the use of the non-extended runway".
2219  The Panel stated:  
It is undisputed that Airbus pays  runway fees in accordance with the 
regular fee schedule, applicable to all users of the airport, with no additional charges for the use of th e runway extensions, which only 
Airbus is permitted to use, and only for certain flights.  Airbus pays 
no other fees or charges in connection with the extended runway.  
Thus, it is clear that there is no return to the City of Bremen on its 
investment in the runway extension and noise reduction measures, and a benefit to Airbus conferred by the provision of that extension 
and noise reduction measures.
2220 
992. Although the Panel did not consider that Airbus ' payment of airport runway fees was relevant 
to its benefit analysis2221, it nevertheless concluded that Airbus paid no additional charges for its use 
of the extended runway, and that Airbus was therefore provided the right to exclusive use of the runway extension for no additional re muneration.  As was the case in respect of the infrastructure at 
the Mühlenberger Loch site, the Panel did not c onsider it necessary to quantify the amount by which 
the market value for the use of the runway extension exceeded the fees paid by Airbus for that use.  
We nevertheless conclude, on the basis of the Panel' s finding that Airbus did not pay additional fees 
for its use of the extended runway, that Airbus was provided the right to exclusive use of the extended 
runway for which it paid no additiona l remuneration.  Accordingly, we find that the provision of the 
right to exclusive use of the extended runway at the Bremen airport conferred a benefit on Airbus 
within the meaning of Article 1.1(b) of the SCM Agreement .   
993. In respect of the Aéroconstellation industrial site , the Panel concluded that it was "clear" that 
the amounts paid by Airbus for the purchase of land and the lease of the EIG facilities did not 
"provide a market rate of return on the investme nt by the French authorities to develop the site, 
                                                     
 
2219Panel Report, para. 7.1132.  
2220Panel Report, para. 7.1133.   
2221See supra , para. 958.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 432  
 
  including the EIG facilities".
2222  However, because the European Communities did not contest that 
the amounts paid by Airbus did not enable French  authorities to recover th eir investment in the 
development of the site, the Panel did not ma ke findings in respect of the amounts paid.2223  We have 
rejected above the Panel's reliance on the government 's costs and return on investment to determine 
the existence of a benefit.  Moreove r, we do not find that there is a sufficient basis on the Panel record 
to make an assessment of the market value of the land at the Aéroconstellation site, and the lease of 
the EIG facilities, in relation to prevailing market c onditions for the infrastructure provided to Airbus.  
Accordingly, without a proper basis to compare Ai rbus' payments with the market value for the 
purchased land and leased facilities, we are unable to  complete the analysis in respect of the 
infrastructure provided to Airbus at the Aéroconstellation industrial site. 
C. Equity Infusions 
994. We now turn to the European Union's appeal  of the Panel's finding that certain equity 
infusions in Aérospatiale by the French Govern ment—consisting of four capital investments in 
Aérospatiale between 1987 and 1994, and a 1998 transf er by the French Government of its stake in 
Dassault Aviation to Aérospatiale—confer a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement .2224   
1. Capital Investments  
995. We begin by evaluating the European Union's a ppeal that the Panel committed legal error in 
finding that four capital investments conferred a benefit within the meaning of Article 1.1(b) of the 
SCM Agreement .  These capital investments consist of thr ee investments in Aérospatiale by the 
French Government in 1987 (FF 1.25 billion), 1988  (FF 1.25 billion), and 1994 (FF 2 billion), and 
one investment in Aérospatiale of FF 1.4 billion in 1992 by Crédit Lyonnais, which at the time was 
controlled by the French Government.2225  We first provide a summary of the Panel's findings in 
respect of these measures before assessing the European Union's claims on appeal. 
                                                      
2222Panel Report, para. 7.1190.   
2223Panel Report, para. 7.1190.   
2224Although relevant details concerning the equity infu sions are set out in this section of our Report, 
we note that Part IV contains a more detaile d description of the challenged measures.  
2225The Panel noted that Crédit Lyonnais acquired a 20 % equity interest in Aérospatiale—consisting of 
FF 1.4 billion in newly issued Aérospatiale shares as well as existing Aérospatiale shares from the French Government—in exchange for the issuance to the French Government of approximately 2% of Crédit Lyonnais' 
share capital. (Panel Report, para. 7.1324)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 433  
 
  (a) The Panel's findings 
996. The Panel considered that, in order to determ ine whether the capital investments made by the 
French Government conferred a benefit on Aérosp atiale, it had to "evaluate whether the terms on 
which those capital contributions were provided to Aé rospatiale were more fa vourable than those that 
would have been available to Aérospatia le on the market at the relevant times."
2226  The Panel stated 
that its  approach to the issue of benefit was "to ask whether the United States ha{d} demonstrated 
that a private investor would not have made the capital investments in question based on the 
information available at that time".2227  The Panel evaluated the evid ence produced by the parties in 
support of their arguments.  The Panel noted th at the United States had submitted evidence of 
Aérospatiale's financial performance, in the form  of financial ratios duri ng the relevant periods, 
compared to the financial performance of certa in peer group companies in France over the same 
periods.  For the Panel, this evidence indicated th at, between 1985 and 1994, Aé rospatiale's financial 
ratios "were uniformly and, in many cases, significan tly inferior to the corresponding average ratios of 
its peer group of companies".2228  The Panel acknowledged that investors employ a variety of 
methodologies to estimate the expected rate of return from a potential investment, and that there are many different ways of measuring a firm's fina ncial performance.  The Panel stated that it was 
"reluctant to place undue reliance on a single meas ure of financial performance in isolation".
2229  The 
Panel noted, however, that the European Communities had not challenged the relevance, accuracy, or 
appropriateness of evaluating Aérospatiale's financia l performance on the basis of the financial ratios 
selected by the United States, nor had it suggested any alternative basis for evaluating Aérospatiale's 
financial performance in comparison to its peer group of companies.  On this basis, the Panel stated 
that it regarded indicators of Aérospatiale's fina ncial performance in relation to the performance of 
other firms operating in the same industries as "particularly probative of the question whether a private investor would have chosen to make the cap ital investments in Aérospa tiale at issue in this 
dispute".
2230   
997. The Panel also examined the European Commun ities' evidence that, at the time the capital 
investments were made, "Aérospatiale had positive fu ture prospects which, when coupled with the 
company's commitment to invest in product devel opment, justified the commitment of expansion 
capital".2231  The European Communities' evidence cons isted of:  (i) statements in various 
                                                      
2226Panel Report, para. 7.1354.  
2227Panel Report, para. 7.1358. 
2228Panel Report, para. 7.1360.  
2229Panel Report, para. 7.1360.  
2230Panel Report, para. 7.1360.  
2231Panel Report, para. 7.1361.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 434  
 
  Aérospatiale annual reports as to the status of aircra ft deliveries, orders and backlog, revenue, profits 
and turnover;  (ii) market and business forecast reports prepared by Airbus GIE predicting increases in 
demand for LCA and increases in Airbus GIE's market share;  and (iii) Boeing market forecasts and a 
US Government publication predicting increased long -term growth for the LCA industry.  The Panel 
considered that the evidence in the latter two cat egories "generally relate{d} to overall market 
conditions and contain{ed} very little  explanation of the basis for the assumptions and forecasts", and 
that it was not indicative of the range of prospect s for all of Aérospatiale's business divisions, which 
would also have been "relevant to an investor contemplating an investment in the company as a whole".
2232  The Panel stated that it attributed "relativ ely less weight" to this evidence because it did 
not regard it as "particularly probative of the ques tion whether a private investor contemplating a 
capital investment in Aérospatiale at the relevant time could have expected  to achieve a reasonable 
rate of return on its investment".2233   
(b) The Panel's assessment under Article 1.1(b) of the SCM Agreement  
998. We have set out in section V.C of this Repor t the concept and standard for assessing "benefit" 
under Article 1.1(b) of the SCM Agreement as elaborated in jurisprudence by panels and the Appellate 
Body.  That standard requires that the assessment of  whether a benefit has been conferred is to be 
made by reference to whether the terms of th e financial investment by a government are more 
favourable than those available on the market.  We have also discussed in that section of our Report 
the guidance offered by Article 14 of the SCM Agreement .  Article 14(a), which relates to the 
provision of equity capital, provides: 
{G}overnment provision of equity capital shall not be considered as 
conferring a benefit, unless the investment decision can be regarded as inconsistent with the usual inv estment practice (including for the 
provision of risk capital) of private investors in the territory of that Member. 
999. Article 14(a) states that equity capital provided by a government shall not be considered to 
confer a benefit unless it is inconsistent with what is  termed the "usual investment practice" of private 
investors in the territory of that Member.  The two words "usual" and "practice" are in a sense 
reinforcing, with the former signifying "{c}ommonly or customarily observed or practised"
2234 and 
the latter "usual or customary action or performance".2235  Thus, we understand the term "usual 
                                                      
2232Panel Report, paras. 7.1366 and 7.1370 (footnote omitted);  see also para. 7.1374.  
2233Panel Report, paras. 7.1366, 7.1370, and 7.1374.   
2234Shorter Oxford English Dictionary , 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University 
Press, 2007), Vol. 2, p. 3485.   
2235Shorter Oxford English Dictionary , 6th edn, W.R. Trumble, A. Stevenson (eds) (Oxford University 
Press, 2007), Vol. 2, p. 2311.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 435  
 
  practice" to describe common or customary conduc t of private investors in respect of equity 
investment.  We also observe that Article 14(a)  focuses the inquiry on the "investment decision".  
This reflects an ex ante  approach to assessing the equity invest ment by comparing the decision, based 
on the costs and expected returns of the transactio n, to the usual investment practice of private 
investors at the moment the deci sion to invest is undertaken.
2236  The focus in Article 14(a) on the 
"investment decision" is thus critical, in our view, because it identifies what  is to be compared to a 
market benchmark, and when  that comparison is to be situated.  With this understanding in mind, we 
turn to consider whether the Panel set out th e proper standard under Article 1.1(b) of the 
SCM Agreement . 
1000.  The European Union submits that the Panel correctly noted that the question posed by 
Article 1.1(b) of the SCM Agreement is whether the terms of the inv estment are more favourable than 
those that would have been available on the market.2237  The European Union also does not take issue 
with the Panel's statement that, in the context of  the French Government's capital investments in 
Aérospatiale, the United States was required to dem onstrate "that a private investor would not have 
made the capital investments in question based on the information available at that time."2238  T h e  
European Union argues, however, that "immediately following this statement" the Panel reframed the 
standard to pose the question of whether the Fren ch Government "could have expected to achieve 
a reasonable rate of return  on its investment".2239  The European Union contends that this amounts to 
the "wrong legal standard" under Article 1.1(b) of the SCM Agreement .2240 
1001.  The Panel first referred to a "reasonable ra te of return" in the following passage: 
Our approach to the issue of benefit in the context of the French 
government's capital investments in Aérospatiale is to ask whether 
the United States has demonstrated that a private investor would not 
have made the capital investme nts in question based on the 
information available at that time.  In this regard, we note that a private investor evaluating an equity investment in an enterprise will be seeking to achieve a reasonable rate of return  on its investment.  
Information relevant to such an evaluation would include current and 
past indicators of an enterprise's financial performance (including rates of return on equity) calculated from the enterprise's financial statements and accounts, informati on as to the future financial 
prospects of the enterprise, including market studies, economic 
                                                     
 
2236See Part VI.B of this Report, where we ha ve similarly emphasized the importance of an ex ante  
perspective in assessing the conferral of a benefit through government loans.  
2237European Union's appellant's submission, para. 1101 (referring to Panel Report, para. 7.1354).  
2238Panel Report, para. 7.1358;  European Union's appellant's submission, para. 1103.   
2239European Union's appellant's submission, para. 1104 (quoting Panel Report, paras. 7.1364, 7.1366, 
7.1370, and 7.1374). (emphasis added by the European Union)  
2240European Union's appellant's submission, para. 1105.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 436  
 
  forecasts and project appraisals, equ ity investment in the enterprise 
by other private investors, and ma rketplace prospects for the products 
produced by the enterprise.
2241 (emphasis added) 
1002.  This language does not support the view that the Panel set out a distinct  standard requiring the 
establishment of a "reasonable rate of return".  The first sentence is uncontested as a proper 
articulation of the benefit inquiry, focusing on whet her it was consistent with the usual investment 
practice to undertake the challenged investments.  The second sentence begins with the phrase "in this 
regard", which indicates that it is intended as an e xpression of what precedes it.  What follows in the 
final sentence is an illustrative list of information that the Panel considered relevant to such an 
inquiry, including the type of information relating to financial performance and future prospects of 
Aérospatiale that the Panel considered in its analysis .  We read the reference to a "reasonable rate of 
return" as a reflection of what a private investor contemplating an investment would customarily take 
into account, and we do not see any indication in s ubsequent paragraphs of the Panel Report referring 
to a reasonable rate of return that suggests otherwise.2242  We take note of the European Union's 
concern that the Panel did not provide further clarif ication as to what it meant in saying that a private 
investor would be seeking to achieve a reasonable ra te of return on its investment.  We agree that 
additional explanation by the Panel may have been he lpful in clarifying its reasoning to the parties.  
However, after reviewing these statements by the Panel in the context of its analysis, we do not consider that the Panel viewed a "reasonable rate of return" as connoting a different test than the 
"usual investment practice" standard.  We theref ore dismiss the European Union's claim of error 
regarding the Panel's interpretation of "benefit" within the meaning of Article 1.1(b) of the 
SCM Agreement . 
1003.  The European Union also alleg es that the Panel's failure "to identify , much less assess , any 
evidence concerning what a private investor would have considered to be a 'reasonable rate of return'" 
constitutes legal error in the application of Ar ticle 1.1(b), and under Article 11 of the DSU.
2243  The 
European Union states that these claims arise "to th e extent that the Panel based its conclusion ... on 
the French State's failure to seek a 'reasonable rate of return'."2244  Given that we do not believe that 
the Panel's statements regarding a reasonable rate of  return reflected a legal standard different from 
the usual investment practice standard the Panel sough t to apply, our disposition of the question of the 
relevance of a "reasonable rate of return" to the in terpretation of Article 1.1(b) also disposes of these 
derivative claims.  Accordingly, we also dismiss th e European Union's claims that the Panel erred in 
                                                      
2241Panel Report, para. 7.1358. 
2242See Panel Report, paras. 7.1364, 7.1366, 7.1370, and 7.1374.  
2243European Union's appellant's submission, paras. 1106 (original emphasis) and 1107.   
2244European Union's appellant's submission, para. 1106.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 437  
 
  the application of Article 1.1(b), or failed to pr ovide an objective assessment under Article 11 of the 
DSU, by not properly applying a "reas onable rate of return" standard. 
(c) The Panel's treatment of the Boeing evidence 
1004.  The European Union also contends that the Pane l's failure to apply a market benchmark based 
on the behaviour of Boeing investors constitutes erro r in the application of the standard for assessing 
benefit under Article 1.1(b) of the SCM Agreement , and under Article 11 of the DSU.  We have noted 
in Part VI.B of this Report, parallel arguments of the European Union regarding claims of error in the 
application of the "benefit" standard, and under Artic le 11 of the DSU.  We have also noted that, 
when faced with such overlapping claims, we have to  determine first whether to consider such claims 
as errors in legal application, or as errors under Article 11.   
1005.  Pivotal to the European Union's claim is its contention that the Panel failed to apply as a 
market benchmark certain evidence submitted by th e European Communities relating to Boeing.  For 
the European Union, this eviden ce demonstrates that private investors were willing to sustain and 
increase investment in LCA product development, "even during periods of weak demand and poor 
financial performance, in light of positive future prospects".
2245  Accordingly, the European Union 
argues, the evidence shows "that investments in product developmen t by Aérospatiale's principal 
investor, the French State, were consistent with the usual investment practice of private investors".2246  
We consider the European Union's arguments to re flect its view that the Panel attributed too little 
weight to, or disregarded altogether, the Boeing ev idence it adduced before the Panel.  This goes to 
the Panel's weighing and appreciation of the evidence, ra ther than to an error in the application of the 
legal standard of "benefit" under Article 1.1(b) of the SCM Agreement .  We therefore consider it 
appropriate to assess the European Union's arguments under Article 11 of the DSU.  
1006.  In Part VI.B of this Report, we have discussed  the standard of review under Article 11 of the 
DSU.  The Appellate Body has rep eatedly stated that it will not "interfere lightly" with the panel's 
fact-finding authority2247, and has also emphasized that it "cannot base a finding of inconsistency 
under Article 11 simply on the conclusion that {it} might have reached a different factual finding 
                                                      
2245European Union's appellant's submission, para. 1114.   
2246European Union's appellant's submission, para. 1114.   
2247See, for example, Appellate Body Report, US – Wheat Gluten , para. 151;  Appellate Body Report,  
EC – Sardines , para. 299;  and Appellate Body Report, US – Carbon Steel , para. 142. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 438  
 
  from the one the panel reached".
2248  Instead, for a claim under Article 11 to succeed, we must be 
satisfied that the panel has exceeded its authority as the trier of facts.2249   
1007.  We begin by examining the European Union's c ontention that the Panel failed to apply as a 
market benchmark certain evidence submitted by th e European Communities relating to Boeing.  As 
we noted, the Panel considered a range of evidence consisting of information relating to the financial 
performance of Aérospatiale and a group of companies in the French defence and aerospace 
industries, as well as the future prospects of Aérosp atiale, Airbus GIE, and Boeing.  In addressing 
evidence offered by the European  Communities consisting of Boeing market outlook forecasts, the 
Panel stated that it was "inclined to accord the ev idence ... relatively less weight" than evidence of 
Aérospatiale's past financial performance in comp arison to that of its peers, together with 
management statements as to expectations and prospects contained in Aérospatiale's annual 
reports.2250  Similarly, when undertaking its analysis of  the individual capital investments, the Panel 
repeated that in its assessment it would "attribute re latively less weight to the evidence contained in ... 
market outlook forecasts for Boeing".2251  This indicates that the Panel found it appropriate to consider 
this Boeing evidence as part of its assessment of us ual investment practice, but decided to ascribe it 
less evidentiary value than that given to the i ndicators of the financial performance of the peer 
companies, coupled with evidence from Aérospatiale annual reports regarding the company's future 
prospects.  We also take note of, and consider im portant, the Panel's repeated statements that it 
evaluated "all of the evidence in its totality".2252   
1008.  The European Union may well consider that the Panel should have attached greater 
significance to the Boeing evidence that was before it .  However, we see no i ndication that the Panel 
disregarded this evidence altogether.  Rather, it attri buted to that evidence "relatively less weight".  In 
considering the evidence of Airbus GIE and Boeing  market outlook forecasts, for instance, the Panel 
identified two concerns supporting its decision to  accord such evidence "relatively less weight".2253  
First, the Panel explained that this evidence ge nerally relates to overall market conditions, and 
contains very little explanation of the basis for the assumptions and forecasts.  Second, the Panel 
considered that these forecasts were potentially releva nt to the prospects of Aérospatiale's aircraft 
division, but not indicative of the prospects reflected by the range of Aérospatia le's other divisions not 
involved in LCA production.  Although the European Union contends that the failure to apply the 
                                                      
2248Appellate Body Report, US – Wheat Gluten , para. 151. 
2249See Appellate Body Report, US – Wheat Gluten , para. 151. 
2250Panel Report, para. 7.1361.  
2251Panel Report, paras. 7.1366, 7.1370, and 7.1374. 
2252Panel Report, paras. 7.1367, 7.1371, and 7.1375.  
2253Panel Report, paras. 7.1366, 7.1370, and 7.1374.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 439  
 
  Boeing evidence as a benchmark was not justified since Boeing was "Aérospatiale's closest  peer"
2254, 
we consider that the Panel identified plausible gr ounds on which to disagree.  As the United States 
argues, "during the relevant time period Aérospa tiale was, in much more substantial part, a 
European defense  company".2255  Statements by the European Un ion would also seem to call into 
question the contention that Boeing was Aérospatiale's  closest peer.  The European Union itself notes, 
for instance, that "Boeing was even more heavily in vested in the LCA sector than Aérospatiale, which 
enjoyed greater diversification in the aerospace and defence sector than did Boeing, until its 1997 
acquisition of McDonnell Douglas".2256  Taking these considerations into account, we believe that the 
Panel had a reasonable basis to differentiate betw een the business profiles of Boeing and Aérospatiale, 
and to attribute relatively less weight to ev idence of the future prospects of Boeing. 
1009.  The European Union stated at the oral hearing that its claim concerning the Panel's treatment 
of the Boeing evidence is not limited to the Pane l's consideration of the Boeing market forecast 
information.  The European Union referred in par ticular to other documents on the Panel record that 
purportedly demonstrate the commitment by Boeing and its investors during this period to continue to 
invest in LCA production despite poor financial performance.2257  After reviewing the evidence 
referred to by the European Union, we note that ma rket forecasts of growth in the LCA sector, and the 
reaction by Boeing or its investors to that prospe ctive growth, would seem to relate to the same 
central proposition advanced by the European  Communities before the Panel, and by the 
European Union on appeal, that Boeing's "positiv e prospects outweighed poor past performance".2258  
In our view, the rationale for according less weight to the evidence of future prospects of a company 
such as Boeing, because its business profile differs fr om that of Aérospatiale, could apply equally to 
purported evidence of Boeing investor behaviour, a nd we therefore do not consider that the Panel 
exceeded its margin of discretion as the trier of facts.   
1010.  Additionally, the European Union alleges that the Panel's analysis lacks coherence because it 
disregarded the Boeing evidence, while accepting evid ence relating to Aérospatiale's peer companies 
in France.  The European Union explains that the Panel's treatment of the Boeing evidence was 
"surprising"2259 given that the Panel elsewhere consider ed that evidence concerning other firms 
operating in the same industries was "particularly pr obative of the question whether a private investor 
                                                      
2254European Union's appellant's submission, para. 1113. (original emphasis)  
2255United States' appellee's submission, para. 419. (original emphasis) 
2256European Union's appellant's submission, para. 1113.  The European Union also notes that Boeing's 
LCA revenue at the time accounted for approximately 80% of the company's overall revenue. ( Ibid., para. 1115) 
2257See also European Union's appellant's submission, paras. 1115-1117.   
2258European Union's appellant's submission, para. 1118.  
2259European Union's appellant's submission, para. 1121.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 440  
 
  would have chosen to make the capital investment s in Aérospatiale at issue in this dispute".
2260  The 
European Union considers that the Panel's "var iable treatment of the same class of evidence is 
internally incoherent, and contrary to its obligati on to provide coherent reas oning, under Article 11 of 
the DSU".2261  The Panel examined evidence introduced by  the United States to show the financial 
performance of a peer group of French companies,  including Aviation Latécoère, Dassault Aviation, 
SAFRAN, Thales, and Zodiac.2262  These peer group companies, the United States maintains, 
consisted of French defence and aerospace companies.2263  The Panel described these companies as 
"firms operating in the same industries, presumably subject to similar business risks and cycles as 
Aérospatiale".2264  It is not clear whether the business profile of these companies could also be 
considered to reflect only a portion of Aérospatiale 's business activities.  When asked at the oral 
hearing whether this was the case, the European Union explained that it was not challenging the 
Panel's reliance on the French peer group companies per se , but rather pointing to the Panel's 
treatment of this evidence to highlight the incohe rence in the Panel's analysis.  The United States 
responded at the oral hearing that the Panel w ould have had good reasons to favour evidence in 
respect of companies that, like Aérospatiale, were located in France and operated in the defence and 
aerospace industries, as opposed to a company like  Boeing that operated in a different country and 
was primarily oriented towards LCA production.  Th e United States further argued that Boeing at the 
time was in much better financial health than Aérosp atiale, and that, even if the Boeing evidence were 
attributed more weight, the European Union had not explained how this would have changed the 
outcome of the Panel's analysis.2265  
1011.  After reviewing the Panel record, and mindful of the standard of review applicable under 
Article 11 of the DSU, we consider that the Pa nel did not err in finding that, because the Boeing 
evidence did not reflect the same range of business activities as those of Aérospatiale, the Panel could 
attribute the Boeing evidence less weight than other evidence more indicative of Aérospatiale's future 
prospects.  We take note of the European Union' s concern that the Panel did not provide further 
clarification as to why it was according less weight to the Boeing evidence th an evidence relating to 
the French companies with potentially similar busines s profiles.  Additional explanation by the Panel 
may have been helpful in clarifying its reasoning to th e parties.  However, we consider that the Panel, 
in deciding to accord relatively more weight to ev idence of the financial performance of a group of 
peer French companies in the de fence and aerospace industries than to evidence of Boeing's prospects 
                                                      
2260Panel Report, para. 7.1360.   
2261European Union's appellant's submission, para. 1125. (footnote omitted) 
2262Panel Report, footnote 4454 to para. 7.1330.  
2263United States' appellee's submission, footnote 698 to para. 419.  
2264Panel Report, para. 7.1360. 
2265See United States' appellee's submission, paras. 416 and 422.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 441  
 
  for future LCA production, did not exceed its margin  of discretion under Article 11.  We therefore 
dismiss the European Union's claim that the Pane l's treatment of the evidence relating to Boeing 
violated Article 11 of the DSU. 
1012.  For the foregoing reasons, we uphold  the Panel's findings, in paragraphs 7.1367, 7.1371, 
and 7.1375 of the Panel Report, that the four cha llenged capital investments were inconsistent with 
the usual investment practice of private investors in France and conferred a benefit on Aérospatiale 
within the meaning of Article 1.1(b) of the SCM Agreement . 
2. Share Transfer
 
1013.  We now address the European Union's appeal of  the Panel's finding that the 1998 transfer by 
the French Government of its 45.76% interest in Da ssault Aviation to Aérospa tiale conferre d a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement .  In December 1998, the French 
Government transferred its 45.76% interest in Das sault Aviation to Aérospatiale in exchange for new 
shares of Aérospatiale that were to be issued at a later date following a report by a panel of 
independent experts, the Commissaires aux apports  (the " Commissaires ' report").2266  In March 1999, 
the Commissaires ' report set a net book value for the Dassault Aviation shares and, in May 1999, 
Aérospatiale issued new shares to the French Gove rnment on the basis of an exchange ratio of two 
Aérospatiale shares for each Dassault Aviation share.2267  Prior to the transfer of its 45.76% interest in 
Dassault Aviation to Aérospatiale, the French Gove rnment held control rights in Dassault Aviation by 
virtue of certain double voting shares.  Upon the tran sfer of the French Government's interest, these 
double voting rights were cancelled.2268  The French Government's transfer of its holdings in Dassault 
Aviation was a preliminary step in the planned cons olidation of the French aeronautic, defence, and 
space industries through the combination of Aérospatia le and MHT, and the s ubsequent partial public 
offering of shares in the combin ed Aérospatiale-Matra entity.2269  Below we summarize the findings 
of the Panel concerning the share transfer before  assessing the European Union's claims on appeal. 
(a) The Panel's findings   
1014.  The Panel stated that its approach to the issue of benefit was "to ask whether the United States 
ha{d} demonstrated that a private investor would not have made the equity investment in question 
based on the information available at the time."2270  The United States argued that a private investor 
                                                      
2266Supra , footnote 445.  
2267Panel Report, para. 7.1382. 
2268Panel Report, para. 7.1384.   
2269Panel Report, para. 7.1383.   
2270Panel Report, para. 7.1407.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 442  
 
  would not have made an equity infusion because Aé rospatiale was in dire financial circumstances at 
the time, the transaction involved considerable co sts associated with ceding control of Dassault 
Aviation, and there was nothing to suggest that tho se costs were outweighed by gains that could have 
been expected from the subsequent sal e of shares of Aérospatiale-Matra.
2271  The Panel did not regard 
the fact that Aérospatiale was undercapitalized by the French Government, as its sole shareholder, 
necessarily to mean that a private investor would not have provided capital to the company.2272  The 
Panel further found that, although Aérospatiale's debt-to-equity ratios an d debt coverage ratios 
continued to be inferior to the average ratios of its  peer group of companies, Aérospatiale's return on 
equity in 1996 and 1997 exceeded the average return on equity for its peer group of companies.  The 
Panel concluded that the evidence demonstrated "tha t Aérospatiale's financia l condition and prospects 
in 1996 and 1997 had impr oved over prior periods".2273  The Panel went on to observe, however, that, 
despite this improvement, Aérospa tiale's capitalization brought a bout by the share transfer was 
necessary in order to increase the chances that the pl anned privatization of Aé rospatiale could occur 
as soon as possible, and that this "was regarded  as necessary to improve the French government's 
position in its negotiations with ot her Airbus governments over the term s of the consolidation of the 
European aerospace industry".2274  For these reasons, the Panel c onsidered that Aérospatiale's 
financial position and prospects immediately prior to the French Government's transfer of its 45.76% 
interest in Dassault Aviation, while improved, "were not improved to a degree that would have enabled Aérospatiale, absent the addition of th e 45.76 percent interest in Dassault Aviation 
(representing a 20 percent increase in its total cons olidated capital), to attract private capital."
2275 
1015.  The Panel then turned to consid er the European Communities' ar gument that, for this type of 
transaction, the proper question is whether it is cons istent with the usual investment practice for a 
private owner of wholly owned investments to conso lidate those assets in advance of their sale.  The 
Panel considered that a party may successfully re but a claim that an equity infusion conferred a 
benefit "by showing that the transaction in question w as a preliminary step in, or otherwise part of, a 
restructuring or consolidation project and that, considered in the context of the overall returns expected to be generated from that restructuring or consolidation project, the equity investment was 
consistent with the usual investment practice of a private investor."
2276  The Panel considered, 
however, that the European Commun ities had presented no evidence to persuade it that, at the time of 
the share transfer, the French Government had a rational basis for believing that the overall returns 
                                                      
2271Panel Report, para. 7.1407.  
2272Panel Report, para. 7.1408.  
2273Panel Report, para. 7.1408. (footnote omitted) 
2274Panel Report, para. 7.1409. (footnote omitted) 
2275Panel Report, para. 7.1409.  
2276Panel Report, para. 7.1411.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 443  
 
  from a public offering of shares in an entity that combined the French Government's interests in 
Dassault Aviation with Aérospatiale exceeded the returns it could exp ect from separately retaining its 
equity interests in Aérospatiale and Dassault Aviation.
2277   
1016.  The European Communities subm itted evidence showing that the Dassault Aviation stake 
received by Aérospatiale had been valued separately from Aérospatiale in the context of calculating a 
public offering price for Aérospatiale-Matra.  The Panel observed, however, that the valuations put 
forward by the European Communities were all made  after the French Government had decided to 
transfer its 45.76% interest in Dassault Aviation to Aé rospatiale.  Moreover, the Panel considered that 
these valuations did not include an assessment of the relative merits of retaining separate holdings of 
Dassault Aviation and Aérospatiale, versus combin ing those holdings and merging them with MHT 
with a view to conducting a public offering of the merg ed entity.  Rather, they reflected valuations of 
Aérospatiale and MHT and estimates of the synergies that could be expected from the combination of 
these two entities.2278 
1017.  The Panel therefore concluded that the French Government's transfer of its 45.76% equity 
interest in Dassault Aviation in exchange for newly issued shares in Aérospatiale was inconsistent 
with the usual investment practice of a private inv estor in France, and that the transaction therefore 
conferred a benefit on Aérospatiale within  the meaning of Article 1.1(b) of the SCM Agreement .2279   
(b) The Panel's assessment under Article 1.1(b) of the SCM Agreement   
1018.  The European Union argues that the Panel co mmitted errors in both the interpretation and 
application of the "benefit" standard set out in Article 1.1(b) of the SCM Agreement .  The 
European Union considers that the Panel's interpretative error is re flected in its rejection of the 
Commissaires ' report as a benchmark in assessing benefit under Article 1.1(b).2280  Alternatively, the 
European Union argues that the Panel improperly app lied the legal standard under Article 1.1(b) by 
excluding the relevance of the Commissaires ' report and certain investme nt bank valuations in its 
appraisal of whether a benefit was conferred.2281  The European Union further maintains that the Panel 
did not identify "any affirmative evidence" de monstrating that the anticipated returns from 
consolidating the Aérospatiale and Dassault Aviation holdings were less than the returns expected 
                                                      
2277Panel Report, para. 7.1411.  
2278Panel Report, para. 7.1412.  
2279Panel Report, para. 7.1412.  
2280European Union's appellant's submission, para. 1144.  
2281European Union's appellant's submission, paras. 1150 and 1151.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 444  
 
  from maintaining those stakes separately.
2282  In our view, although the European Union styles its 
claims as distinct legal errors of interpretation and application, they address the same underlying 
contention that the Panel failed to recognize the valu e of evidence showing that the shares had been 
transferred on market terms.  In the European  Union's view, that error results from either a 
misapprehension of the legal standard, or a failure to apply that legal standard to the facts of the case.  
To address these claims of the European Union, we th erefore turn to consider the Panel's analysis of 
the share transfer. 
1019.  As we have previously noted, Article 14(a) of the SCM Agreement  focuses the inquiry on the 
"investment decision".2283  This reflects an ex ante  assessment of the equity investment, taking into 
account the costs and expected returns of the trans action as compared to the usual investment practice 
of private investors at the moment the decision to invest is undertaken.  As we stated, the focus of 
Article 14(a) on the "investment decision" is a cr itical step in the anal ysis because it identifies what  is 
to be compared to the market benchmark, and when  that comparison is to be situated.  Thus, in 
assessing the European Union's claims on appeal, we first seek to identify the "investment decision" 
that the Panel was to compare against the market  benchmark consisting of  the usual investment 
practice.   
1020.  The United States argued before the Panel that  the proper question was whether a private 
investor would undertake an equity investment in  a financially distressed Aérospatiale, with the 
knowledge that the transaction involved costs associ ated with ceding control of Dassault Aviation, 
and that there was no evidence th at those costs would be outweighed by gains expected from the 
subsequent sale of shares of Aérospatiale-Matra.2284  For its part, the European Communities 
characterized the question as whether a private inv estor would have consolidated its wholly owned 
investments in Aérospatiale and Dassault Aviation prior to the sale of those assets.2285  Thus, both 
parties maintained before the Panel that the tran saction was undertaken in the expectation of returns 
from a process of consolidation and subsequent pub lic offering of shares.  Regarding the costs and 
returns associated with relinquishing control in Dassault Aviation, the European Communities argued 
that the double voting shares had no market value b ecause they could not legally be transferred, and 
                                                      
2282European Union's appellant's submission, para. 1152.  The European Union stated in a footnote that 
the Appellate Body could also consider this as an error under Article 11 of the DSU to the extent that the Panel 
lacked a sufficient evidentiary basis for its finding. ( Ibid., footnote 1575 to para. 1152 (referring to Appellate 
Body Report, EC – Hormones , para. 133))   
2283See supra , para. 999. 
2284Panel Report, para. 7.1407.  
2285Panel Report, para. 7.1410.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 445  
 
  that any purported loss would, in any event, ha ve been outweighed by the synergies resulting from 
consolidating Aérospatiale and Dassault Aviation.
2286   
1021.  We consider that there is basic agreement be tween the participants that the "investment 
decision" at issue was whether to transfer shares in Dassault Aviation to Aérospatiale in anticipation 
of returns from the consolidation and subsequent public offering of shares.  As part of that transaction, 
neither participant disputes that the French Gove rnment relinquished control over Dassault Aviation 
by virtue of the share transfer that  effected that consolidation.  Rather, they disagree over the value to 
be associated with that loss of control, and the value of the returns generated as a result of the 
consolidation and eventual privatization.  
1022.  In its analysis of benefit, the Panel consid ered that the fact that Aérospatiale was 
undercapitalized did not necessarily mean that a priv ate investor would not have provided capital to 
the company.2287  The Panel proceeded to examine Aérospa tiale's financial ratios during this period 
and concluded that, in the years leading up to the sh are transfer, Aérospatiale's financial condition had 
improved over prior periods.2288  The Panel further considered that the share transfer was necessary in 
order to improve (i) the chances that the planned privatization would occur as soon as possible and 
(ii) the French Government's position in negotiations  with other Airbus governments over the terms of 
the consolidation of the European aerospace industry.2289  Following this reasoning, the Panel 
concluded that Aérospatiale's financial position and prospects immediately prior to the French 
Government's transfer of its 45.76% interest in Dassault Aviation, while improved, "were not 
improved to a degree that would have enabled Aéro spatiale, absent the addition of the 45.76 percent 
interest in Dassault Aviation (representing a 20 percen t increase in its total consolidated capital), to 
attract private capital."2290 
1023.  In our view, the Panel's analysis reveals a failu re to identify the correct "investment decision" 
to be assessed in relation to the usual investment  practice, and therefore an error in the Panel's 
application of the legal standard under Articles 1.1(b) and 14(a) to the facts of this case.  As we have 
noted, both parties maintained before the Panel that the "investment decision" was made in 
anticipation of the returns from the transfer of sh ares in Dassault Aviation to Aérospatiale and the 
further consolidation and subsequent public offering of shares.  In pa rticular, the United States alleged 
not only that Aérospatiale continued to be in poor financial condition, but also that the costs 
                                                      
2286Panel Report, paras. 7.1393 and 7.1394.  See also European Union's appellant's submission, 
footnote 1567 to para. 1143 and footnote 1574 to para. 1152.  
2287Panel Report, para. 7.1408. 
2288Panel Report, para. 7.1408.  
2289Panel Report, para. 7.1409.  
2290Panel Report, para. 7.1409.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 446  
 
  associated with the investment—including the relin quishing of control of Dassault Aviation—were 
not outweighed by the expected return from the eventu al public offering of Aérospatiale-Matra shares.  
The Panel, however, does not appear to have made any affirmative findings either in respect of the 
costs of the transaction, including the value of the lo ss of control of Dassault Aviation, or in respect of 
the expected returns from the consolidation and s ubsequent public offering of shares.  Rather, the 
Panel found simply that Aérospatiale was not able "to attract private capital".   
1024.  It was not sufficient for the Panel to examine whether a company is in a position to attract 
private capital without reference to the prope r investment decision at  issue, because the 
"attractiveness" of an investment will be determin ed by the particular costs and expected returns 
associated with that decision.  A distressed company can be revived through a restructuring in the 
form of an equity infusion if the reconstituted compa ny is expected to generate sufficient synergies or 
profits to secure a market return.  The Panel, howev er, appears to have limited its conclusion to an 
assessment of the financial health of Aérospatiale i mmediately prior to the share transfer.  As we have 
noted, although the Panel referred to the prospectiv e consolidation and privatization of the French 
Government's holdings in Aérospatiale and Dassault Aviation, it did so only to conclude that there 
were strategic interests associated with accelera ting the process of privatization to strengthen the 
French Government's position in th e overall consolidation of the European aerospace industry.  This, 
however, failed to engage the central question of  whether the anticipated returns of the equity 
investment were sufficient to jus tify the costs, including the loss of  control of Dassault Aviation, of 
transferring the French Government's st ake in Dassault Aviation to Aérospatiale. 
1025.  The fact that the Panel failed to identify the co rrect "investment decision" is confirmed by its 
insistence that it was for the Eur opean Communities to demonstrate on rebuttal that the transaction in 
question was consistent with the usual investment practice because it was part of a restructuring or 
consolidation project that was expected to generate sufficient returns.  As we have explained, in the 
light of the parties' arguments and evidence concer ning the value of the loss of control over Dassault 
Aviation, and the extent of the e xpected returns created through consolidation and privatization, it was 
precisely this investment decision that the Panel was tasked with assessing for consistency with the 
usual investment practice.  We do not see that the Panel ever reached an affirmative conclusion that 
the decision to combine the French Government's holdings in Aérospatiale and Dassault Aviation, 
given the investment costs and expected returns associ ated with that transaction, was inconsistent with 
the usual investment practice, and therefore conferre d a benefit, within the meaning of Articles 1.1(b) 
and 14(a) of the SCM Agreement .  Accordingly, we consider that th e Panel erred in its application of 
the legal standard to the facts of this case.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 447  
 
  1026.  For the foregoing reasons, we reverse  the Panel's finding, in paragraph 7.1412 of the Panel 
Report, that the French Government's transfer of shares of Dassault Aviation to Aérospatiale 
conferred a benefit on Aérospatiale within  the meaning of Article 1.1(b) of the SCM Agreement . 
1027.  As we have observed, the Panel did not make affirmative findings regarding either the costs 
of the transaction, including the value of the loss of control of Dassault Aviation, or the expected 
returns from the consolidation and subsequent public  offering of shares.  We further note that the 
evidence submitted by the parties to the Panel in  respect of these valuations is contested.  
Accordingly, we are unable to complete the analys is to determine whether a benefit was conferred 
within the meaning of Article 1.1(b) of the SCM Agreement . 
VIII.  Export Subsidies  
A. Introduction 
1028.  The European Union alleges that the Panel e rred in its interpretation and application of 
Article 3.1(a) and footnote 4 of the SCM Agreement  in finding that the subsidies granted under the 
German, Spanish, and UK LA/MSF contracts for th e A380 were "in fact tied to … anticipated 
exportation" within the meaning of footnote 4, and were thus continge nt in fact upon export 
performance.
2291  The United States submits that the Pa nel also misapplied the standard for de facto  
export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement  in finding that the 
United States had failed to show that the subsidi es granted under the French LA/MSF contracts for the 
A380, A340-500/600, and A330-200, and the Span ish LA/MSF contract for the A340-500/600 were 
contingent in fact upon export performance.2292  To address the issues rai sed by the European Union's 
and the United States' appeals, we begin with a br ief summary of the Panel's findings regarding the 
alleged export-contingent subsidies.  We then consider the proper interpretation of the legal standard 
for de facto  export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement .  Finally, 
we examine whether the Panel misinterpreted or misapplied that standard in reaching its findings 
concerning the seven LA/MSF measures at issue. 
                                                      
2291Panel Report, para. 7.689. 
2292Panel Report, para. 7.689. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 448  
 
  B. The Panel's Findings 
1029.  At the outset, the Panel noted that, although the United States made claims regarding both in 
law and in fact export contingency, it described its complaint as "principally a claim of de facto  
contingency".
2293  Therefore, the Panel began its evaluation with the United States' claim that the 
LA/MSF for the A380, A340-500/600, and A330-200 constituted subsidies that are contingent in fact 
upon export performance.   
1030.  The Panel observed that the ordinary meaning of  the word "contingent" in Article 3.1(a) of 
the SCM Agreement  is "conditional" or "dependent"2294, and, as held by the Appellate Body in 
previous disputes, contingency requires a demons tration of "a relationship of conditionality or 
dependence".2295  The Panel also recalled the three elemen ts identified by the Appellate Body in 
Canada – Aircraft , which must be shown in order to establis h contingency in fact within the meaning 
of footnote 4 of the SCM Agreement2296, namely that (i) the granting of a subsidy (ii) is tied to (iii) 
actual or anticipated exportation or export earnings.2297  The Panel found that "'anticipated' 
exportation may be understood to be  exportation that a granting authority considers, expects or 
foresees will occur after  it has granted a subsidy."2298  According to the Panel,  this does not mean that 
the contingency relationship between the granting of  a subsidy and anticipated exportation could be 
demonstrated "by merely showing that a granting authority anticipated export performance."2299  
Rather, in the Panel's view:  
... in order to qualify as a prohibited export subsidy, the grant of the 
subsidy must be conditional  or dependent upon  actual or anticipated 
export performance; or as we put it above, a subsidy must be granted 
because  of actual or anticipated export performance.2300 (original 
emphasis) 
                                                      
2293Panel Report, para. 7.628 (quoting United States' response to Panel Question 10). 
2294Panel Report, para. 7.634.   
2295Panel Report, para. 7.640 (quoting Appellate Body Report, Canada – Aircraft , para. 171).  
Article 3.1(a) of the SCM Agreement  prohibits "subsidies contingent, in law or in fact, whether solely or as one 
of several other conditions, upon export performance, including those illustrated in Annex I".   
2296Footnote 4 of the SCM Agreement , which specifies certain requirem ents for contingency "in fact", 
states: 
This standard is met when the facts dem onstrate that the granting of a subsidy, 
without having been made legally contingent upon export performance, is in fact tied 
to actual or anticipated exportation or export  earnings.  The mere fact that a subsidy 
is granted to enterprises which export shall not  for that reason alone be considered to 
be an export subsidy within the meaning of this provision. 
2297Panel Report, para. 7.648 (referring to Appellate Body Report, Canada – Aircraft , para. 171). 
2298Panel Report, para. 7.641. (original emphasis) 
2299Panel Report, para. 7.644. 
2300Panel Report, para. 7.648.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 449  
 
  1031.  The Panel also recalled the Appellate Body's finding that contingency in fact must be 
"inferred  from the total configuration of facts cons tituting and surrounding the granting of the 
subsidy, none of which is likely to be decisive in any given case".
2301  Thus, "the mere fact that an 
enterprise exports cannot, alone, be used to establish the required contingency."2302 
1032.  The Panel next turned to review  the evidence in order to dete rmine whether the United States 
had established that the LA/MSF subsidies at issue were contingent in fact upon anticipated export 
performance.  The Panel found that the United Stat es had submitted sufficien t evidence to establish 
that, at the time the relevant member State govern ments concluded the LA/MSF contracts, they were 
fully aware that Airbus was a global company operating in a global market, and that the A380, A340-500/600, and A330-200 projects would involve Airbus selling most, if not all, of its production 
in export markets.
2303  The Panel then examined the eviden ce submitted by the United States on the 
contingent relationship between the subsidies at issue and anticipated export performance.  In the 
Panel's view, it was clear from the repayment provision s of the contracts, the market forecasts, as well 
as certain HSBI (including Airbus' business case for the A380 and French and UK Governments' 
critical project appraisals)2304, that achieving the level of sales n eeded fully to repay each loan would 
require Airbus to make a s ubstantial amount of exports.2305  Moreover, the Panel noted that, as the 
European Communities had explained, the member States expected that the loans granted under the 
LA/MSF would be fully repaid.2306  Thus, the Panel concluded that the governments of these member 
States, in granting the loans, must have counted on  Airbus selling a sufficient number of LCA so as to 
repay the loans and that such sales necessarily  included a substantial number of exports.2307  On this 
basis, the Panel found that:   
                                                      
2301Panel Report, para. 7.648 (quoting Appellate Body Report, Canada – Aircraft , para. 167 (original 
emphasis)). 
2302Panel Report, para. 7.648.  The Panel noted, howev er, that the fact that a company is export-
oriented "may be taken into account as a relevant fact, provided that it is one of several facts which are 
considered and is not the only fact suppor ting a finding" of export contingency. ( Ibid. (quoting Appellate Body 
Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 48, in turn quoting Appellate Body Report, Canada – 
Aircraft , para. 173 (original emphasis) (underlining added by the Panel omitted)) 
2303Panel Report, paras. 7.652, 7.656, and 7.659. 
2304Panel Report, para. 7.678 (referring to Airbus 2000 GMF (Panel Exhibit US-358);  French A380 
contract (Panel Exhibit US-365 (BCI));  German A380 contract (Panel Exhibit US-72 (BCI));  Spanish A380 
contract (Panel Exhibit US-73 (BCI));  UK A380 contract (Panel Exhibit US-79 (BCI));  French A340-500/600 contract (Panel Exhibit US-36 (BCI));  Spanish A340-500/600 contract (Panel Exhibits US-37 (BCI));  French 
A330-200 contract (Panel Ex hibit US-78 (BCI));  United States' first written submission to the Panel (HSBI), 
paras. 39-42, 50-53, and 57-60;  United States' oral statement at the second Panel meeting (HSBI), paras. 2-7;  and Panel Exhibit DS316-EC-HSBI-0001143) 
2305Panel Report, para. 7.678. 
2306Panel Report, para. 7.678 (referrin g to European Communities' first written submission to the Panel, 
para. 638). 
2307Panel Report, para. 7.678. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 450  
 
  ... without being decisive, this evidence supports the view that the 
provision of LA/MSF on sales-depend ent repayment terms was, at 
least in part, "conditional" or "dep endent for its existence" upon the 
EC member States' anticipated exportation or export earnings.
2308 
1033.  The Panel then turned to examine the additi onal evidence advanced by the United States in 
order to determine whether that evidence "corroborat e{d}" the alleged tie between the granting of the 
subsidies and anticipated exportation.2309  Such additional evidence included other provisions in the 
LA/MSF contracts, representations made by Air bus in its application for the German LA/MSF 
measure, statements by government officials of the United Kingdom and France, as well as 
information from the French Government's critical pr oject appraisals.  On this basis, the Panel found 
that, with respect to the LA/MSF contracts fo r the A380 by Germany, Spain, and the United 
Kingdom, the relevant evidence demonstrated that the granting of the subsidies under these contracts 
was contingent in fact upon anticipated export performance.2310  In contrast, with respect to the French 
LA/MSF contracts for the A380, A340-500/600, and A330-200 and the Spanish LA/MSF contract for 
the A340-500/600, the Panel found that the additi onal evidence did not add any support to the 
United States' claim beyond what was alr eady indicated by the repayment provisions.2311  Thus, the 
Panel concluded that the United States failed to est ablish that the granting of subsidies pursuant to 
these LA/MSF contracts was contingent in  fact upon anticipated export performance.2312   
1034.  Turning to the United States' claim that the same LA/MSF measures are subsidies contingent, 
in law, on export performance2313, the Panel noted the United Stat es' argument that the terms and 
conditions of each of the challenged LA/MSF contract s, when considered in the light of the sales 
projection in Airbus' Global Market Forecast ("GMF") and project appraisals made by the member 
State governments, gave rise to the necessary im plication that the provision of LA/MSF was 
contingent in law on anticipated export performance.  In the Panel's view, "by relying upon such facts, 
the United States' claim stray{ed } from a complaint about what {could} be understood from the legal 
obligations written into the LA/MSF contracts, to  a complaint about how those legal obligations 
                                                      
2308Panel Report, para. 7.678. 
2309Panel Report, para. 7.679. 
2310Panel Report, paras. 7.679-7.683. 
2311The Panel reviewed the Critical Project Appraisals by the French Government but did not discuss 
them in the Panel Report, as they were designated by the European Communities as HSBI. 
2312Panel Report, paras. 7.684-7.688. 
2313At the outset, the Panel addressed the "threshold question" of "whether Article 3.1(a) and footnote 4 
envisage the possibility of bringing a claim of subsidization contingent in law upon anticipated export 
performance". (Panel Report, para. 7.695)  The Panel considered it "appropriate to read footnote 4 as informing the meaning of 'export performance' for the purpose of in law contingency subsidy claims under Article 3.1(a)" 
and, consequently, the Panel saw "no obstacle to the United States" raising a complaint that the LA/MSF at 
issue was contingent, in law, upon anticipated export performance. ( Ibid., para. 7.701)  The European Union and 
the United States have not appealed these Panel findings.  Therefore, we need not explore the relevance of 
footnote 4 to the interpretation of  Article 3.1(a) with respect to de jure  export contingency.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 451  
 
  {could} be understood in the light of relevant facts and circumstances ."
2314  Accordingly, the Panel 
"agree{d} with the European Comm unities that the United St ates' claims of in law export contingency 
against the challenged LA/MSF measures {were} improperly constituted."2315  For this reason, the 
Panel "dismiss{ed} the United States' claim that the provision of LA/MSF for the A380, 
A340-500/600 and A330-200 was contingent in law upon anticipated export performance, within the 
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement."2316 
1035.  Having dismissed the United States' claim, the Panel nevertheless went on to consider 
whether it would have arrived at a different c onclusion had it taken into account the evidence 
submitted by the United States extraneous to the LA/MSF contracts.2317  The Panel found that, based 
on the evidence submitted by the United States, "as a matter of law, the EC member States provided 
the LA/MSF on the basis of their expectation (but  not the condition) that Airbus would export."2318  
The Panel thus concluded that, even assuming th at the United States could rely upon evidence 
extraneous to the LA/MSF, the United States would have failed to demonstrate that the LA/MSF was 
contingent, in law, upon anticipated export performance.2319 
C. The Interpretation of Article 3.1(a) and Footnote 4 of the SCM Agreement   
1036.  Article 3.1(a) of the SCM Agreement  prohibits "subsidies contingent, in law or in fact, 
whether solely or as one of several other conditions, upon export performance, including those 
illustrated in Annex I".  Footnote 4 of that provi sion, which elaborates on the standard for export 
contingency "in fact", states: 
This standard is met when the fact s demonstrate that the granting of a 
subsidy, without having been made legally contingent upon export performance, is in fact  tied to actual or anticipated exportation or 
export earnings.  The mere fact that a subsidy is granted to 
enterprises which export shall not for that reason alone be considered 
to be an export subsidy within the meaning of this provision. 
1037.  The Appellate Body explained in Canada – Aircraft  that the word "contingent" means 
"conditional" or "dependent for its existence on something else"
2320, and that the legal standard for 
export contingency expressed in Article 3.1(a) is the same for both de jure  and de facto  
                                                      
2314Panel Report, para. 7.713. (original emphasis) 
2315Panel Report, para. 7.713. 
2316Panel Report, para. 7.713. (original emphasis) 
2317Panel Report, para. 7.714. 
2318Panel Report, para. 7.716. 
2319Panel Report, para. 7.716. 
2320Appellate Body Report, Canada – Aircraft , para. 166. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 452  
 
  contingency.
2321  With regard to the standard for de facto  export contingency set out in footnote 4, the 
Appellate Body noted that the ordinary meaning of the word "tie" in the first sentence of the footnote 
is to "limit or restrict as to ... conditions".2322  The Appellate Body thus found that to satisfy the 
standard for de facto export contingency "a relationship of conditionality or dependence" must be 
demonstrated between the subsidy and "actual or anticipated exportation or export earnings".2323  The 
Appellate Body further observed that the meaning of the word "anticipated" under footnote 4 is 
"expected", and that "{w}hether exports were antic ipated or 'expected' is to be gleaned from an 
examination of objective evidence."2324  The Appellate Body stressed, however, that the use of this 
word does not transform the standard for "contingent … in fact" into a standard that is satisfied by 
merely ascertaining "expectations" of exports  on the part of th e granting authority.2325  The Appellate 
Body explained that, although a subsidy "may we ll be granted in the knowledge, or with the 
anticipation, that exports will result", "that alone is not sufficient, because that alone is not proof that 
the granting of the subsidy is tied to  the anticipation of exportation."2326 
1038.  The Appellate Body found that the evidence that may demonstrate de jure  export contingency 
is different from evidence that may reveal de facto  export contingency.  De jure  contingency "can be 
demonstrated on the basis of the very words of th e relevant legislation, regulation or other legal 
instrument constituting the measure."2327  Nonetheless, de jure  export contingency does not have to be 
set out expressly, but can also be derived by "necessary implication" from the wording of a legal 
instrument.2328  By contrast, the evidence needed to establish de facto  export contingency goes beyond 
a legal instrument and includes a variety of factual elements concerning the granting of the subsidy in 
a specific case.  In this respect, the Appellate Body stated that:  
{p}roving de facto  export contingency is a much more difficult task.  
There is no single legal document which will demonstrate, on its face, that a subsidy is "contingent … in fact … upon export 
performance".  Instead, the existe nce of this relationship of 
contingency, between the subsidy and export performance, must be inferred  from the total configuration of the facts constituting and 
                                                     
 
2321Appellate Body Report, Canada – Aircraft , para. 167. 
2322Appellate Body Report, Canada – Aircraft , para. 171. 
2323Appellate Body Report, Canada – Aircraft , para. 171.  Similarly, in Canada – Autos , the Appellate 
Body noted that footnote 4 to Article 3.1(a) uses the words "tied to" as a synonym for "contingent" or "conditional" and that, consequently, a "tie", amounting to the relationship of contingency, between the granting 
of the subsidy and actual or anticipated  exportation meets the legal standard of "contingent" in Article 3.1(a) of 
the SCM Agreement . (Appellate Body Report, Canada – Autos , para. 107) 
2324Appellate Body Report, Canada – Aircraft , para. 172.   
2325Appellate Body Report, Canada – Aircraft , para. 172.   
2326Appellate Body Report, Canada – Aircraft , para. 172. 
2327Appellate Body Report, Canada – Autos , para. 100. 
2328Appellate Body Report, Canada – Autos , para. 100.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 453  
 
  surrounding the granting of the subsidy, none of which on its own is 
likely to be decisive in any given case.
2329 (original emphasis) 
1039.  Moreover, the Appellate Body emphasized th at, under the second sentence of footnote 4, 
"merely knowing that a recipient's sales are export-oriented does not demonstrate, without more, that the granting of a subsidy is tied to actual or anticipated exports."
2330  Rather, "the export orientation of 
a recipient may be taken into account as a relevant fact, provided that it is one of several facts which 
are considered and is not the only fact supporting a finding."2331 
1040.  Having reviewed the relevant jurisprudence under Article 3.1(a) and footnote 4 of the 
SCM Agreement , we turn to examine the specific interpre tative question before us.  On appeal, the 
European Union submits that the Panel erroneously found that the standard for de facto  export 
contingency could be met when it is  demonstrated that "there is the anticipating of exports by the 
granting authority, and that because  of such anticipating of exports a subsidy is granted".2332  The 
European Union notes that the Panel expr essed this standard in terms of a " motivation "2333 upon which 
the granting of subsidy is " dependent ".2334  The European Union thus characterizes the legal standard 
set out by the Panel as the "dependent motivation" standard.2335  In the European Union's view, the 
standard for de facto  export contingency cannot be equated with motivation.  Rather, in order to show 
that a subsidy is contingent upon export performance,  the obligation to grant the subsidy and the right 
to receive it has to be limited by the condition of export.2336   
1041.  The United States responds that the Panel correc tly concluded that "anticipated" exportation 
means exportation that a granting authority consid ers, expects or foresees will occur after it has 
granted a subsidy.2337  Moreover, the United States maintains that the Panel properly found that the 
legal standard for de facto  export contingency focuses on whethe r a relationship of conditionality 
                                                      
2329Appellate Body Report, Canada – Aircraft , para. 167.   
2330Appellate Body Report, Canada – Aircraft , para. 173.  To recall, the second sentence provides that 
"{t}he mere fact that a subsidy is granted to enterp rises which export shall not for that reason alone be 
considered to be an export subsidy within the meaning of {Article 3.1 of the SCM Agreement }". 
2331Appellate Body Report, Canada – Aircraft , para. 173. (original emphasis) 
2332European Union's appellant's submission, para. 1282 (referring to Panel Report, paras. 7.636, 
second sentence;  7.644, fourth sentence;  7.648, third sentence;  7.680, final sentence;  7.681, final sentence;  
and 7.683, final sentence (original emphasis)). 
2333European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.675, first and 
second sentences;  7.676, first sentence;  7.677, first sentence;  and 7.690, final sentence). (emphasis added by 
the European Union) 
2334European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.634, first 
sentence;  7.636, second sentence;  7.642, first sentence ;  7.648, third sentence;  7.678;  and 7.715, final 
sentence). (emphasis added by the European Union)   
2335European Union's appellant's submission, para. 1278. 
2336European Union's appellant's submission, para. 1311. 
2337United States' appellee's submission, para. 286. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 454  
 
  existed between anticipated exportati on and the granting of the subsidy.
2338  In the United States' view, 
in reaching its finding that the subsidies gr anted under the German, Spanish, and UK LA/MSF 
contracts for the A380 were contingent in fact  upon export performance, the Panel "accurately 
articulated the standard for 'in fact' contingenc y upon anticipated exportation or export earnings."2339 
1042.  Thus, while both the European Union and the Un ited States agree that the legal standard of 
de facto  export contingency requires a relationship of conditionality between the subsidies and 
exportation, they disagree as to the precise content of  the legal standard for subsidies contingent in 
fact on anticipated exportation.  The inte rpretative issue before us, therefore, is  what  must be 
demonstrated in order to establish that a subsidy is " in fact tied to ... anticipated exportation " within 
the meaning of footnote 4 of the SCM Agreement .   
1043.  We recall the Appellate Body's finding that  the word "anticipat ed" means "expected".2340  
Therefore, whereas "actual exportation" in footnote 4 refers to exportation that has occurred at the 
time a subsidy is granted, "anticipated exportation" means exportation that is expected to occur in the 
future.  We also note that, in contrast to the term "actual exportation", the term "anticipated 
exportation" inherently contains an element of uncerta inty, in that an exportation expected to occur in 
the future may, or may not, actually occur.  By referring to the "granting of a subsidy" that is tied to 
"anticipated" exportation, footnote 4 describes the situa tion that exists at the time a subsidy is granted, 
but does not require that the anticipated exportati on be realized after the subsidy is granted.  
Moreover, the term "anticipat ed exportation", read in isolation, does not indicate by whom the 
exportation is anticipated.  However, as the Appella te Body noted, by using the phrase "the granting 
of a subsidy", the inquiry under footnote 4 must focus on "whether the granting authority  imposed a 
condition based on export performan ce in providing the subsidy."2341  Consistent with this 
understanding, it is the granting authority that "a nticipates" that exportation will occur after the 
granting of the subsidy, and that grants a subsidy on the condition  of such anticipated exportation.   
                                                      
2338United States' appellee's submission, para. 293.  In its other appeal, the United States argues that the 
Panel erred in its applica tion of the standard for de facto  export contingency by "effectively" requiring evidence 
of the governments' motivation in granting the LA/MSF at issue.  (United States' other appellant's submission, para. 12)  Nonetheless, the United States argues that, "apart from its decision to mandate an additional 
requirement  of 'subjective motivation'", the Panel articula ted the correct legal standard. (United States' 
appellee's submission, para. 270  (original emphasis)) 
2339United States' appellee's submission, para. 270.   
2340Appellate Body Report, Canada – Aircraft , para. 172. 
2341Appellate Body Report, Canada – Aircraft , para. 170. (original emphasis)  The Appellate Body 
therefore rejected the view that an analysis of "contingent … in fact  … upon export performance" should focus 
on the reasonable knowledge of the recipient.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 455  
 
  1044.  Because anticipated exportation "alone is not proof that the granting of the subsidy is tied to  
the anticipation of exportation"
2342, the legal standard for de facto export contingency under 
Article 3.1(a) and footnote 4 of the SCM Agreement  further requires that there exists a relationship of 
conditionality between the granting of the subsidy a nd anticipated exportation.  Where a subsidy is 
alleged to be "in fact tied to … anticipated exporta tion", the relationship of conditionality is, unlike in 
the case of de jure  export contingency, not expressly or by necessary implication provided in the 
terms of the relevant legal instrument granting the subsidy.  Under such circumstances, we consider 
that the factual equivalent of such conditionality can be established by recourse to the following test:  
is the granting of the subsidy geared to induce the promotion of future export performance by the 
recipient? 
1045.  In reaching this interpretation of the standard for de facto export contingency under 
Article 3.1(a) and footnote 4 of the SCM Agreement , we do not suggest that the standard is met 
merely because the granting of the subsidy is designe d to increase a recipient's production, even if  the 
increased production is exported in whole.  We also do not suggest that the fact that the granting of 
the subsidy may, in addition to increasing exports, also increase the recipient's domestic sales would 
prevent a finding of de facto export contingency.  Rather, we consider that the standard for de facto 
export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement  would be met when the 
subsidy is granted so as to provide an incentive to the recipient to export in a way that is not simply 
reflective of the conditions of supply and demand in the domestic and export markets undistorted by 
the granting of the subsidy.   
1046.  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"2343, which 
may include the following factors:  (i) the design a nd structure of the measure granting the subsidy;  
(ii) the modalities of operation set out in such a meas ure;  and (iii) the relevant factual circumstances 
surrounding the granting of the subsidy that provide  the context for understanding the measure's 
design, structure, and modalities of operation. 
1047.  Moreover, where relevant evidence exists, th e assessment could be based on a comparison 
between, on the one hand, the ratio of anticipated  export and domestic sales of the subsidized product 
that would come about in consequence of the gran ting of the subsidy, and, on the other hand, the 
situation in the absence of the subsidy.  The situa tion in the absence of the subsidy may be understood 
on the basis of historical sales of the same product by the recipient in the domestic and export markets 
                                                      
2342Appellate Body Report, Canada – Aircraft , para. 172. (original emphasis) 
2343Appellate Body Report, Canada – Aircraft , para. 167. (original emphasis) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 456  
 
  before the subsidy was granted.  In the event that th ere are no historical data untainted by the subsidy, 
or the subsidized product is a new product for which no historical data exists, the comparison could be 
made with the performance that a profit-maximizing firm would hypothetically be expected to achieve 
in the export and domestic markets in the absence of  the subsidy.  Where the evidence shows, all 
other things being equal, that the granting of th e subsidy provides an incen tive to skew anticipated 
sales towards exports, in comparison with the hi storical performance of the recipient or the 
hypothetical performance of a profit-maximizing firm in  the absence of the subsidy, this would be an 
indication that the granting of the subsidy is in f act tied to anticipated exportation within the meaning 
of Article 3.1(a) and footnote 4 of the SCM Agreement .   
1048.  The following numerical examples illustrate when the granting of a subsidy may, or may not, 
be geared to induce promotion of future export perfo rmance by a recipient.  Assume that a subsidy is 
designed to allow a recipient to in crease its future production by five units.  Assume further that the 
existing ratio of the recipient's export sales to domestic sal es, at the time the subsidy is granted, is 2:3.  
The granting of the subsidy will not be tied to anticipated exportation if, all other things being equal, 
the anticipated ratio of export sales to domestic sales is not greater than the existing ratio.  In other 
words, if, under the measure granting the subsidy, th e recipient would not be expected to export more 
than two of the additional five units to be produced, th en this is indicative of the absence of a tie.  By 
contrast, the granting of the subsidy would be tied to  anticipated exportation if, all other things equal, 
the recipient is expected to export at least three of the five additional units to be produced.  In other 
words, the subsidy is designed in such a way that it is expected to skew the recipient's future sales in 
favour of export sales, even though the recipient ma y also be expected to increase its domestic sales. 
1049.  In setting out this test, we do not suggest that the issue as to whether the granting of a subsidy 
is in fact tied to anticipated exportation could be based on an assessment of th e actual effects of that 
subsidy.  Rather, we emphasize that it must be asse ssed on the basis of the information available to 
the granting authority at the time the subsidy is granted.  
1050.  The standard for determining whether the gr anting of a subsidy is "in fact tied to … 
anticipated exportation" is an objective standard , to be established on the basis of the total 
configuration of facts constituting and surrounding th e granting of the subsidy, including the design, 
structure, and modalities of operation of the measur e granting the subsidy.  Indeed, the conditional 
relationship between the granting of the subsid y and export performance must be objectively 
observable on the basis of such evid ence in order for the subsidy to be geared to induce the promotion 
of future export performance by the recipient.  The standard for de facto export contingency is 
therefore not satisfied by the subjective motivation of the granting government to promote the future  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 457  
 
  export performance of the recipient.  In this respect , we note that the Appellate  Body and panels have, 
on several occasions, cautioned against undue relia nce on the intent of a government behind a 
measure to determine the WTO- consistency of that measure.
2344  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.2345  In our view, the same understanding applies in the context 
of a determination on export contingency, where the requisite conditionality between the subsidy and 
anticipated exportation under Article 3.1(a) and footnote 4 of the SCM Agreement must be established 
on the basis of objective evidence, rather than subj ective intent. We note, however, that while the 
standard for de facto export contingency cannot be satisfied by the subjective motivation of the 
granting government, objectively reviewable expr essions of a government's policy objectives for 
granting a subsidy may, however, c onstitute relevant evidence in an inquiry into whether a subsidy is 
geared to induce the promotion of futu re export performance by the recipient. 
1051.  Similarly, the standard does not require a panel to ascertain a government's  reason(s) for 
granting a subsidy.  The government's reason for granting a subsidy only explains why the subsidy is 
granted.  It does not necessarily answer the question as to what  the government did, in terms of the 
design, structure, and modalities of operation of th e subsidy, in order to induce the promotion of 
future export performance by the recipient.2346  Indeed, whether the granting of a subsidy is 
conditional on future export performan ce must be determined by assessing the subsidy itself , in the 
light of the relevant factual circumstances, rather than by reference to the granting authority's reasons 
for the measure.  This is not to say, however, that  evidence regarding the policy reasons of a subsidy 
is necessarily excluded from the inquiry into whether a subsidy is geared to induce the promotion of 
future export performance by the recipient.   
                                                      
2344For 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 th e relative significance of th ose 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 abst ract." (Panel Report, Japan – DRAMs (Korea) , para. 7.104) 
2345Appellate 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 
otherwise, of the legislators is not conclusi ve as to the characterization of a measure. 
2346We recall that, for purposes of determining whether internal taxes or other internal charges are 
applied "so as to afford protection" under Article III:2, second sentence, of the GATT 1994, read in conjunction 
with Article III:1 thereof, the Appellate Body has found  that  an "examination of the design, architecture and 
structure of a tax measure" can "perm it identification of a measure's objec tives or purposes as revealed or 
objectified in the measure itself." (Appellate Body Report, Chile – Alcoholic Beverages , para. 71) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 458  
 
  1052.  Our interpretation of the terms "tied to … antic ipated exportation" is supported by the context 
provided by the second sentence of footnote 4.  This  sentence states that "{ t}he mere fact that a 
subsidy is granted to enterprises which export shall not  for that reason alone be considered to be an 
export subsidy within the meani ng of {Article 3.1(a) of the SCM Agreement }".  As the Appellate 
Body found in Canada – Aircraft , "merely knowing that a recipient's sales are export-oriented does 
not demonstrate, without more, that the granting of a subsidy is tied to actual or anticipated 
exports."
2347  Moreover, "under the second sentence of footnote 4, the export orientation of a recipient 
may be taken into account as  a  relevant fact, provided that it is  one of several facts which are 
considered and is not the only fact supporting a finding."2348  The second sentence of footnote 4, as 
interpreted by the Appellate B ody, thus precludes a finding of de facto  export contingency for the sole 
reason that the sales of the recipient of a subsid y involve export sales.  Rather, where a subsidy is 
granted to a recipient that is expected to  export, this fact must be considered together with  other 
relevant factors, including the design, structure, and modalities of operation of  the subsidy, as well as 
other relevant factual circumstances surrounding the granting of the subsidy, in order to determine 
whether the granting of subsidy is, as explained above, geared to induce the promotion of future 
export performance by the recipient, and therefore "in fact tied to … anticipated exportation".   
1053.  We further recall that Article 3.1(a) of the SCM Agreement states that subsidies contingent 
upon export performance "includ{e} those illustrated in Annex I".  A common feature of the examples provided in items (b) to (l)
2349 of the Illustrative List of Export Subsidies in Annex I to the 
SCM Agreement is that the subsidy gives certain a dvantages to exported products and favours 
exported products over products d estined for domestic consumption.2350  Export-contingent subsidies 
will indeed favour a recipient's export sales over its domestic sales.  Nonetheless, as discussed above, the fact that the granting of the subsidy may also increase the recipient's domestic sales would not 
                                                     
 
2347Appellate Body Report, Canada – Aircraft , para. 173.  In the subsequent Article 21.5 proceedings, 
the Appellate Body further found that "the fact that an industrial sector has a high export-orientation is not, by 
itself, sufficient to preclude that sector  from being expressly identified as an eligible or privileged recipient of 
subsidies."  (Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 49) 
2348Appellate Body Report, Canada – Aircraft , para. 173. (original emphasis) 
2349Item (a) of the Illustrative List of Export Subsidies in Annex I to the SCM Agreement  refers to 
"{t}he provision by governments of direct subsidies to a firm or an industry contingent upon export 
performance."   
2350For example, item (b) refers to currency reten tion schemes "which involve a bonus on exports".  
Items (c) and (d) list, respectively, internal transport and freight charges, and government provision of goods 
and services, for exported products "on terms or condi tions more favourable than" those with respect to 
domestic products.  Item (f) concerns allowance of speci al deductions related to exports "over and above those 
granted in respect to production for domestic consumption".  Item (h) covers exemption, remission, or deferral 
of indirect taxes on goods and services used in the production of exported product "in excess of" the exemption, 
remission or deferral of indirect taxes on goods and services used in the production of like products when sold for domestic consumption.  Other items, such as items (e), (j), and (k), concern subsidies provided exclusively to 
exports.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 459  
 
  necessarily prevent a finding of de facto  export contingency, so long as the measure is geared to 
induce a recipient to export in a way that is not  simply reflective of the conditions of supply and 
demand in the domestic and export markets undistorted by the granting of the subsidy.   
1054.  The above interpretation of Article 3.1(a) and footnote 4 of the SCM Agreement  is also 
supported by the overall design and structure of th at Agreement, which distinguishes between two 
kinds of subsidies: prohibited subsidies dealt with in Part II of the SCM Agreement , and actionable 
subsidies dealt with in Part III of the SCM Agreement .  Only those subsidies that are conditioned on 
export performance or on impor t 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 
Member granting such subsidies should not cause, th rough the use of the subsidies, adverse effects 
within the meaning of Article 5 of Part III, in wh ich case it must remove the adverse effects or must 
withdraw the subsidies themselves.  Among the latt er category of subsidies—that is, the actionable 
subsidies—are those granted to an export-oriente d recipient, without being contingent upon export 
performance.  The mere fact that such subsidi es may increase the company's production sold in the 
export market does not bring them under the discipline of Part II of the SCM Agreement .  Otherwise, 
the line drawn by the Agreement between prohibited  export subsidies and actionable  production 
subsidies would be blurred, contrary to the overa ll design and structure of the Agreement.  Although 
subsidies that are granted to an export-oriented company without being conditioned on export performance are not prohibited under Part II of the SCM Agreement , they can nonetheless be subject 
to challenge under Part III of the SCM Agreement  if they cause adverse effects within the meaning of 
Article 5.
2351 
1055.  Finally, the above interpretation is also cons istent with the relevant jurisprudence under 
Article 3.1(a) and footnote 4 of the  SCM Agreement .  Specifically, in Canada – Aircraft , the panel 
examined several pieces of evidence before dete rmining that the subsidies granted to certain 
companies in the Canadian aerospace sector under the measure at issue—the Technology Partnerships 
Canada ("TPC") programme—were in f act tied to anticipated exportation.2352  For example, the Terms 
and Conditions of the programme required that funding decisions be based on, inter alia , whether the 
                                                      
2351Moreover, both prohibited subsidies and subsidies causing adverse effects could of course be 
subject to countervailing duties imposed consistently with Part V of the SCM Agreement . 
2352The evidence included:  "TPC's stat ement of its overall objectives;  types of information called for 
in applications for TPC funding;  the considerations, or eligibility criteria, employed by TPC in deciding 
whether to grant assistance;  factors to be identified by TPC officials in making recommendations about 
applications for funding;  TPC's record of funding in  the export field,  generally, and in the aerospace and 
defence sector, in particular;  the nearness-to-the-export-market of the projects funded;  the importance of 
projected export sales by applicants to TPC's funding decisions;  and the export orientation of the firms or the 
industry supported."  (Appellate Body Report, Canada – Aircraft , para. 175) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 460  
 
  funded projects would generate export sales and in crease the international competitiveness of the 
funded companies.  Moreover, applicants were requi red to indicate whether the project to be funded 
would increase exports, and to distinguish between  domestic and export sales when reporting actual 
and future sales.
2353  In our view, the design and structur e of the TPC programme, as evidenced by 
various documents relating to the TPC programme, as well as the high export potential of the funded 
projects, demonstrated that the granting of s ubsidies under the programme was geared to induce 
applicants for funding to increase exports and,  consequently, to promote export performance by 
Canadian companies.  In the subsequent Article  21.5 proceedings, the revised TPC programme, which 
removed the selection criteria relating to exportati on as a basis for funding decisions, as well as the 
stated objectives of the programme to enhance ex portation, was found not to constitute an export-
contingent subsidy.2354  In other words, the relevant evidence did not indicate that the revised measure 
was geared to induce the promotion of fu ture export performance by the recipients. 
1056.  In sum, it is clear that a subsidy that is neut ral on its face, or by necessary implication, and 
does not differentiate between a recipient's expor ts and domestic sales ca nnot be found to be 
contingent, in law, on export performance w ithin the meaning of Article 3.1(a) of the 
SCM Agreement .  Such a subsidy may nonetheless constitute a subsidy contingent in fact upon export 
performance within the meaning of the same provision if it is "in fact tied to actual or anticipated 
exportation or export earnings" in accordance with footnote 4 of the SCM Agreement .  The 
interpretation set out above indicates that the gran ting of the subsidy may be tied to anticipated 
exportation, and thus contingent in fact upon ex port performance under Article 3.1 and footnote 4 of 
the SCM Agreement  if it is geared to induce the promotion of future export performance by the 
recipient.  The issue of whether this standard is  met must be assessed on the basis of an examination 
of the measure granting the subsidy and the facts surrounding the granting of the subsidy, including 
the design, structure, and modalities of operation of  the measure.  Finally, the fact alone that the 
recipient of a subsidy exports is insufficient for a finding of de facto export contingency.  Rather, this 
fact must be considered together with all othe r relevant evidence relating to the granting of the 
subsidy for purposes of determining whether the subsidy is contingent in fact upon export 
performance. 
                                                      
2353See Panel Report, Canada – Aircraft , para. 9.340. 
2354Panel Report, Canada – Aircraft (Article 21.5 – Brazil) , paras. 5.29, 5.33, and 5.34.  In order to 
implement the DSB's recommendations and rulings, Canada also:  (i) cancelled funding under five TPC transactions, (ii) withdrew approvals-in-principle for two new TPC funding projects;  and (iii) closed all TPC 
files in the regional aircraft sector. (See ibid., para. 5.3)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 461  
 
  D. Whether the Panel Erred in Its Interpretation of Article 3.1(a) and Footnote 4 
1057.  We turn now to consider two questions concerni ng the Panel's interpretation of Article 3.1(a) 
and footnote 4 of the SCM Agreement .  We begin first with the questi on of whether the Panel erred in 
its interpretation of "anticipated exportation" within  the meaning of footnote 4.  We then consider 
whether the Panel adopted a "reasons for" standard for assessing de facto  export contingency and, if 
so, whether that is at variance with the require d standard under Article 3.1(a) and footnote 4. 
1. Whether the Panel Erred in Its Interp retation of "Anticipated Exportation"
 
1058.  The European Union submits that the erroneous interpretation "underpin{ning}"2355 the 
Panel's reasoning is the assumption that the term "actual exportation" refers to an export that 
"actually"2356 takes place in the past or in the future.  Consequently, the Panel erroneously understood 
the term "anticipated exportation"  to mean "the notional state of mind of the granting authority."2357  
The European Union contends that, contrary to th e Panel's findings, the word "actual" refers to 
"an export that exists (that is, has already taken pl ace) at the moment when the measure is enacted and 
a subsidy is deemed to exist within the meaning of Article 1", while the term "anticipated", which is 
"juxtaposed to the meaning of the term ' actual' … means an export in the future."2358 
1059.  We recall the Appellate Body's finding, in Canada – Aircraft , that "{t}he dictionary meaning 
of the word 'anticip ated' is 'expected'."2359  In our discussion above, we find that "actual exportation" 
in footnote 4 refers to exportation that has occurr ed at the time a subsidy is granted, whereas 
"anticipated exportation" means exportation that is e xpected to occur in the future.  We further recall 
the Panel's finding that "'anticipated' exportation ma y be understood to be exportation that a granting 
authority considers, expects or foresees will occur after  it has granted a subsidy."2360  We see no 
contradiction between the Panel's finding and the way in which the A ppellate Body has interpreted the 
word "anticipated".  In our view, therefore, th e Panel's interpretation of the term "anticipated 
                                                      
2355European Union's appellant's submission, para. 1325. 
2356European Union's appellant's submission, para. 1352 (quoting Panel Report, para. 7.633). 
2357European Union's appellant's submission, para. 1325. 
2358European Union's appellant's submission, para. 1324. 
2359Appellate Body Report,  Canada – Aircraft, para. 172 (referring to  The New Shorter Oxford English 
Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 88;  and The Concise Oxford Dictionary , 
9th edn, D. Thompson (ed.) (Clarendon Press, 1995), p. 53). 
2360Panel Report, para. 7.641. (original emphasis)  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 462  
 
  exportation" is consistent with the ordinary meani ng of the term, as interpreted by the Appellate Body 
in previous disputes.
2361   
2. Whether the Panel Imposed a Correct Standard for De Facto  Export 
Contingency  
1060.  The European Union contends that, "{b}y reasoning that the required condition is the 
'anticipating of' exports{,} the Panel finds that the requirement of contingency/ conditionality that is at 
the heart of the provision can be replaced by mere 'dependent motivation'".2362  T o  r e c a l l ,  t h e  
European Union uses the term "dependent motivation"  to refer to the standard imposed by the Panel 
whereby export contingency could be established when it is demonstrated that "there is the 
anticipating of exports by the granting authority, and that, ' because ' of such anticipating of exports a 
subsidy is granted."2363  
1061.  As set out above, "anticipated exportation", w ithin the meaning of footnote 4, is to be 
demonstrated by way of objective evidence, such as the fact that a government is in possession of a 
company's sales forecasts showing significant export sales.   It does not entail a determination of what 
the government's motivation is, but simply whether th e prospect of future exports exists and whether 
the government is aware of that prospect.  We  do not consider, therefore, that the Panel's 
interpretation—that "anticipated exportation" is exportation that a granting authority expects will 
occur in the future—leads to a st andard that replaces "contingency" with "dependent motivation".   
1062.  Nonetheless, we note that certain language used  by the Panel shows that the standard it 
adopted deviates from what is required under Article 3.1(a) and footnote 4.  Specifically, the Panel 
stated: 
In concluding that the reference to "anticipated exportation or export 
earnings" in footnote 4 means to cons ider that exports will take place 
before they actually do, or to envisage that exports may take place in the future, we are not saying that the required contingency between 
the granting of a subsidy and an ticipated exportation or export 
earnings may be demonstrated by merely showing that a granting authority anticipated  export performance.  Rather, we are saying that 
                                                      
2361See Appellate Body Report,  Canada – Aircraft , para. 172.  Moreover, we are not convinced by the 
European Union's argument that th e alleged error in the Panel's interpretation stems from the Panel's 
"assumption" regarding the meaning of "actual" in footnote 4.  (European Union's appellant's submission, 
paras. 1325 and 1352)  The sentence the European Union re fers to, in which the Panel used the word "actually", 
merely contained the Panel's description of what it consid ered to be the European Communities' interpretation of 
footnote 4. (See Panel Report, para. 7.633) 
2362European Union's appellant's submission, para. 1331. 
2363European Union's appellant's submission, para. 1282 (quoting Panel Report, paras. 7.636, second 
sentence;  7.644, fourth sentence;  7.648, third senten ce;  7.680, final sentence;  7.681, final sentence;  and 
7.683, final sentence (original emphasis)).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 463  
 
  the required contingency may be demonstrated where the subsidy 
was granted because  the granting authority anticipated export 
performance .2364 (original italics;  underlining added) 
1063.  By using the word "because", the Panel equated the standard of export contingency with the 
reason(s) for granting a subsidy.  The Panel's findi ngs indicate a standard that requires anticipated 
exportation to be the reason for the granting of a subs idy.  We have explained above that the standard 
for finding that the granting of a subsidy is in fact tied to anticipated exportation is not met simply by 
showing that anticipated exportation is the reason fo r granting the subsidy.  The test is whether the 
granting of the subsidy is geared to induce the promotion of future export performance by the recipient.  The authority's reasons for the granting of the subsidy may provide some evidence to meet 
the correct standard, but it is not to be equated w ith that standard.  The reason for granting the subsidy 
is not the same thing as whether the granting of th e subsidy is geared to induce the promotion of 
future export performance by the recipient. 
1064.  We note that there might, or might not, be some  overlap between the concept of the reasons 
for granting a subsidy and that of the motivation for granting a subsidy.  As we find above, the 
standard for de facto  export contingency is not met simply by showing that anticipated exportation is 
the reason for granting the subsidy.  We also find that the standard for de facto export contingency is 
not satisfied by the subjective motivation of the granting government to promote the future export 
performance of the recipient.  Having found that the Panel deviated from the correct standard under 
Article 3.1(a) and footnote 4 by equating the standa rd of export contingency with the reason(s) for 
granting a subsidy, we need not further address the i ssue of whether the Panel also erred in imposing a 
standard based on motivation. 
1065.  We note that the Panel quoted the Appellate Body 's finding that the word "contingent" means 
"conditional" or "dependent for its existence on something else".
2365  It seems, therefore, that the Panel 
recognized that the standard under Article 3.1( a) and footnote 4 requires a demonstration of a 
conditional relationship between th e subsidy and export performance.  This recognition, however, is 
formulated at the highest level of generality.  Th e manner in which the Panel sought to render more 
concrete the standard was to use the concept of "reasons".  Thus, throughout its findings, the Panel 
referred to the words "because" and "reasons", in addition to the words "conditional on" and 
                                                      
2364Panel Report, para. 7.644.  
2365Panel Report, para. 7.634 (quoting Panel Report, Canada – Aircraft , para. 9.331;  and Appellate 
Body Report, Canada – Aircraft , para. 166). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 464  
 
  "conditions", when articulating the standard under Article 3.1(a) and footnote 4.
2366  For example, the 
Panel stated: 
{I}n order to qualify as a prohibited export subsidy, the grant of the 
subsidy must be conditional  or dependent upon  actual or anticipated 
export performance; or as we have  put it above, a subsidy must be 
granted because  of actual or anticipated export performance.2367  
(original emphasis) 
The Panel further stated: 
{A} finding of export contingenc y … could be inferred from the 
"total configuration of the facts" that at least one of the conditions or 
reasons  for the provision of LA/MSF was the anticipation of export 
performance.2368 (emphasis added) 
1066.   Reading the Panel's findings in their entirety, we consider that the Panel equated the reasons 
for granting a subsidy with the notion of export contingency, and thus erroneously interpreted 
Article 3.1(a).  The reasons for granting a subsidy may be evidence of de facto  export contingency, 
but do not constitute such contingency.  
3. Conclusion  
1067.  In sum, we do not consider that the Panel erred in its interpretation of "anticipated 
exportation" under footnote 4 of the SCM Agreement .  We also do not consider that the Panel's 
interpretation of the term "anticipated exportation"  led to the imposition of an erroneous "dependent 
motivation" standard.  However, the Panel erroneously  interpreted Article 3.1(a) and footnote 4 of the 
SCM Agreement  by equating the standard for finding that the granting of a subsidy is in fact "tied to" 
anticipated exportation with a standard based on the reasons for granting a subsidy.  As we set out 
above in section C, to determine whether the granti ng of a subsidy is in fact tied to anticipated 
exportation, recourse may be had to the following test:  Is the granting of the subsidy geared to induce 
the promotion of future export performance by the r ecipient?  The Panel's interpretation of the term 
"in fact tied to" under Article 3.1(a) and footnote 4 of the SCM Agreement  is not consistent with this 
interpretation we set out above.  We therefore  reverse  the Panel's interpretation that, in order to find 
that the granting of a subsidy is in fact tied to anticipated exportation, a subsidy must be granted 
because  of anticipated export performance.2369 
                                                      
2366See Panel Report, paras. 7.648, 7.677, 7. 680, 7.681, 7.683, 7.685, and 7.688. 
2367Panel Report, para. 7.648.  
2368Panel Report, para. 7.677.  
2369See Panel Report, para. 7.648. (original emphasis)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 465  
 
  E. The Application of the Standard for De Facto Export Contingency to the Facts  
1068.  In section D above, we have found that the Panel correctly interpreted the term "anticipated 
exportation" in footnote 4 of the SCM Agreement .  In this section, we turn to review whether the Panel 
properly applied its interpretation in finding that export performance by Airbus was anticipated when 
the French, German, Spanish, and UK Government s granted the LA/MSF subsidies at issue.   
1069.  In addition, in section D, we have found that the Panel erroneously interpreted the standard 
under Article 3.1(a) and footnote 4 of the SCM Agreement  for determining whether the granting of a 
subsidy is "in fact tied to" anticip ated exportation.  In this sectio n, we examine whether the Panel 
applied its erroneous standard in reaching its final conclusions and, if so, whether there are sufficient 
factual findings by the Panel or undisputed facts on the record that would allow us to determine 
whether the granting of the subsidies under the French, German, Spanish, and UK LA/MSF contracts 
for the A380, the French LA/MSF contracts for the A340-500/600 and A330-200, and the Spanish 
LA/MSF contract for the A340-500/600 was in fact tied to anticipated exportation within the meaning 
of Article 3.1(a) and footnote 4 of the SCM Agreement .   
1. The Panel's Finding on "Anticipated Exportation"
 
1070.  The European Union claims that, "{f}or the r easons already indicated, … the Panel's findings 
that the Member States anticipated exports should be reversed."2370  The European Union's claim rests 
primarily on its argument that the Panel erred in  the interpretation of the term "anticipated 
exportation".  Specifically, the European Union submits that "the concept of 'anticipation' assessed by 
the Panel is irrelevant to the single standard  set out in Article 3.1(a) and footnote 4."2371  In section D 
above, we have concluded that the Panel properly interpreted the con cept of "anticipated exportation" 
as exportation that a granting authority expects to occur after the granting of a subsidy.   
1071.  The European Union further contends that "the  evidence adduced by th e United States at most 
speaks to the question of performance, not export performance."2372  The European Union thus also 
challenges the Panel's application of the legal sta ndard for "anticipated e xportation" to the evidence 
submitted in this dispute.   
                                                      
2370European Union's appellant's submission, para. 1492. 
2371European Union's appellant's submission, para. 1492. 
2372European Union's appellant's submission, para. 1492. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 466  
 
  1072.  We turn now to review the evidence submitted by  the United States and relied on by the Panel 
regarding "anticipated exportation"  in order to determine whether the Panel based its finding on "an 
examination of objective evidence"
2373, and whether it properly found that, at the time the LA/MSF 
contracts were entered into, expor tation by Airbus was "expected"2374 to occur after the granting of the 
subsidies.  
1073.  With respect to the French, German, Spanis h, and UK LA/MSF for the A380, the Panel 
examined the following evidence:  (i) Airbus GMF2375 issued in 1999 and 2000,  predicting that 
demand in Europe for the A380 would account fo r 23% and 20%, respectively, of total demand2376;  
(ii) Airbus 1999 third quarter briefing on the A3XX2377, predicting that airlines in the Asia-Pacific 
region would represent more than 75% of demand;  (iii) Critical Project Appraisals2378 by France and 
the United Kingdom, and the A380 LA/MSF application by Deutsche Airbus2379;  (iv) repayment 
provisions in the LA/MSF contracts, predicting sales that would greatly exceed demand in Europe2380;  
(v) evidence showing the governments' awareness of the global nature of the A380 project, including 
language to that effect in the Spanish LA/MSF c ontract, media reports concerning a press release by 
the UK Department of Trade and Industry, and a statement by British Prime Minister Tony Blair2381;  
(vi) media reports concerning Airbus Vice President Leahy's statement on export earnings made at the 
time when Airbus was seeking LA/MSF2382;  and (vii) the fact that the A380 is an export-oriented 
                                                      
2373Appellate Body Report, Canada – Aircraft , para. 172.   
2374Appellate Body Report, Canada – Aircraft , para. 172. 
2375According to the United States, each year, Airbus is sues a "Global Market Forecast" that seeks to 
forecast the evolution of large civil ai rcraft fleets worldwide over the next 20 years, and the basic assumptions 
that Airbus uses in preparing the forecast "are both realistic and consistent with historical and currently foreseeable trends." (United States' first written submi ssion to the Panel, footnote 393 to para. 346 (quoting 
Airbus GMF for 1999 (Panel Exhibit US-356), p. 8)) 
2376Panel Report, para. 7.651 (referring to Airbus 1999 GMF (Panel Exhibit US-356);  and Airbus 2000 
GMF (Panel Exhibit US-358)).   
2377Panel Report, para. 7.651 (referring to Airbus Indu strie, A3XX 3rd Quarter Briefing (1999) (Panel 
Exhibit US-359).  We note that Airbus originally designated the A380 as the A3XX;  it changed the designation 
to A380 when it formally launched the project. (United States' first written submission to the Panel, footnote 
399 to para. 346) 
2378According to the European Communities, govern ments participating in the LA/MSF critically 
evaluate each aspect of a request to ensure that the governments will be able to recover their investment. 
(European Communities' first written submission to the Panel, para. 313)  The European Communities designated all Critical Project  Appraisals as HSBI.   
2379Panel Report, para. 7.651 (referring to United Stat es' first written submission to the Panel, paras. 34 
and 36 (HSBI);  and Appendix 1 to the German A380 contract (Panel Exhibit US-357 (BCI)).  The European Communities designated the LA/MSF application as BCI.   
2380Panel Report, para. 7.651 (referring to Spanish A380 contract (Panel Exhibit US-73 (BCI));  and 
Appendix 1 to the German A380 contract (Panel Exhibit US-357 (BCI)).   
2381Panel Report, para. 7.651 (referring to Spanish A 380 contract (Panel Exhibit US-73 (BCI));  Panel 
Exhibit US-360, supra , footnote 354;  and Panel Exhibit US-361, supra , footnote 352).   
2382Panel Report, para. 7.651 (referring to Aviation Now, "Airbus Launches A3XX Program, Sees 
Strong Demand in Asia" (available at <ww.aviationnow.com>, 24 February 2000) (Panel Exhibit US-362);  and 
"Airbus Bets the Company", The Economist , 16 March 2000 (Panel Exhibit US-363)).    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 467  
 
  project and that Airbus is an export-oriented company, with 84% of total sales between 1992 and 
2005 being exports.
2383 
1074.  With respect to the French and Spanish LA /MSF for the A340-500/600, the Panel reviewed 
the following evidence:  (i) the LA/MSF contract  between Airbus and the Government of Spain2384;  
(ii) Critical Project Appraisals by France2385;  (iii) 1997 and 1998 GMFs showing European airlines 
accounting for, respectively, 25-29% of Airbus' to tal orders during the period 1997 to 2016, and 
25-28% of Airbus' total orders  during the period 1997 to 20172386;  (iv) the fact that, when the 
LA/MSF contracts were signed, almost half of the orders for the A340-500/600 were export sales2387;  
(v) a state aid decision by the European Commission regarding LA/MSF for the A340-500/600, which allegedly shows the French Government's expect ation that the development of the A340-500/600 
would allow Airbus to compete for sales throughout the world
2388;  and (vi) the fact that Airbus is an 
export-oriented company, with 86% of total sal es between 1992 and 1997 (the period predating the 
LA/MSF for the A340-500/600) being exports.2389 
1075.  With respect to the French LA/MSF for the A330-200, the Panel reviewed the following 
evidence:  (i) Critical Project Appraisals by France2390;  (ii) 1995 GMF predicting that 28% of orders 
for all types of aircraft between 1995-2014 would come from European airlines2391;  (iii) the fact that 
all orders that had been received when the LA /MSF contract was signed were export sales;  and 
(iv) the fact that Airbus is an export-oriented  company, with 84% of total sales between 1992 and 
2005 being exports.2392 
                                                      
2383Panel Report, para. 7.651 (referring to United Stat es' first written submission to the Panel, para. 350, 
in turn referring to information deri ved from Airclaims CASE database). 
2384Panel Report, para. 7.655 (referring to Spanish A340-500/600 contract (Panel Exhibit US-37 
(BCI)). 
2385Panel Report, para. 7.655 (referring to United Stat es' first written submission to the Panel, para. 365, 
in turn referring to Panel Exhibit DS316-EC-HSBI-0001143). 
2386Panel Report, para. 7.655 (referring to Airbus 1997-2016 GMF (Panel Exhibit US-366);  and Airbus 
1998-2017 GMF (Panel Exhibit US-367)). 
2387Panel Report, para. 7.655 (referring to United Stat es' first written submission to the Panel, para. 367, 
in turn referring to US-368;  and United States' firs t written submission to the Panel, para. 48 (HSBI)). 
2388Panel Report, para. 7.655 (referring to United Stat es' first written submission to the Panel, para. 368, 
in turn referring to letter dated 26 January 1999 from Karel Van Miert to Hubert Vedrine, "Reimbursable 
Advance to Aérospatiale for the Airbus A340-500/600 Program", Aid No. N369/98 (Panel Exhibit US-3)). 
2389Panel Report, para. 7.655 (referring to United Stat es' first written submission to the Panel, para. 369, 
in turn referring to information deri ved from Airclaims CASE database). 
2390Panel Report, para. 7.658 (referring to United Stat es' first written submission to the Panel, paras. 55 
and 56 (HSBI), and para. 379)). 
2391Panel Report, para. 7.658 (referring to United Stat es' first written submission to the Panel, para. 380, 
in turn referring to Airbus 1995-2014 GMF (Panel Exhibit US-369)). 
2392Panel Report, para. 7.658 (referring to United Stat es' first written submission to the Panel, para. 378, 
in turn referring to information deri ved from Airclaims CASE database). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 468  
 
  1076.  After reviewing the above evidence, the Panel found that the United States submitted 
sufficient evidence to establish that  the governments of the above me mber States, when granting the 
LA/MSF, were fully aware that the A380 project would involve selling much if not most of the 
production in export markets.
2393  Similarly, the Panel found that the United States provided sufficient 
evidence showing that the governments of the above  member States expected that export sales would 
result from the development of the A340-500/600 and A330-200.2394   
1077.  The European Communities noted  that the A380 LA/MSF contracts contained no obligation 
on Airbus to make export sales, or any sales at all, and that it was impossible to infer from the evidence that the terms of the LA/MSF measures vari ed in any way as a function of whether a sale is 
destined for the European Commun ities or elsewhere.  The Panel did not find this line of argument 
germane to whether the relevant member State gover nments "anticipated exportation", but rather to 
whether the subsidy granted under those contracts were contingent  on that anticipation.
2395  The 
European Communities also argued that the United St ates had not shown that the number of deliveries 
required to repay fully LA/MSF loans exceeded proj ections of demand in the European Communities 
for the A340-500/600 and the A330-200.  The Panel found that even though the United States had not 
advanced such information, the evidence submitted demonstrates that the member State governments 
"anticipated exportation or export earnings".2396 
1078.  The above review of the Panel's findings show that the Panel examined and relied on various 
pieces of objective evidence, including the LA/MSF c ontracts, market forecasts of Airbus' sales 
contained in publicly-available documents issued by Airbus, governments' appraisals of the financed 
projects, a state aid decision by the European Co mmission, as well as the orders received at the time 
certain contracts were entered into.  The Panel th erefore "gleaned" its findings regarding anticipated 
exportation "from an examination of objective evidence".2397 
1079.  Moreover, in our view, the evid ence examined by the Panel show s that, at the time the seven 
LA/MSF subsidies at issue were granted, the rele vant member State governme nts anticipated that a 
significant amount of export sales by Airbus would occur as a result of the projects financed by these 
                                                      
2393Panel Report, paras. 7.652-7.654.  Before the Panel, the European Communities argued that the 
Airbus GMF 2000 "carrie{d} no probative weight" because it was dated after conclusion of the UK A380 
contract. (European Communities' first written submission to the Panel, para. 618;  see also Panel Report, 
para. 7.654)  Furthermore, the Eur opean Communities contested the accuracy  of the media reports. (See Panel 
Report, para. 7.654)  According to the Panel, however,  the evidence submitted by the United States sufficiently 
supported its findings, even if th e evidence contested by the European  Communities were excluded from 
consideration. ( Ibid.)  The European Union does not contest these findings on appeal. 
2394Panel Report, paras. 7.656-7.659.   
2395Panel Report, para. 7.653. 
2396Panel Report, paras. 7.657-7.660. 
2397Appellate Body Report, Canada – Aircraft , para. 172.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 469  
 
  measures.  According to the GMFs for the y ears 1995 and 1997-2000, which are public documents 
available around the time that the LA/MSF contract s were negotiated, the demand for the A380, 
A340-500/600, and A330-200 in the following 10 to 20 years from European airlines would represent 
no more than 30% of the total demand.  The mark et forecasts were specifically referenced in the 
French and UK Governments' Critical Project Appraisals and the A380 LA/MSF application by Deutsche Airbus.  In addition, the fact that half of the orders for the A340-500/600 and all of the 
orders for the A330-200 received when the subsidies were granted, were export sales, confirms that 
the governments were aware of the prospect that a significant amount of the aircraft developed with 
LA/MSF subsidies would be sold to airlines based outsi de the European Union.  Finally, the fact that 
more than 80% of Airbus' sales in the preceding decade were export sales further supports the view 
that future export sales were  anticipated to occur.  
1080.  On this basis, we consider that the Panel properly found, with regard to "anticipated 
exportation", that at the time that Airbus and the LA/MSF governments concluded the LA/MSF 
contracts for the A380, the A340-500/600, and the A 330-200, the latter were fully aware that Airbus 
was a global company operating in a global market , and that these projects would involve Airbus 
selling much if not most of its production in export markets.
2398  For these reasons, we concur with the 
Panel's conclusion that:  
... at the time each of the {A380, A340-500/600, A330-200} 
LA/MSF contracts was entered into, each of the {relevant} EC member State{} governments "anticipated exportation or export earnings", within the meaning of footnote 4 of the SCM Agreement, 
in the sense that they expected or considered that exportation or 
export earnings would result from the development of the {A380, A340-500/600 and A330-200}.
2399 
2. Whether the Granting of the Seven LA/MSF Subsidies was In Fact Tied to 
Anticipated Exportation  
1081.  In our analysis in section D, we have found  that the Panel equated the standard for de facto  
export contingency with a standard based on the reas ons for granting a subsidy and that, in so doing, 
the Panel erroneously interpreted Ar ticle 3.1(a) and footnote 4 of the SCM Agreement .  Moreover, as 
we have set out above in section C, the test for dete rmining whether the granting of a subsidy is in fact 
tied to anticipated exportation is whether the granting of the subsidy is geared to induce the promotion 
of future export performance by the recipient.  Beca use the Panel's interpretati on of the term "in fact 
tied to" under Article 3.1(a) and footnote 4 of the SCM Agreement  is not consistent with the correct 
                                                      
2398Panel Report, paras. 7.652, 7.656, and 7.659.   
2399Panel Report, paras. 7.654, 7.657, and 7.660. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 470  
 
  interpretation we set out above, we have reversed  the Panel's interpretation that, in order to find that 
the granting of a subsidy is in fact tied to an ticipated exportation, a subsidy must be granted because  
of anticipated export performance.
2400 
1082.  We note that the Panel applied its erroneous inte rpretation of Article 3.1(a) and footnote 4 in 
reaching its final conclusions regarding the United States' claims on the de facto  export-contingent 
subsidies.  Specifically, the Panel found that the evidence advanced by the United States concerning 
the exchange of commitments, together with the additional evidence submitted by the United States to 
corroborate the alleged "tie" between the granting of the subsidies and anticipated exportation, 
demonstrated that the granting of the German, Spanish, and UK A380 LA/MSF contracts "was, in 
fact, concluded at least in part on the condition or because  of the {respective} government's 
anticipation of exportation".2401  At the same time, the Panel f ound that the evidence submitted by the 
United States did not demonstrate that the granting of the French A380, A340-500/600 and A330-200 
contracts and the Spanish A340-500/600 contract was "even in part, on the condition or because  of 
the {respective government's} anticipation of exportation."2402   
1083.  Thus, because the Panel applied an interpretati on that we found to be erroneous in reaching 
these findings, we reverse  the Panel's consequent conclusions, in  paragraph 7.689 of the Panel Report,  
that "the United States has demonstrated that the German, Spanish and UK A380 contracts amount to 
prohibited export subsidies within the meani ng of Article 3.1(a) and footnote 4 of the 
SCM Agreement"2403, and "that the United States has not shown that the granting of the other 
challenged LA/MSF subsidies {under the French A380, A340-500/600 and A330-200 contracts and 
the Spanish A340-500/600 contract} was contingent  in fact upon anticipated export performance, 
within the meaning of the same provisions." 
1084.  We recall that, in its other appeal, the United States requests the Appellate Body to reverse 
the Panel's above conclusion regarding the Fren ch A380, A340-500/600 and A330-200 contracts and 
the Spanish A340-500/600 contract.2404  The United States claims that the Panel, in reaching this 
conclusion, "effectively and erroneously applied a standard, not found in the text of the SCM 
Agreement, that requires  evidence of specific member Stat e 'motivation' to find export 
                                                      
2400See Panel Report, para. 7.648. (original emphasis) 
2401Panel Report, paras. 7.680, 7.681, and 7.683. (original emphasis) 
2402Panel Report, paras. 7.685, 7.686, 7.687, and 7.688. (original emphasis) 
2403Upon reversing this conclusion of the Panel, we find it unnecessary to further address the 
European Union's claims that, in reaching this conclusion, the Panel also erred under Articles 7.2, 11, and 12.7 
of the DSU.  In addition, we find it unnecessary to address the European Union's argument that the Panel erred 
in its application of Article 3.1(a) and footnote 4 of the SCM Agreement  by failing to take into account the 1992 
Agreement. 
2404United States' other appellant's submission, para. 24.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 471  
 
  subsidization."
2405  Because we reverse this conclusion of th e Panel, on the basis that the Panel applied 
an erroneous legal interpretation, it is not necessa ry for us to further address the United States' 
arguments in support of its appeal. 
1085.  The United States also requests that the Appellate  Body complete the analysis and find that 
the granting of the French A380, A340-500/ 600, and A330-200 contracts and the Spanish 
A340-500/600 contract was contingent in fact upon export performance within the meaning of 
Article 3.1(a) and footnote 4 of the SCM Agreement .2406  In the light of the United States' request for 
reversal of the Panel's erroneous in terpretation and application of Artic le 3.1(a) and footnote 4, as well 
as the legal interpretation we have set out in secti on C, we turn now to review whether there are 
"sufficient factual findings by the Panel and/or undisputed facts in the Panel record"2407 that would 
allow us to complete the analysis with respect to  all of the seven LA/MSF measures at issue pursuant 
to the legal interpretation we set out above.  
1086.  We recall that, as stated in section C, the factual equivalent of de jure  conditionality between 
the granting of a subsidy and anticipated exporta tion can be established where the granting of the 
subsidy is geared to induce the promotion of future  export performance by the recipient.  The standard 
for de facto export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement  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 suppl y and demand in the domestic and export markets 
undistorted by the granting of the subsidy.   
1087.  The Panel reviewed various pieces of eviden ce submitted by the United States concerning the 
exchange of commitments between the granting au thorities and Airbus under the LA/MSF contracts, 
including relevant global market forecasts, the repayment schedules under the LA/MSF contracts, and 
the French Government's Critical Project Appraisals.  Specifically, the Panel noted that, in its GMF in 
2000, Airbus forecast a market size of 247 aircraft "with more than 400 seats" in Europe, including 
the A380, the A340-600, and the Boeing 747 and 777-300.2408  Turning to the repayment provisions 
under the LA/MSF contracts, the Panel noted that the Spanish A340-500/600 contract2409 requires 
Airbus to make repayments of the loan through per-aircraft levies, and that the preamble of the 
contract refers to the number of potential sales that Airbus could achieve with respect to the 
                                                      
2405United States' other appellant's submission, para. 12. (original emphasis) 
2406United States' other appellant's submission, para. 34. 
2407See Appellate Body Report, Australia – Salmon , para. 118. 
2408Panel Report, para. 7.661. 
2409We will first examine the Panel's finding rela ting to the repayment terms under the Spanish 
A340-500/600 contract and, subsequently, the Panel's findings relating to the repayment terms under the French, 
German, Spanish, and UK A380 contracts and the French A340-500/600 and A330-200 contracts. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 472  
 
  A340-500/600.
2410  As the United States noted before th e Panel, however, all of the numbers on 
aircraft deliveries in the repa yment schedule were redacted.2411  In the light of the missing information 
on repayment terms, the United States requested the Panel to either use its authority under Article 13 
of the DSU to request the Eur opean Communities and Spain to pr ovide the necessary information or 
else draw an adverse inference.2412  The Panel did not state whether it requested the information or 
drew such an inference.2413 
1088.  With regard to the French, German, Spanish,  and UK LA/MSF contracts for the A380, the 
Panel found that, under the repayment provisions, Air bus was required to repay the loans over a level 
of sales that exceeded the European  sales projected for aircraft with more than 400 seats, and that, 
consequently, the numbers of sales contemplated to  repay the loans under these contracts could not be 
achieved without substantial exports.2414  Similarly, with regard to LA/MSF for the A340-500/600 and 
the A330-200, the Panel found that the repaymen t provisions under the French LA/MSF contracts 
require Airbus to make repayments of the loan s through per-aircraft levies on a level which, as 
                                                      
2410Panel Report, para. 7.661, at pp. 510-511 (referring to Spanish A340-500/600 contract (Panel 
Exhibits US-37 (BCI)).  More specifically , the preamble states that [***].  This  paragraph also states that [***]. 
(See Spanish A340-500/600 contract (Panel Exhibit US-37 (BCI), pp. 1 and 2) 
2411See Panel Report, para. 7.661, pp. 510-511.   
2412Panel Report, footnote 3180 to para. 7.661.  Specifically, the United States requested the Panel to  
draw the adverse inference that Airbus must repay the loan over [***] sales.   
2413On appeal, the United States submits that, "{i}n light of the European Union's refusal to provide the 
actual information from the repayment schedule, a reason able inference that may be drawn is that Airbus 
repayment commitment is tied to {[***]} sales." (United States' additional memorandum following the first 
session of the oral hearing, para. 70)  The United States further submits that it discusses evidence of contingency 
in the HSBI appendix attached to that memorandum. ( Ibid.)  In the HSBI appendix, the United States describes 
the evidence the Panel relied on in finding that the re payment provisions under th e French, German, Spanish, 
and UK A380 contracts and the French A340-500/600 and A330-200 contracts specify a level of sales exceeding domestic demand.  No such information regard ing the Spanish A340-500/600 contract is contained in 
the HSBI appendix. 
2414See Panel Report, para. 7.678.  For example, with respect to LA/MSF for the A380, the Panel noted 
the United States' submission that both the French and German contracts require Airbus to make repayments 
through per-aircraft levies on the [***] sales. (See Panel Report, para. 7.661)  See also Memorandum of 
understanding between the French State and Airbus France relating to the Airbus A380 programme  (Panel 
Exhibit US-365 (BCI)) and Loan Contract between the Federal Republic of Germany and Airbus Deutschland 
GmbH on the grant of an interest-bearing, conditionally repayable loan for the partial financing of the 
developments costs for the Airbus A380  (Panel Exhibit US-72 (BCI)).  The Pa nel also noted that, as the evidence 
submitted by the United States showed, the UK contract  requires Airbus to make repayments through per-
aircraft levies on the [***]. (See Panel Report, para. 7.661)  See also Agreement (of 12 March 2000) between 
UK Secretary of State for Trade and Industry, BAE Systems (Operations ) Ltd, and British Aerospace PLC, 
concerning the development and financing of the Airbus A3XX  (Panel Exhibit US-79 (BCI)).  Similarly, the 
Spanish contract requires Airbus to make repayments through per-aircraft levies on the [***]. (See Panel 
Report, para. 7.661)  See also Agreement (of 27 December 2001) between the Ministry of Science and 
Technology (MCYT) and the company EADS Airbus SL, con cerning the financing of the participation of said 
company in the development of the Airb us A-380 aircraft family programme  (Panel Exhibit US-73 (BCI)).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 473  
 
  evidenced by the French Governme nt's Critical Project Appraisals, cannot be achieved without export 
sales.
2415   
1089.  The evidence reviewed by the Panel shows that , with regard to the Spanish A340-500/600 
contract, even though Airbus undertook the obligation to repay the loan on a per-sale basis, the specific number of sales needed to repay fully the lo an under this contract was redacted and thus not 
before the Panel.  Moreover, the Panel did not stat e in its Report whether it used its authority under 
Article 13 of the DSU to seek information or whet her it drew the adverse inference requested by the 
United States.  Therefore, there is insufficient info rmation on the record for us to decide whether the 
LA/MSF under the Spanish A340-500/600 contract was granted so as to provide an incentive to the 
Airbus to export in a way that is not simply refl ective of the conditions of supply and demand in the 
domestic and export markets undistorted by the granting of the subsidy. 
1090.  With respect to the French, German, Spanis h, and UK A380 contracts and the French 
A340-500/600 and A330-200 contracts, the evidence examined by the Panel, including the market forecasts and the repayment schedules under these LA/MSF contracts, indicates the following:  (i) the 
financing under the LA/MSF contracts is provided in  exchange for the condition that it be repaid;  
(ii) pursuant to the repayment terms under the contra cts, Airbus undertook the obligation to repay the 
loans, on a per-sale basis, over a specified number of  sales of the subsidized aircraft;  and (iii) the 
number of sales contemplated under the repayment provisions of the contracts involves a significant 
amount of export sales.  The Panel concluded that "it is clear from various pie ces of information that 
achieving the level of sales needed to fully re pay each loan would require Airbus to make a 
substantial number of exports."
2416  On this basis, as well as the re levant market forecasts, the Panel 
found that "the EC member States, fully expecting to be repaid, must have held a high degree of 
certainty that the provision of LA/MSF would result in Airbus making those export sales."2417 
1091.  The Panel's above findings thus establish th at, at the time the LA/MSF subsidies were 
granted, the relevant member State governments an ticipated a substantial number of export sales by 
Airbus in order to repay the LA/MSF subsidies granted under the French, German, Spanish, and UK 
A380 contracts and the French A340-500/600 and A330-200 contracts.  These findings merely 
                                                      
2415The Panel found that the Fren ch LA/MSF contracts for the A3 40-500/600 and the A330-200 
required repayment over, respectively, the [***] sale s and the first [***] sales.  Moreover, the French 
Government's project appraisals for both types of aircraft make clear that [***]. (Panel Report, para. 7.661)  See 
also French A340-500/600 contract (Pan el Exhibit US-36 (BCI)); French A330 -200 contract (Panel Exhibit US-
78 (BCI));  United States' first written submission to the Panel (HSBI), paras. 50-53 (r eferring to Panel Exhibit 
DS316-EC-HSBI-0001143), para. 384 (referring to French  A330-200 contract (Panel Exhibit US-78 (BCI)), and 
paras. 57-60;  and United States' oral statement at the second Panel meeting (BCI/HSBI), paras. 2-7)   
2416Panel Report, para. 7.678. 
2417Panel Report, para. 7.678. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 474  
 
  establish "anticipated exportation" within the meaning of footnote 4 of the SCM Agreement .  In order 
to demonstrate in addition that the granting of the subsidies under the LA/MSF contracts in question 
is "in fact tied", within the meaning of that footnote, to such anticipated exportation, it must also be 
shown that the granting of the LA/MSF subsidies is geared to induce the recipient to export in a way 
that is not simply reflective of the conditions  of supply and demand in  the domestic and export 
markets undistorted by the granting of these subsidies.   Yet the Panel's findings do not shed light on 
the question as to whether the fact that Airbus w as anticipated to make a significant number of export 
sales under the LA/MSF contracts is not simply reflective of conditions of supply and demand 
undistorted by the granting of the subsidies.   
1092.  In this respect, we recall that, in Airbus' GMFs  reviewed by the Panel, the market forecasts 
for aircraft deliveries were based on an estimate  of fleet development of airlines around the world
2418, 
or of the regional distribution of global aircraft demand.2419  For example, the GMFs issued in 1999 
and 2000 predict, respectively, that demand by European airlines would represent 23% of total 
demand by airlines worldwide by 20182420, and that, by 2019, demand by European airlines for 
"aircraft with more than 400 seats" would be 247 aircraft, or 20% of the worldwide demand.2421  Such 
evidence, therefore, relates to only the existing c ondition of worldwide demand by airlines that was 
forecast at a level of 1,235 "aircraft with more than 400 seats".  The fact that demand by non-European airlines was projected at 988 aircraft and demand by European airlines at 247 aircraft 
simply shows that Airbus is an export-oriented company.  However, pursuant to the second sentence 
of footnote 4, the fact that a company exports, alone , is not a sufficient basis for finding de facto  
export contingency.  Moreover, the evidence does not clearly indicate the proportion of export and domestic sales Airbus would be e xpected to make under the LA/MSF contracts in question.  Thus, the 
evidence does not give an indication as to the proportion of its production that Airbus would be expected to sell in the domestic and export ma rkets undistorted by the granting of the LA/MSF 
subsidies at issue.  The evidence therefore does not  help to show whether the LA/MSF subsidies were 
granted so as to give Airbus an incentive to skew its fu ture sales in favour of export sales.  Thus, the 
evidence concerning global market forecasts does not  provide a basis for determining whether the 
LA/MSF subsidies provide Airbus with an incentive to  export in a way that is not reflective of the 
conditions of supply and demand in the domestic and export markets undistorted by the granting of 
these subsidies. 
                                                     
 
2418See Airbus 1997 GMF (Panel Exhibit US-366), p. 19;  and Airbus 1998 GMF (Panel Exhibit 
US-367), p. 36.  
2419See Airbus 2000 GMF (Panel Exhibit US-358), pp. 27-37;  Airbus 1999 GMF (Panel Exhibit 
US-356), pp. 28-30 and 41-42;  and Airbus 1995 GMF (Panel Exhibit US-369), p. 18. 
2420Panel Report, para. 7.651.  See also Airbus 1999 GMF (Panel Exhibit US-356), p. 41. 
2421Panel Report, paras. 7.651 and 7.661.  See also Airbus 2000 GMF (Panel Exhibit US-358), p. 37.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 475  
 
  1093.  Furthermore, the Panel relied on the repaym ent terms of the LA/MSF contracts—which 
require Airbus to repay the loans on a per-sale ba sis over a specified number of sales that cannot be 
fulfilled without exports—in reaching its finding that Airbus must export a significant number of its 
future production in order to repay the loans.  Ye t the evidence examined by the Panel does not make 
it clear whether, given the existing supply and dema nd conditions in the aircraft sector, Airbus would 
not also  be expected to make a significant number of  export sales, even in the absence of such 
repayment terms.  The fact that a significant portio n of the demand lies outside Europe suggests that a 
large part of the sales that Airbus has to make in  order to repay the loans would necessarily be export 
sales.  Thus, the evidence examined  by the Panel suggests that the fact that Airbus must make a 
substantial number of export sales in order to repay the LA/MSF loans may be due to the global 
dimension of the LCA market and the global nature  of demand for LCA; and it is not necessarily due 
to, or reflective of, the way in which LA/MSF subsidies are designed and structured.   
1094.  The United States points out that, if Airbus had been required to repay over a lower level of 
deliveries, for example, lower than the projected 247 aircraft with more than 400 seats demanded by 
European airlines, export sales might not be necessary  in order to fully repay the loan.
2422  Yet, in our 
view, it is likely that, among the aircraft sales projected for the European market, Boeing would 
supply a portion of that demand.2423  Moreover, as noted above, the GMF forecast of 1,235 sales 
globally and 247 sales in "Europe" is reflective of cond itions of supply and demand in an industry that 
is highly export-oriented.  Consequently, even under repayment terms that require Airbus to repay the 
LA/MSF over a considerably lower number of sales  than 247 (because part of these sales will go to 
Boeing), Airbus would be expected to export a large part of its future production and would 
necessarily remain an export-oriented company.  It  is conceivable that existing conditions of supply 
and demand would lead to a higher proportion of do mestic sales when production decreases or to a 
higher proportion of export sales when production in creases.  Yet nothing in the Panel's findings or 
undisputed facts on record show the level at which Airbus would be expected to sell in the domestic 
and export markets under a repayment term that requi res it to repay the loans over a smaller number 
of sales.  Thus, the Panel's factual findings and r ecord evidence do not indicate to us whether the 
granting of LA/MSF subsidies is designed so as to give  Airbus an incentive to skew its future sales in 
favour of export sales, thereby inducing the prom otion of Airbus' future export performance.   
                                                      
2422See United States' other appellant's submission, para. 31. 
2423Indeed, we recall that Airbus GMF 2000 defines "aircraft with more than 400 seats" as including the 
A380, the A340-600, and the Boeing 747 and 777-300. (See Panel Report, para. 7.661) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 476  
 
  1095.  Furthermore, we recall that the Panel examin ed certain additional evidence submitted by the 
United States to corroborate the alleged tie betw een the granting of the subsidies and anticipated 
exportation.  Specifically, with respect to the German
2424 and Spanish2425 A380 contracts, the 
additional evidence examined by th e Panel included preambles and other relevant provisions of the 
contracts, and a statement in the LA/MSF applica tion by Deutsche Airbus.  With regard to the UK 
A380 contract, the Panel reviewed a statement by British Prime Minister Tony Blair and a press 
release by the UK Department of Trade and Industry2426, as well as the representation and warranty 
made by BAE Systems in Article 3 of the contract.2427  To the Panel, the above evidence, together 
with the evidence concerning the exchange of commi tments, demonstrated that the granting of the 
LA/MSF subsidies under the German, Spanish, and UK A380 contracts was at least in part "on the condition  or because  of" the governments' anticipation of exportation.
2428   
1096.  Concerning the Spanish A340-500/600 contract , the additional evidence examined by the 
Panel included preambles and other relevant provisions of the contract.2429  As for the French A380 
contract2430, the Panel reviewed other relevant provisions  and a statement reportedly made by French 
Prime Minister Lionel Jospin.2431  Finally, regarding the French A340-500/600 and A330-200 
contracts, the Panel reviewed other relevant provisions of the contracts referred to by the 
                                                      
2424With respect to the German A380 contract, the Panel began by noting that the preamble to the 
contract shows that the German Government was [***].  The Panel further noted that section 2.5 of the A380 contract obligates Airbus Deutschland [***]. In addition, the Panel found that section 12 of the LA/MSF 
contract provides that the German Government would be entitled to [***], and that [***].  Another provision 
referred to by the Panel was section 12 of the German A 380 contract, which states th at the German Government 
may [***] (Panel Report, para. 7.680 (quoting Panel Exhibit US-72 (BCI), supra , footnote 2414 (emphasis 
added by the Panel)) 
2425With regard to the Spanish A380 contract, the Panel noted two paragraphs from the preamble of the 
contract.  Paragraph 6 of the preamble states that the Spanish Government's support for the A380 project is 
[***].  Paragraph 7 states that the [***]. (Panel Report, para. 7.681 (quoting Panel Exhibit US-73 (BCI), supra , 
footnote 2414)) 
2426See Panel Report, para. 7.682.  Specifically, Prime Mi nister Blair stated, at the public unveiling of 
the A380, that "{t}he export gains will run into the billions of pounds". ( Ibid. (referring to Panel Exhibit 
US-361, supra , footnote 352))  The press release by the UK De partment of Trade and Industry stated that 
"{w}ithin 25 years Airbus has grown to take 55% of the civil aircraft production market and contributes 
GBP 1 billion to the UK's trade balance". ( Ibid. (referring to Panel Exhibit US-360, supra , footnote 354)   
2427Article 3 states that [***]. (Panel Report, para. 7.683 (quoting Panel Exhibit US-79 (BCI), supra , 
footnote 2414)) 
2428Panel Report, paras. 7.680, 7.681, and 7.683. (original emphasis) 
2429For the relevant content of the preamble, see supra , footnote 2410.  See also Panel Report, 
para. 7.687.  The Panel further found that Article 1 of the contract repeats Airbus' obligation [***]. ( Ibid.) 
2430The Panel found that the relevant provisions in the French A380 contract [***], require Airbus to 
[***], [***], and give the government the right to [***] if Airbus breaches its obligations. (See Panel Report, 
para. 7.684) 
2431See Panel Report, para. 7.685.  According to th e statement, "Jospin and his government and its 
European partners had made a commitment to build a strong European aerospace industry". ( Ibid. (referring to 
"Jospin pledges to aid Airbus in fight against Boeing", Reuters , 8 March 2000 (Panel Exhibit US-1))  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 477  
 
  United States.
2432  To the Panel, the additional evidence si mply repeated the repayment obligations, 
and did not show the governments' "jus tification" for granting the subsidies.2433   
1097.  In sum, the Panel's findings on the basis of th e additional evidence showed the reasons for the 
granting of the subsidies under the German, Spanis h, and UK A380 contracts.  However, as noted 
above, the standard for finding that the granting of a s ubsidy is in fact tied to anticipated exportation is 
not met simply by showing that anticipated exportatio n is the reason for granting the subsidy.  As we 
have found above, the reason for granting the subsidy is  not the same thing as whether the granting of 
the subsidy is geared to induce the promotion of  future export performance by the recipient.   
1098.  Therefore, all of the above factual findings, taken together, still leave the following question 
unanswered:  At what level would Airbus be antic ipated to sell in the domestic and export markets 
undistorted by the granting of the subsidies under the LA/MSF contracts in question?  Among the 
evidence examined by the Panel, the only piece th at shows market conditions undistorted by the 
granting of the subsidies under the LA/MSF contracts at issue relates to the demand side, namely the projected demand for LCA by airlines worldwide.  Such evidence gives no indications as to whether 
or how LA/MSF subsidies give an incentive to Air bus to skew its future sales towards exports.  
Although the evidence concerning repayment terms and relevant market forecasts gives some 
indication of the extent to which Airbus may be expected to export
2434, it does not show the extent to 
which Airbus would be expected to export in the absence of the granting of these LA/MSF subsidies.  
Without such evidence, it is impossible to determ ine whether the LA/MSF subsidies were granted so 
as to induce Airbus to export a higher proportion of  its production than it would otherwise, thereby 
giving Airbus an incentive to skew its future sal es in favour of export sales.  The Panel's factual 
findings and undisputed facts on the record, therefore, do not provide a sufficient basis for determining whether the LA/MSF subsidies under these contracts were 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 undist orted by the granting of these subsidies.   
1099.  We recall our finding that, where such evidence ex ists, the assessment of whether the granting 
of a subsidy provides such an incentive could be made on the basis of a comparison between, on the 
one hand, the ratio of anticipated export and domestic sales of the subs idized product that would come 
about in consequence of the granting of the subsidy at issue, and, on the other hand, the situation in 
                                                     
 
2432The Panel found that the relevant provisions in the French A340-500/600 and A330-200 contracts 
[***], [***], and give the government the right to [***] if Airbus breaches its obligations. (See Panel Report, 
paras. 7.686 and 7.688) 
2433Panel Report, para. 7.687. (emphasis omitted) 
2434With the exception of the Spanish A340-500/600 contract. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 478  
 
  the absence of the subsidy.  The situation in the absence of the subsidy may be understood on the 
basis of historical sales of the same product by the recipient in the domestic and export markets 
untainted by the subsidy.  In this dispute, however, the LA/MSF subsidies under the contracts at issue 
were granted specifically for launching certain typ es of LCA.  Although each model of the aircraft 
built on Airbus' experience with a previous model
2435, we note that each subsidized LCA model was 
nevertheless new, distinct and developed under a diff erent project.  Moreover, even if historical data 
regarding previous models of ai rcraft were relevant, we recall that LA/MSF subsidies have been 
granted to Airbus since the development of th e first Airbus LCA model, the A300, in 1969.2436  
Therefore, no historical data of the same LCA mode l, in the absence of the granting of these particular 
types of LA/MSF subsidies, are available that could provide a basis for comparison. 
1100.  We also recall our finding that , in the absence of historical data, the comparison could be 
made with the performance that a profit-maximizing firm would hypothetically be expected to achieve 
in the export and domestic markets in the absence of the granting of the subsidy in question.  Where 
the evidence shows, all other things being equal, th at the granting of the s ubsidy provides an incentive 
to skew anticipated sales toward s exports, in comparison with the hypothetical performance of a 
profit-maximizing firm in the absence of the granting of the subsidy, this would be an indication that 
the granting of the subsidy is in fact tied to  anticipated exportation within the meaning of 
Article 3.1(a) and footnote 4 of the SCM Agreement .   
1101.  However, there is not a sufficient evidentiary  basis on the record, nor are there relevant 
factual findings by the Panel, that would enab le us to conduct an examination regarding the 
hypothetical performance of a profit-maximizing firm in  the absence of the granting of the subsidy.  
Hence, in the absence of sufficient factual findings  by the Panel and undisputed facts on the record, 
we are not in a position to apply the test enunciate d in section C above and complete the analysis.  
Under such circumstances, it is not possible fo r us to determine whether the LA/MSF subsidies 
provide an incentive for Airbus to export in a way that is not simply reflective of the conditions of 
supply and demand in the domestic and export markets undistorted by the granting of the LA/MSF 
subsidies under the contracts at issue. 
                                                      
2435This does not apply to the first model developed by Airbus, the A300. 
2436See Panel Report, paras. 7.367-7.375.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 479  
 
  F. Conclusion 
1102.  We find that the factual equivalent of de jure  conditionality between the granting of a subsidy 
and anticipated exportation can be established where th e granting of the subsidy is geared to induce 
the promotion of future export performance  of the recipient.  The standard for de facto export 
contingency under Article 3.1(a) and footnote 4 of the SCM Agreement  would be met when the 
subsidy is granted so as to provide an incentive to the recipient to export in a way that is not simply 
reflective of the conditions of supply and demand in the domestic and export markets undistorted by 
the granting of the subsidy. 
1103.  We further find that the Panel equated the standard for de facto  export contingency with a 
standard based on the reasons for granting a subs idy and that, in so doing, the Panel erroneously 
interpreted Article 3.1(a) and footnote 4 of the SCM Agreement .  Because the Panel applied this 
erroneous standard in reaching its fi nal conclusions, we therefore also reverse  the Panel's conclusion, 
in paragraph 7.689 of its Report, that "the Unite d States has demonstrated that the German, Spanish 
and UK A380 contracts amount to prohibited export s ubsidies within the meaning of Article 3.1(a) 
and footnote 4 of the SCM Agreement", and that "t he United States has not shown that the granting of 
the … LA/MSF subsidies" by France for the A380, A340-500/600, and A330-200, and by Spain for the A340-500/600 "was contingent in fact upon antic ipated export performance" , within the meaning 
of Article 3.1(a) and footnote 4 of the SCM Agreement .   
1104.  However, the Panel's factual findings and undi sputed facts on the record do not provide a 
sufficient basis for us to determine whether the LA/MSF subsidies under the contracts at issue are 
granted so as to provide an incentive to Airbus to export in a way that is not simply reflective of the 
conditions of supply and demand in the domestic and export markets undistorted by the granting of 
these subsidies.  We are thus not able to comple te the analysis and determine whether the LA/MSF 
subsidies under the contracts at issue are geared to  induce the promotion of future export performance 
by Airbus.  Therefore, we are unable to make a finding as to whether the granting of the LA/MSF subsidies under these contracts is in fact tied to  anticipated exportation within the meaning of 
Article 3.1(a) and footnote 4 of the SCM Agreement .  Consequently, the Panel's recommendation 
under Article 4.7 of the SCM Agreement , that "the subsidizing Member granting each subsidy found 
to be prohibited withdraw it ... with in 90 days", must be reversed.
2437 
                                                      
2437See Panel Report, para. 8.6.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 480  
 
  IX. Serious Prejudice 
A. General Approach to the Assessment of Serious Prejudice 
1105.  We now turn to the European Union's appeal  concerning the Panel's assessment of serious 
prejudice.  We begin with some briefs rema rks about the Panel's general approach.   
1106.  The Panel in this dispute chose to analyze the United States' claims, that the effect of the 
challenged subsidies was displacement and lost sales,  on the basis of a two-step approach that it 
described as follows: 
{I}n evaluating the United States' claims, we will first consider 
whether the particular phenomena id entified in Article 6.3(a), (b) 
and (c) of the SCM Agreement can be observed as a matter of 
fact.
2438 
{I}n undertaking this first step of the analysis, we will not be 
addressing the question whether any particular phenomenon that can be observed is actually caused by the subsidies we have found were 
provided to Airbus.  This question of causation will be examined in 
the final section of our serious prejudice findings, where we will 
review the parties' theories of causation and related arguments and 
evidence.
2439 
1107.  The Appellate Body has found that panels may undertake an analysis of serious prejudice 
under either a unitary or two-step approach.2440  Under a unitary approach, the analysis of the 
particular market phenomena identified in the subparagraphs of Article 6.3 of the SCM Agreement  is 
not conducted separately from the analysis of whet her there is a causal relationship between those 
market phenomena and the challenged subsidies.  By contrast, under a two-step approach like the one 
adopted by the Panel, the analysis first seeks to  identify the market phenomena and then, as a second 
step, examines whether there is a causal relationship.   The Appellate Body has indicated a preference 
for the unitary approach, observing that such approach "has a sound conceptual foundation"2441 and 
                                                      
2438Panel Report, para. 7.1731. 
2439Panel Report, para. 7.1732. 
2440See Appellate Body Report, US – Upland Cotton , para. 431;  and Appellate Body Report, US – 
Upland Cotton (Article 21.5 – Brazil) , para. 354. 
2441Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 354.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 481  
 
  explaining that it may be difficult to ascertain the existence of some of the market phenomena in 
Article 6.3 without considering the effect of the subsidy at issue.
2442  
1108.  In this case, the Panel justified its choice of a two-step approach by stating that "the 
arguments and evidence advanced by the United St ates (including in respect of price suppression) 
renders a two-step approach entirely appropriate  to assessing its claims under Articles 6.3(a), (b) 
and (c) in the present controversy."2443  There is no further explanation by the Panel as to why such a 
two-step approach was "entirely appropriate".2444  The Panel acknowledged the reservations 
concerning a two-step approach expressed by the Appellate Body in US – Upland Cotton , but the 
Panel did not indicate why it considered th at those reservations were not relevant.2445 
1109.  Our view remains that a unitary approach that uses a counterfactual will generally be the more 
appropriate approach to undertaking the asse ssment required under Article 6.3 of the SCM Agreement .  
As we further explain in section C below, it is di fficult to understand the market phenomena described 
in the various subparagraphs of Article 6.3 in isolation from the challenge d subsidies.  Rather, 
consideration of the effects of the challenged subsidies is intrinsic to the identification of those market 
phenomena.  Any attempt to identify one of the market phenomena in Article 6.3 without considering 
the subsidies at issue can only be preliminary in nature since Article 6.3 requires that the market 
phenomenon be the effect of  the challenged subsidy.2446  This also means that a two-step approach 
simply defers the core of the analysis to the sec ond step.  In other cases, the problem might be the 
opposite.  By artificially leaving aside the question of  whether the market phenomenon is the effect of 
the subsidy, one could overlook market phenomena that are in fact occurring.  
1110.  The use of a counterfactual analysis provides an adjudicator with a useful analytical 
framework to isolate and properly identify the effects of the challenged subsidi es.  In general terms, 
the counterfactual analysis entails comparing the actua l market situation that is before the adjudicator 
with the market situation that would have existed in the absence of the challenged subsidies.  This 
                                                      
2442The Appellate Body made that statement in a case involving a claim of price suppression under 
Article 6.3(c) of the SCM Agreement . The Appellate Body also suggested that the same difficulty could apply to 
claims of displacement or impedance under Articles 6.3(a) and (b) of the SCM Agreement : 
Similarly, it might be difficult to ascertain whether imports or exports are 
"displace{d}" or "impede{d}" under paragr aphs (a) or (b) of Article 6.3 of 
the SCM Agreement without considering the effect of the challenged 
subsidy. 
(Appellate Body Report, US – Upland Cotton , footnote 521 to para. 433) 
2443Panel Report, para. 7.1731. 
2444Although the Panel suggested that this would "be explained in the sections that follow" (see Panel 
Report, para. 7.1731), we have been unable to locate this explanation in the Panel Report.    
2445Panel Report, para. 7.1731. 
2446The Panel recognized the preliminary nature of its findings of the "existence" of displacement and 
lost sales. (See Panel Report, paras. 7.1732, 7.1758, and 7.1792) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 482  
 
  requires the adjudicator to undertake a modelling exer cise as to what the market would look like in the 
absence of the subsidies.  Such an exercise is a necessary part of the counterfactual approach.  As with 
other factual assessments, panels clearly have a ma rgin of discretion in conducting the counterfactual 
analysis.
2447 
1111.  Having said that, we recall that it is permissi ble for a panel to undertake the assessment of 
serious prejudice on the basis of a two-step appro ach.  Neither participant has challenged on appeal 
the Panel's choice of a two-step approach.  Thus, we will proceed with our review of the Panel's 
analysis on the basis of the two-step approach a dopted by the Panel and accepted by the participants. 
B. The Subsidized Product and Product Market 
1112.  We turn next to address the European Union's app eal as it relates to the Panel's analysis of the 
United States' claims of displacement u nder Articles 6.3(a) and 6.3(b) of the SCM Agreement .  In 
particular, we examine whether the Panel erred in  its interpretation and application of the term 
"market" in Articles 6.3(a) and 6.3(b), and whether the Panel acted inconsistently with Article 11 of 
the DSU when assessing "displacement" on the basi s of a single subsidized product and a single 
product market for LCA.   
1. Whether the Panel Erred in Assessing Displacement on the Basis of a Single 
Subsidized Product and a Single Product Market  
1113.  On appeal, the European Union argues that the Panel erred in its interpretation of 
Articles 6.3(a) and 6.3(b) of the SCM Agreement , and in its application of this interpretation to the 
facts, by "finding that there is only a single product market in which all Boeing and Airbus LCA 
compete."2448  According to the European Union, the "c oncepts of 'markets' and 'competition'—as well 
as 'subsidized' and 'like' products—are inseparable concepts that play a crucial role in assessing 
serious prejudice under Article 6.3 of the SCM  Agreement ."2449  Referring to the report of the 
Appellate Body in US – Upland  Cotton , the European Union maintains th at "two products are in the 
same market if they are in 'actual or potential competition' and there exists 'homogeneity of the 
conditions of competition' in a market."2450  According to the European Union, a panel must therefore 
"objectively assess whether the product market(s) asser ted by the complaining Member exist and can 
serve as a proper basis for analysing the complaining Member's adverse effects claims."2451  T h i s  
                                                      
2447See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 357. 
2448European Union's appellant's submission, para. 340. 
2449European Union's appellant's submission, para. 341. 
2450European Union's appellant's submission, para. 343 (referring to Appellate Body Report, US – 
Upland  Cotton , para. 408). 
2451European Union's appellant's submission, para. 307.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 483  
 
  analysis "must start with an assessment of the co mplaining Member's definition of the 'subsidized 
product'."
2452  Based on the nature and extent of actual or potential competition in the LCA market, 
the European Communities argued before the Panel th at physically distinct Airbus LCA families 
should not "be combined into a single allegedly subsidized product"2453 and that, instead, the Panel 
should find that there are, in fact, four separate allegedly subsidized Airbus LCA families and that, 
with respect to three of these Ai rbus LCA families, there are corre sponding "like" families of Boeing 
LCA.2454  According to the European Union, by fa iling to assess independently and objectively the 
scope of the product definition proposed by the United States, the Panel acted inconsistently with its 
obligations under Article 11 of the DSU.2455   
1114.  The United States counters that the European Un ion's attempt to use the notion of "product 
markets" as a means of "restructuring the displaceme nt analysis" has no basis in, and is contradicted 
by, the SCM Agreement  and the facts of this case.2456  For the United States, "{i}t is the definition of 
the subsidized product and the like product that se ts the product framework for the displacement 
analysis, while the references to 'market' in Articles 6.3(a) and (b) define the geographic scope of that 
analysis."2457  The United States submits that the Panel' s decision, after evaluating all the facts 
presented, to assess the United States' claims of di splacement on the basis of a single "subsidized 
product" rather than five separat e "products" was "a reasonable one".2458  The United States considers 
that, in declining to "reformulate" the United States' claim in the manner requested by the 
European Communities, the Panel acted consistently  with its obligations under Article 11 of the 
DSU.2459  The United States adds that, "even if th e SCM Agreement called for a separate 'product 
market' analysis under Article{} 6.3(a)-(d), there is  evidence of {a} 'product market' in which all 
Airbus LCA compete against all Boeing LC A under homogenous conditions of competition 
irrespective of the European {Communities'} propo sed 'product markets,' and there is uncontested 
evidence of LCA competition outside the {Europ ean Communities'} proposed 'product markets'."2460   
1115.  This is the first time that the Appellate Body examines claims of displacement under 
subparagraphs (a) or (b) of Article 6.3 of the SCM  Agreement .  We begin by examining whether the 
Panel erred in its interpretation of the requirements set out in those provisions.  Thereafter, we review 
                                                      
2452European Union's appellant's submission, para. 307. 
2453European Communities' first written submission to the Panel, para. 1565. 
2454See Panel Report, paras. 7.1634 and 7.1638.   
2455European Union's appellant's submission, paras. 301 and 302.  
2456United States' appellee's submission, para. 540.  
2457United States' appellee's submission, para. 541. 
2458United States' appellee's submission, para. 547.  
2459See United States' appellee's submission, para. 520.  
2460United States' appellee's submission, para. 554 (referring to Panel Report, paras. 7.1725 
and 7.1668). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 484  
 
  the scope of a panel's adjudicatory powers and du ties in assessing claims of serious prejudice under 
Articles 5 and 6 of the SCM Agreement  that flow from the proper interpretation of those provisions.  
This will assist us in ascertaining whether the Pane l complied with its obligations under Article 11 of 
the DSU.  Before embarking on our analysis, we wi sh to emphasize that our discussion is limited to 
the United States' claims of di splacement under Part III of the SCM Agreement , and that the Panel's 
findings on alleged injury to the United States ' industry producing LCA within the meaning of 
Article 5(a) and Part V of the SCM Agreement are not before us in this appeal.
2461 
1116.  Turning first to the text of the SCM Agreement , we observe that the chapeau of Article 6.3 
provides that "{s}erious prejudice in the sense of paragraph (c) of Article 5 may arise in any case where one or several of the following apply".  Ar ticle 6.3 comprises four subparagraphs describing 
certain adverse effects.   
1117.  Subparagraph (a) of Article 6.3 refers to the situ ation where "the effect of the subsidy is to 
displace or impede the imports of a like product of a nother Member into the ma rket of the subsidizing 
Member".  Subparagraph (b) refers to the situation wh ere "the effect of the subsidy is to displace or 
impede the exports of a like product of anot her Member from a third country market".  
Subparagraphs (a) and (b) each concerns the effect of  a subsidy in a particular "market".  They refer 
respectively to:  "the market of the subsidizing Me mber";  and "a third country market".  A plain 
reading of Articles 6.3(a) and 6.3(b) therefore rev eals that an analysis of displacement or impedance 
under those provisions is limited to the territory of the "subsidizing Member" or the territory of any 
third country at issue.  The manner in which the ge ographic dimension of a mark et is determined will 
depend on a number of factors:  in some cases, the geographic market may extend to cover the entire country concerned;  in others, an analysis of th e conditions of competition for sales of the product in 
question may provide an appropriate foundation fo r a finding that a geographic market exists within  
that area, for example, a region.  There may al so be cases where the geographic dimension of a 
particular market exceeds national boundaries or  could be the world market, even though 
Articles 6.3(a) and 6.3(b) would focus the analysis of displacement and impedance on the territory of 
the subsidizing Member or third countries involved.
2462   
                                                      
2461Panel Report, paras. 7.2029 ff.  We emphasize that, in assessing the existence of injury to the 
domestic industry under Article 5(a) of the SCM Agreement , the focus is on the impact of subsidized imports on 
the domestic industry of another Memb er, rather than on the effects in a "market".  As we see it, this has 
implications on how to delineate the proper scope of th e subsidized product when assessing such a claim, in 
particular, in cases where the domestic industry consists of only one manufacturer that produces a range of 
product types.   
2462We note that, in terms of the geographic dimension of markets under Article 6.3(c) of the 
SCM Agreement , it may be appropriate to examine the "world market" and the conditions of competition as they 
exist in that market.  By contrast, Article 6.3(d) re quires an assessment of sh ares on the world market.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 485  
 
  1118.  The word "market" in Article 6.3 must be read  together with the concept of "like product".  
Articles 6.3(a) and 6.3(b) both refer to imports an d exports of a "like product".  This reference 
indicates the need to identify a "subsidized product" that is "like" the product the importation or 
exportation of which is being displaced or impeded in a particular market.
2463  The term "like product" 
is defined in footnote 46 of the SCM Agreement  to mean "a product which is identical, i.e. alike in all 
respects to the product under consideration, or in the absence of such a product, another product 
which, although not alike in all respects, has char acteristics closely resembling those of the product 
under consideration."  This suggests that identity or close resemblance of charac teristics are one factor 
to consider in assessing whether pr oducts are in the same market.2464 
1119.  As we see it, displacement is a situation where imports or exports of a like product are 
replaced by the sales of the subsidized product.  The mechanism by which displacement operates is, in 
our view, essentially an economic mechanism, the existe nce of which is to be assessed by reference to 
events that occur in the relevant product market.  We  construe the concept of displacement as relating 
to, and arising out of, competitive enga gement between products in a market.2465  Aggressive pricing 
of certain products may, for example, lead to disp lacement of exports or imports in a particular 
market.  This, however, can only be the case if t hose products compete in the same market.  An 
examination of the competitive relationship between pr oducts is therefore require d so as to determine 
whether such products form part of the same market .  We conclude therefore that a "market", within 
the meaning of Articles 6.3(a) and 6.3(b) of the SCM Agreement , is a set of products in a particular 
geographical area that are in actual or potential co mpetition with each other.  An assessment of the 
competitive relationship between products in the market  is required in order to determine whether and 
to what extent one product may displace another.  Thus, while a complaining Member may identify a 
subsidized product and the like product by referen ce to footnote 46, the products thereby identified 
must be analyzed under the discipline of the product market  so as to be able to determine whether 
displacement is occurring.  Ordinarily, the subsidi zed product and the like product will form part of a 
larger product market.  But it may be the case that a complainant chooses to define the subsidized and 
like products so broadly that it is necessary to an alyze these products in different product markets.  
                                                      
2463Like the Panel, we consider this to be self-evident. (See Panel Report, para. 7.1653)   
2464In Indonesia – Autos , the panel set out certain legal criteria for evaluating whether two products are 
"like" in the context of claims brought under Articles 5 and 6 of the SCM Agreement . (See Panel Report, 
Indonesia – Autos , paras. 14.172 and 14.173) 
2465A similar argument can be made for the concept of impedance, which also presupposes the 
existence of an economic mechanism by which a subsidized product hinders, obstructs, or holds back sales of a 
like product in the relevant product market. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 486  
 
  This will be necessary so as to anal yze further the real competitive interactions that are taking place, 
and thereby determine whether displacement is occurring.
2466 
1120.  Our interpretation is consistent with the fundamental economic proposition that a market 
comprises only those products that exercise competitive constraint on each other.2467  This is the case 
when the relevant products are substitutable.2468  Although physical characteristics, end-uses, and 
consumer preferences may assist in deciding whet her two products are in the same market, they 
should not be treated as the exclusive factors to c onsider in deciding whether those products are 
sufficiently substitutable so as to create competitive constraints on each other.  Indeed, whether two 
products compete in the same market is not de termined simply by assessing whether they share 
particular physical characteristics or have the same ge neral uses;  it may also be relevant to consider 
whether customers demand a range of products or wh ether they are interested in only a particular 
product type.  In the former case, when customers pr ocure a range of products to satisfy their needs, 
this may give an indication that all such produc ts could be competing in the same market.   
                                                      
2466A similar argument can be made with respect to impedance. 
2467The term "market" has been defined as "{g}enera lly, any context in which the sale and purchase of 
goods and services takes place." ( Macmillan  Dictionary of Modern Economics , 4th edn, D.W. Pearce, J. Cairns, 
R. Elliot, I. McAvinchey, R. Shaw (eds) (Palgrave McM illan, 1992), p. 266)  Another definition of the term 
"market" is "{a} collection of homogenous transactions.  A market is created whenever potential sellers of a 
product are brought into contact with potential buyers and a means of exchange." ( Dictionary of Economics , 
2nd edn, G. Bannock, R.E. Baxter, E. Davis (eds) (The Economist Books, 1999), p. 262)  See also  
European Court of Justice, Judgment, Case 27/76, United Brands Company and United Brands Continental BV 
v. Commission [1978] ECR 207;  and US Supreme Court, Brown Shoe Co., Inc.  v. United States , 370 US 294 
(1962).  The recently revised merger guidelines issued by the US Depa rtment of Justice and the Federal Trade 
Commission also provide a useful reference for understanding the word "market". (See US Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines , 19 August 2010)  The term "market" 
has also been defined for purposes of EU competition law. (See European Commission Notice on the definition 
of relevant market for the purposes of Community competition law, p ublished in the  Official Journal of the 
European Communities , C Series, No. 372 (9 December 1997))  One commentator submits that a market 
definition, both from a product and geographical point of view, "is not of interest by itself, but only as a preliminary step towards the objective of assessing the market power of the firms under analysis." (M. Motta, 
Competition Policy: Theory and Practice , p. 101)  Thus, since a market definition "is instrumental only to the 
assessment of market power, the relevant market should not be a set of products, which 'resemble' each other on the basis of some characteristics, but  rather the set of products (and ge ographical areas) that exercise some 
competitive constraint on each other." ( Ibid., p. 102) 
2468Motta, supra , footnote 2467, p. 103.  A test that is commonly used to ascertain whether two 
products exercise competitive constrai nt on each other, and thus  "should guide the analys is of market definition 
in both the product and the geographic dimension", is the so-called "Small but Significant Non-Transitory 
Increase in Prices" test ("SSNIP", also described as the "hypothetical monopolist" test). ( Ibid., p. 102)  Put 
simply, this test asks whether or not a hypothetical seller of a certain product would find it profitable to raise the 
price of that product by a certain amount.  If the price increase is found to be profitable, this would generally 
indicate that the product does not face significant compe titive constraint from other products, and that it should 
therefore be considered to be in a separate market.  Conversely, if the increase in price is found not to be 
profitable, this indicates that the product should not be considered to be in a separate market, as there exist other 
products that exercise competitive constraint on the seller.  The test should, in such cases, continue to consider a 
wider market until a profitable hypothetical price increase is found, thus indicating the scope of the relevant 
market. ( Ibid., p. 105)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 487  
 
  1121.  Demand-side substitutability—that is, when tw o products are considered substitutable by 
consumers—is an indispensable, but not the only re levant, criterion to consider when assessing 
whether two products are in a single market.  Ra ther, a consideration of  substitutability on the 
supply-side may also be required.  For exampl e, evidence on whether a supplier can switch its 
production at limited or prohibitive cost from one product to another in a short period of time may 
also inform the question of whether two products are in a single market.   
1122.  Our analysis is supported by Appellate Body jurisprudence.  In US – Upland Cotton , the 
Appellate Body defined a "market" as "the area of economic activity in which buyers and sellers come 
together and the forces of supply and demand affect prices", and considered that "two products would 
be in the same market if they were engaged in actual or potential competition in that market".
2469  The 
Appellate Body also agreed with th e panel in that case that "the scope of the 'market', for determining 
the area of competition between tw o products, may depend on several fact ors such as the nature of the 
product, the homogeneity of the conditions of competition, and transport costs."2470  While the 
Appellate Body was, in that case, considering a cl aim of price suppression under Article 6.3(c) of the 
SCM Agreement , we believe that similar considerations w ould also be relevant in assessing claims of 
serious prejudice brought under the remainder of Article  6.3, including Articles 6.3(a) and 6.3(b).  
This is consistent with the fact that each of th e subparagraphs of Article 6.3 is concerned with the 
effects of a subsidy in a market.  In the absen ce of actual or potential competition between two 
products in the marketplace, we fail to see how the effect of a subsidy provided to one of those 
products could be found to be the di splacement of the other product. 
1123.  In sum, we conclude, therefore, that the sc ope of the "market" to be examined for the 
purposes of Articles 6.3(a) and 6.3(b) of the SCM Agreement  is likely to vary from case to case 
depending upon the particular factual circumstances, including the nature of the products at issue, as 
well as demand-side and supply-side factors.  It shou ld be emphasized that the scope of the relevant 
product market in any given case will depend on th e nature and degree of competition between the 
products of the complaining Member and the alle gedly subsidized products of the responding 
Member.  In some cases, the entire product range offered by the complainant may compete with the 
range of products of the respondent  that is allegedly subsidized.  In other cases, an assessment of the 
conditions of competition may reveal the existence of multiple product markets in which particular 
products of the complaining Member compete with pa rticular subsidized products of the respondent.  
However, it is important to note that whether or no t a broad or narrow range of products benefit from 
subsidization says little about whether all these pr oducts compete in the same market.  Indeed, 
                                                      
2469Appellate Body Report, US – Upland  Cotton , para. 408.   
2470Appellate Body Report, US – Upland  Cotton , para. 408.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 488  
 
  products benefiting from subsidies may compete in ve ry different markets.  A panel is therefore 
required to make an objective assessment of the co mpetitive relationship between specific products in 
the marketplace and to define the relevant product ma rket in order to determine whether particular 
products can be treated as forming part of a si ngle product market or several product markets for 
purposes of an analysis of displacement under Articles 6.3(a) and 6.3(b).  
1124.  Turning to the specifics of this dispute, as we  see it, the decision by the Panel to assess the 
existence of displacement on th e basis of a "single product market" appears to have been a 
consequence of its earlier finding that it did not ha ve the authority, and that it was therefore not 
required, to make an independent and objective assess ment of the complaining Member's definition of 
the "subsidized product".  Indeed, the Panel stated at the outset of its evaluation that "there is no legal 
requirement in the SCM Agreement for a panel to make a determination regarding the 'subsidized 
product' independent of the comp laining Member's allegations."
2471   
1125.  The Panel explained that it was for the compla ining party to define the "subsidized product", 
and saw nothing in the SCM Agreement  that required it "to make an i ndependent determination of the 
'subsidized product', as opposed to relying on the complaining Member's identification of that 
product."2472  The Panel reasoned that the fact that "the effects of a subsidy must be evaluated with 
respect to market share and prices in particular markets does not entail that a panel must make an 
independent assessment of the subsidized product that is at issue."2473  The Panel added that, if it were 
to "conclude that there are multiple subsidized produ cts at issue in this case, and proceed to evaluate 
the United States' claims on {that} basis, {it} would,  in effect, be reformulating the United States' 
complaint."2474  For the Panel, there was "no basis in the text of the SCM Agreement that would allow 
{it}, much less require {it}, to reformulate the Unite d States' claims based on what might be {its} own 
view of what should constitute the 'subsidized produc t' as opposed to that of the complaining Member, 
the United States."2475 According to the Panel, "it is unlikely that the drafters of the SCM Agreement 
intended panels to make independent, fact-based determinations of the appropriate subsidized 
product", but chose to provide no criteria for such a determination.2476  In the absence of any guidance 
in the text of the SCM Agreement , the Panel said it was "reluctant to undertake the task of developing 
relevant criteria and applying them to the facts of this case".2477 
                                                      
2471Panel Report, para. 7.1650. 
2472Panel Report, para. 7.1653. 
2473Panel Report, para. 7.1653. 
2474Panel Report, para. 7.1654. 
2475Panel Report, para. 7.1654. 
2476Panel Report, para. 7.1656. 
2477Panel Report, para. 7.1656.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 489  
 
  1126.  On appeal, the European Union challenges these a ssertions by the Panel, arguing that they are 
based on an erroneous interpretation of Articles 5 and 6 of the SCM Agreement .
2478  T h e  
European Union submits that, contrary to what the Panel assumed, the text and context of Article 6.3 
of the SCM Agreement  provide guidance for an assessment of the term "subsidized product".  The 
European Union also argues that the standard articulat ed by the Panel is inconsistent with the duty of 
a panel to make an objective assessment of the ma tter before it, as required under Article 11 of the 
DSU.  The European Union explains, in particular, that nothing in the DSU justifies giving a 
complaining Member absolute "discretion to manipulate the manner in which a panel assesses a dispute—particularly where a manipulative selection of an unreasonable and incoherent 'subsidized product' might drive the outcome of a dispute."
2479   
1127.  The United States counters that the Panel prope rly assessed the United States' adverse effects 
claims on the basis presented by the United States, including the United States' identification of "all 
Airbus LCA" as the subsidized product.  The Unite d States argues that the Panel correctly recognized 
that a complainant has the right to structure its own complaint as it chooses, and confirmed the reasonableness of the United States' subsidized produ ct and like product definitions in the light of the 
evidence before it.
2480  The United States further rejects th e European Union's contention that the 
Panel failed to comply with its obligations under Article 11 of the DSU.2481   
1128.  As we see it, the Panel committed legal e rror by failing to adjudicate properly the 
United States' subsidized product allegations and re fusing to make its own independent assessment of 
whether all Airbus LCA compete in the same market  or not.  As noted above, the United States' 
claims of serious prejudice were premised on its asse rtion that there is only one subsidized product at 
issue in this dispute, consisting of all models of  Airbus LCA.  The Europ ean Communities objected to 
the United States' definition of the "subsidized produ ct", arguing that the Panel was required to make 
its own assessment of whether the "identified unive rse of allegedly subsidized products should be 
treated as a single  subsidized product, or multiple  subsidized products."2482  However, in its analysis, 
the Panel deferred to the United States' subsidized  product allegations rather than making its own 
independent assessment of whether all Airbus LCA should be treated as a single subsidized product.  
In so doing, the Panel failed to make an obj ective assessment of the matter, including the 
"applicability of and conformity with the relevant  covered agreements", as required under Article 11 
                                                      
2478European Union's appellant's submission, paras. 298 and 301. 
2479European Union's appellant's submission, para. 303. (footnote omitted)   
2480See United States' appellee's submission, para. 491.  
2481See United States' appellee's submission, paras. 499 and 503.  
2482Panel Report, para. 7.1632 (referring to Europ ean Communities' first written submission to the 
Panel, para. 1512). (emphasis added) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 490  
 
  of the DSU.  We wish to emphasize that the Pane l's failure to comply with its duties under Article 11 
appears to flow directly from its erroneous inte rpretation of the requirements of Articles 6.3(a) 
and 6.3(b) of the SCM Agreement , which led it to believe that it lacked the power and was under no 
obligation to assess independently the "subsidized pr oduct" and the relevant product market.  In the 
absence of such a determination, the Panel did not have a proper basis for assessing whether the 
alleged subsidized and like products  compete in the same market or  multiple markets, which is a 
prerequisite for assessing whether displacement within  the meaning of Articles 6.3(a) and 6.3(b) could 
be found to exist as alleged by the United States. 
1129.  The Panel stated, correctly in our view, that, "i f a complaining Member were to put forward a 
proposed 'subsidized product' that does not benef it from the alleged subsidies in dispute, a panel 
would have to address whether that product is, in fact, a relevant subsidized product."
2483  However, as 
explained above, an analysis of the nature and extent of actual or potential competition between 
different models of Airbus LCA is a prerequisite for determining whether they compete in the same 
product market or different product markets for pur poses of a displacement analysis under Articles 5 
and 6 of the SCM Agreement .  We therefore consider that the Pa nel erred by deferring, first, to the 
United States' "subsidized product" definition and then determining a "like product" simply by 
reference to the previously identified "subsidized pr oduct".  The identification of a subsidized product 
and a like product cannot determine whether such pr oducts compete in the same market.  Rather, a 
careful scrutiny of the competitive conditions of the ma rket is required in order to draw conclusions as 
to whether the effect of the subsidy is displaceme nt of competing products in a particular market. 
1130.  We recognize that the United States challenges s ubsidies provided to all models of Airbus 
LCA claiming that they are causing adverse effects to its interests.  In other words, the United States 
does not contend that subsidies provided to a singl e model of Airbus LCA are causing adverse effects 
only to the corresponding or most "closely resembling" model of Boeing LCA.  We agree with the 
Panel that Members of the WTO have the sovereign ri ght to structure their comp laints as they choose.  
It is important, however, to bear in mind the difference between a WTO Member's freedom to 
formulate its complaint and the duty of a panel to scrutinize whether the comp laint, so formulated, 
holds true and is a proper account of the phenomenon in question, be it displacement, impedance, or 
any other effect of a subsidy. 
1131.  Clearly, there is no inhibition on how a compla inant may choose to formulate its claim as to 
the scope of the "subsidized product";  it can do so as it thinks best comports with the adverse effects 
it seeks to challenge.  This does not mean, howev er, that a panel has no duty to review the 
                                                      
2483Panel Report, 7.1655.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 491  
 
  complainant's formulation of the scope of the "subs idized product".  Rather, the panel has a duty to 
ascertain the relevant product market or markets in  which the complainant's and respondent's products 
compete.  The notion of "subsidized product" and "l ike product" is, in each case, to be analyzed as an 
integral part of a panel's duty objectively to assess a particular claim of serious prejudice and its 
obligation to assess the relevant market under Articles 6.3(a) and 6.3(b).  In the present case, the Panel 
was therefore required to make an independent and objective assessment of the serious prejudice 
claims put forward by the United States, including  whether it was appropriate to examine all Airbus 
LCA as a single "subsidized product" and all Boeing LCA as a single "like product" for purposes of its adverse effects inquiry.  The Panel was al so required to assess the European Communities' 
allegation that there are, in fact, five distinct product markets of Airbus and Boeing LCA, and should 
have reached a conclusion as to whether any of the parties' or a different "product market" definition 
was appropriate for purposes of its displacement analysis. 
1132.  To support its decision to defer to the United States' identification of all LCA as a single 
product, the Panel relied on, inter alia , two previous panel reports involving cases decided under the 
Agreement on Implementation of Article VI of  the General Agreement on Tariffs and Trade 1994  
(the " Anti-Dumping Agreement
 ")—that is, EC – Salmon (Norway)  and US – Softwood Lumber V .2484  
In the former case, the European Communities' i nvestigating authority had identified the product 
concerned as "farmed (other than wild) salmon, wh ether or not filleted, fresh, chilled or frozen ... 
exclud{ing} other similar farmed fish products such  as large (salmon) trout, biomass (live salmon) as 
well as wild salmon and further processed types such as smoked salmon".2485  The panel rejected 
Norway's argument that the investigating authority  was required to ensure that, where the product 
under consideration is made up of categories of products, all such categories of products must 
individually be "like" each other, thereby constituting a single homogenous "product under 
consideration".2486  In the latter case, the panel rejected Canada's argument that, "rather than 
comparing the overall scope of the product under consideration with the overall scope of the like 
product", the investigating authority was required to ensure that "each individual item within the 'like 
product' must be 'like' each individual ite m within the 'product under consideration'."2487  F o r  t h e  
panel, this would have meant "in effect ... that th ere must be 'likeness' within both the product under 
consideration and within the like product."2488 
                                                      
2484Panel Report, paras. 7.1657-7.1661.  
2485Panel Report, EC – Salmon (Norway) , para. 2.1.   
2486Panel Report, EC – Salmon (Norway) , paras. 7.47 and 7.68. 
2487Panel Report, US – Softwood Lumber V , para. 7.157.   
2488Panel Report, US – Softwood Lumber V , para. 7.157. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 492  
 
  1133.  We note first that the above-mentioned findings by the panels in EC – Salmon (Norway)  and 
US – Softwood Lumber V  were not appealed and therefore have  not been reviewed by the Appellate 
Body.  Moreover, both cases concern the imposition of anti-dumping duties under the Anti-Dumping 
Agreement .  In this context, as in the context of Part V of the SCM Agreement , domestic investigating 
authorities are required to determine the existence of  injury to the domestic industry that may consist 
of one or more manufacturers producing a broad or narrow range of products.  Questions relating to 
the scope of dumped, subsidized, and like  products only arise for a panel in a review  of determinations 
already made by a domestic investigating authority.   Indeed, domestic investigating authorities would 
already have undertaken a review of the product un der investigation on a case-by-case basis and in the 
light of the product coverage proposed by the petition ers.  Domestic authorities may have decided to 
assess injury to the domestic indus try on the basis of an aggregat ed or disaggregated analysis.  
Significantly, in reviewing a determination of an i nvestigating authority, a panel may not engage in a 
de novo  review and may not substitute its views for those of the investigating authority.  By contrast, 
a panel's mandate in assessing adverse e ffects claims brought under Part III of the SCM Agreement is 
different, in that a panel conducting an  analysis under Article 6.3 of the SCM Agreement   "is the first 
trier of facts, rather than a reviewer of factua l determinations made by  a domestic investigating 
authority."
2489  The reasons for applying some degree of deference to the product definition resulting 
from adjudication by a neutral and objective inv estigating authority in the context of the 
Anti-Dumping Agreement  or Part V of the SCM Agreement  do not, in our view, apply to the product 
and market definition that a complainant propo ses before a panel examining claims brought under 
Part III of the SCM Agreement .  We therefore do not consider th ese previous panel findings reviewing 
determinations of domestic investigating authorities to  be instructive in this case where the Panel was 
tasked with making its own first-hand assessment of  a serious prejudice claim by a complaining party 
including a determination of the relevant market. 
1134.  We also do not consider it was sufficient that th e Panel proceeded, in the alternative, to assess 
whether the United States had made a "reasonable"  allegation regarding the "subsidized product".2490  
As noted above, the range of products that bene fit from subsidies says little about whether these 
products compete in a single product market or several product markets.  On the contrary, for 
purposes of assessing the serious prejudice claims befo re it, the Panel had the duty to define, in the 
light of the United States' complaint, the relevant  product market and the scope of the respondent's 
subsidized product that is in competition with the comp lainant's like product.  It is not the scope of the 
product that allegedly benefits from subsidies that defines the degree of competition on the relevant 
                                                      
2489Appellate Body Report, US – Upland Cotton , para. 458.  
2490Panel Report, para. 7.1663.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 493  
 
  product market or markets between the complainant' s products and the allege dly subsidized products 
of the respondent.  Although some of the factors me ntioned by the Panel in its alternative reasoning 
may be relevant for purposes of unde rstanding the relevant product ma rket, the Panel did not engage 
in a full and objective assessment of the question of the relevant product market, and in particular 
whether all Airbus LCA should be treated as a single subsidized product competing in a single 
product market for purposes of the United States' clai ms of serious prejudice.  For example, although 
certain findings made by the Panel suggest that ther e might be some supply-si de substitutability in the 
LCA industry—for instance, the Panel observed that  "the production and sales of one model of LCA 
support the development, production and sales of other LCA models"
2491—an examination of this 
factor does not justify the Panel's failure to cons ider properly demand-side substitutability, which it 
barely alluded to in its "alternative" analysis.  Factors such as product homogeneity, flight ranges, 
seating capacities, prices, fuel efficiency, and othe r performance characteristics could have been 
relevant to such an analysis.  However, the Panel looked at such factors only to ascertain which "like" 
product competed with the subsidized product, as defined by the United States, and thus assumed—
but did not establish—that all LCA models compete in the same market.  We consider this to be 
particularly problematic given that a consideration of demand-side substitutability is critical in order 
to assess properly the scope of the relevant market  and products that compete in that market.  
Specifically, if two products are not substitutable on the demand side, this suggests that the relevant 
products are likely to compete in two distinct market s, rather than in a single market.  We note also 
that the Panel failed to test, in any way, the scope of the market in particular countries by, for 
example, analyzing cross-price elasticity.2492  Such an analysis would have assisted the Panel in 
reaching more solid conclusions as to the exte nt of the relevant market in this case. 
1135.  Indeed, the Panel found, as a factual matter, that "it may well be true that direct head-to-head 
competition between aircraft models at the ends of  the range of models offered by each manufacturer 
may be limited or non-existent".2493  The Panel also recognized that a "differentiated analysis" of 
alleged effects of subsidies may be  relevant, for instance, when conducting an examination of whether 
the effect of a subsidy is significant price undercutting, price suppression, price depression, or lost 
                                                      
2491Panel Report, para. 7.1666.  
2492The examination of cross-price elasticities can help one to understand the competitive constraints 
exercised by other products on the product (or group of products) under examination for market definition purposes.  Motta states that "{t}he cross-price elasticity between products A and B is defined as the percentage 
change in the demand for product B when there is a one-percent in crease in the price of product A." (Motta, 
supra , footnote 2467, p. 107)  This is one of the tools that can be of help when implementing the SSNIP test and 
attempting to identify exactly which product constitutes the closest substitute.  Another often mentioned 
example of tools used to implement the SSNIP test are the price correlation tests favoured by Stigler and 
Sherwin. (G.J. Stigler and R.A. Sherwin, The Extent of the Market  (1985) 28 Journal of Law and Economics 
555) 
2493Panel Report, para. 7.1668.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 494  
 
  sales.
2494  This acknowledgement is difficult to reconcile  with the fact that the Panel nevertheless 
conducted its assessment of displacement on the basis of aggregate data alone  without assessing the 
nature and extent of competition in the LCA industry on the basis of data for particular LCA models.   
1136.  In cases where, as here, an analysis of the cond itions of competition reveals that all products 
are not engaged in direct competition for the same sales or orders—or where the competitive 
relationship between such products is, at most, i ndirect or remote—this must be properly accounted 
for in order to reach a meaningful finding of displ acement.  An analysis of the specific circumstances 
and dynamics of competition occurring in the relevant geographic market and the demands of 
customers in that market is therefore required when assessing claims under Articles 6.3(a) and 6.3(b) 
of the SCM Agreement .   
1137.  In the light of the above, we find that the Panel erred in its interpretation of the term "market" 
in Articles 6.3(a) and 6.3(b) of the SCM Agreement  and acted inconsistently with Article 11 of the 
DSU.  It did so by failing to make an objective assessment of the "applicability of and conformity 
with the relevant covered agreemen ts", in particular by concluding that it was not required "to make 
an independent determination of the 'subsidized pr oduct', as opposed to relying on the complainant's 
identification of the product."2495  The Panel's failure to comply with its obligations under Article 11 
of the DSU appears to flow directly from the Pa nel's erroneous interpretation of Articles 6.3(a) 
and 6.3(b) in this case.  Consequently, the Panel erred when it stated that, "so long as the subsidized 
product {the United States} has identified, Airbus larg e civil aircraft, does in fact benefit from the 
subsidies in dispute, we will not intervene to a lter its identification of the subsidized product."2496  In 
the absence of an objective determination of the rele vant product market by the Panel, its conclusion 
that "there is a single subsidized product and a single corresponding like product"2497 cannot stand.  
Consequently, we reverse  the Panel's finding of displacement on the basis of a single subsidized 
product and a single like product. 
1138.  As a separate matter, we note that the European  Union has made an additional claim that the 
Panel failed to comply with its obligations unde r Article 11 of the DSU by disregarding certain 
evidence and by failing to provide adequate explan ations, including coherent reasoning in addressing 
the evidence before it.2498  Having found that the Panel failed to comply with its obligations under 
Article 11 of the DSU because it did not undertake an  objective assessment of the relevant market in 
                                                      
2494Panel Report, para. 7.1679.  
2495Panel Report, para. 7.1653. 
2496Panel Report, para. 7.1662. 
2497Panel Report, para. 7.1679. 
2498European Union's appellant's submission, paras. 340 and 359.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 495  
 
  which the subsidized and like products compete,  and having consequently  reversed the Panel's 
conclusion that there is a single subsidized produc t and a single corresponding like product, we do not 
consider it necessary to rule on this additional claim.   
2. Completing the Analysis
 
1139.  As discussed above, the European Union argues that the Panel erred in assessing 
displacement on the basis of a single product mark et, and it requests that we reverse the Panel's 
"single product market" finding.  On the basis of the reasons set out above, we have reversed the 
Panel's "single product market" finding.   
1140.  We note that the Appellate Body has exercised r estraint in deciding whether to complete the 
legal analysis in past disputes.  The Appellate B ody has emphasized that it can complete the analysis 
only if the factual findings by the panel, or the undisputed facts on the panel record, provide a sufficient basis for the Appellate Body to do so.  Wh ere this has not been the case, the Appellate Body 
has declined to complete the analysis.
2499   
1141.  In assessing the nature of competition in the LC A market, the Panel noted that a customer's 
decision as to which LCA to purchase depends on a number of factors: 
Customers choose among the various LCA models available those 
they deem most suitable for their needs at the time of ordering.  In making their purchase decisions, customers will consider such matters as the route structure to be served by the aircraft, the 
structure of the existing fleet, and operating costs, with a view to 
minimizing costs and maximizing revenues.  Some airlines purchase a mix of LCA models to serve a va riety of needs, while others may 
limit themselves to one LCA model because of the efficiencies generated by the operation of a single aircraft type.  Once an airline orders any particular LCA model from a given manufacturer, 
efficiencies in operating a fleet of similar aircraft (including those 
related to spare parts, maintenance and training) favour follow-on orders of the same models, as well as orders of other aircraft models 
from the same manufacturer, in order to take advantage of commonalities across an LCA fleet.
2500  
1142.  Thus, while certain customers may purchase only certain LCA models—such as single-aisle 
LCA—to meet their needs, others base their purchase  decisions on the manufacturer's ability to offer a 
full range of LCA comprising various models to serve  a variety of needs.  The Panel found in this 
respect that both "Airbus and Boeing now produce a fu ll range of different models of LCA and sell to 
                                                      
2499See, for example, Appellate Body Report, US – Continued Zeroing , para. 349.  
2500Panel Report, para. 7.1720. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 496  
 
  the full range of customers"
2501;  and noted that the European Communities recognized the importance 
of offering a full range of LCA "whose commonality keep operating costs down for customer airlines 
across the fleet but which can perform the various mi ssions dictated by an airline's route structure".2502  
Regarding elasticity of supply, the Panel furthe r found, for example, that "{e}conomies of scale 
arising from the huge sunk development cost gi ve incumbent firms a considerable competitive 
advantage";  "{e}conomies of scope make it di fficult to enter one market segment only";  
"{s}witching costs ... make it more difficult for new producers to enter … {and} airlines prefer fleet 
commonality."2503  We see each of these factors as relevant  in assessing the conditions of competition 
in the LCA market.  However, other than giving a na rrative of general consider ations relating to these 
factors, it is not apparent from its Report that the Panel engaged with relevant evidence in a thorough 
and meaningful manner.  Nor did the Panel provide  an independent and objective assessment of the 
factors in a way that would allow us to make conclusions as to the proper scope of the relevant 
product market. 
1143.  During the oral hearing, we engaged the partic ipants in a discussion as to whether the Panel 
findings or uncontested evidence on the Panel record would enable us to find that there is a single 
LCA market, or that there is a separate single-aisle LCA market, and possibly multiple wide-body 
LCA markets, such as a twin-aisle LCA market and a Very Large Aircraft2504 market.  
1144.  The United States argues that the evidence be fore the Panel showed "a number of actual, 
'head-to-head' campaigns  in which Boeing and Airbus offere d LCA across every adjacent 'product 
market' identified by the European Union."2505  Pointing to a table it compiled using information from 
Panel Exhibits EC-322 and EC-323, the United States argues that " none of the 'product markets' 
identified by the European Union is a self-contai ned segment, capturing the full scope of competition 
for the models within it" and that, "{i}n fact, LC A from each 'product market' have competed head-to-
head against LCA from other 'product markets'."2506  The United States submits, in particular, that 
"Exhibit EC-322 shows the Boeing 777 as having competed against the A330" and that there were a 
number of competitions between the Boeing 747 and the A380.2507  For its part, the European Union 
argues that, in every sales campaign Airbus won with  its single-aisle A320 family LCA, it competed 
                                                      
2501Panel Report, para. 7.1718. 
2502Panel Report, para. 7.1665. 
2503Panel Report, para. 7.1981. 
2504The European Union refers to "400-500 seat" LC A and "500+ seat" LCA together as "Very Large 
Aircraft". (See European Union's appellant's submission, Annex II (Product Markets Annex) (BCI);  see also European Union's appellant's submission, para. 375 and footnote 431 thereto, and Annex III (Displacement 
Annex), paras. 2 and 5) 
2505United States' appellee's submission, para. 557. (original emphasis) 
2506United States' appellee's submission, para. 558. (original emphasis) 
2507United States' appellee's submission, para. 559.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 497  
 
  against the Boeing single-aisle family LCA
2508;  and there were also " no sales campaigns in which 
Boeing single-aisle LCA competed against Airbus A330, A340 or A380 family LCA."2509     
1145.  Although competition appears to be particularly  intense between certain LCA models, the 
Panel record contains evidence suggesting that a number of large airlines base their purchase 
decisions on a consideration of the overall product o ffering of both Airbus and Boeing, rather than 
simply comparing physical and performance characteristics of similar specific LCA models of both 
manufacturers.2510  Such airlines are likely to operate a full range of different LCA in their fleet to 
satisfy their route structures and customer demand.  A consideration of data presented on a cumulative 
basis for all Airbus LCA may be particularly instructive when assessing the behaviour of such buyers 
in a particular geographic market and the specific c onditions of the relevant market.  By contrast, as 
the European Union observes, a considerable numbe r of small airlines purchase and fly only LCA of 
one size.  The ability of these airlines to fly multiple and different types of routes may be either non-
existent or constrained.2511  For such airlines, the ability of a manufacturer to offer a full range of LCA 
may be of limited relevance in the decision of  whether to purchase a particular LCA or not.  
1146.  Before the Panel, the United States referred to  evidence of sales campaigns in which multiple, 
different Airbus and Boeing LCA models were sold at the same time to the same customers.  The 
United States refers to these as "bundled" sales or "package" deals2512, and argues that this evidence 
supports a finding as to the existence of a single product market comprising all LCA.  We note, however, that only few sales campaigns appear to ha ve involved sales of different LCA models sold 
together as part of a "package deal".
2513  Moreover, it is not clear to us whether the existence of such 
campaigns simply suggests that certain large air lines may have required multiple, different types of 
LCA at the same time, rather than suggesting th at all types of LCA are in actual or potential 
competition in a single product market.  We therefore do not consider this evidence to be particularly 
probative. 
                                                      
2508European Union's appellant's submission, para. 363.   
2509European Union's appellant's submission, para. 372. (original emphasis)   
2510See Panel Report, para. 7.1665.  See also Euro pean Communities' second written submission to the 
Panel, paras. 712-714;  and Airclaims CASE database (Panel Exhibit EC-21).   
2511European Union's response to questioning at the oral hearing (referring to the European 
Communities' second written submission to the Panel, para. 725). 
2512Panel Report, para. 7.1655.  The United States described "bundled" to mean instances in which 
airlines ordered multiple LCA models from the same manufacturer at the same time. (United States' response to Panel Question 131, paras. 422 and 423)  See also United States' appellee's submission, para. 566. 
2513The European Union argues that "{o}nly 30 of the 520 sales transactions made in the 2004-2006 
period were 'bundled' orders for LCA across different LCA markets." (European Union's appellant's submission, footnote 409 to para. 366 (referring to European Communities' second written submission to the Panel, 
para. 721;  and Airclaims CASE database (Panel Exhibit EC-642)) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 498  
 
  1147.  With all these considerations in mind, we fi nd that we are unable to complete the legal 
analysis to find that there are one or more LCA product markets.   
C. Displacement and Lost Sales  
1. Displacement
 
1148.  We turn next to the Panel's assessment of disp lacement.  The European Union asserts that the 
errors in the Panel's approach with regard to th e product market "undermine" the Panel's findings of 
displacement.2514  Nonetheless, the European Union states th at it does not request us to "reverse the 
displacement findings in their entirety".2515  The reason for this is that the European Union accepts 
that the uncontested data show displacement occurring in some of the country markets for some of the 
product markets.  In its appellant's submission, th e European Union "accepts that any displacement 
found under either of the two multiple product-market  approaches would constitute properly observed 
displacement."2516  The European Union submitted data fo r three product markets for each of the 
geographic markets at issue. These data are derived from data on the Panel record.2517  While the 
United States maintains that there is a single LCA pr oduct market, it confirmed at the oral hearing that 
the disaggregated data submitted by the European Un ion are derived from data that was before the 
Panel and made it clear that it did not have any objections with respect to this data as such.  
Furthermore, the European Union accepts that there is competitive interaction between similar models 
of LCA manufactured by Airbus and Boeing.  The United States agrees.2518  The disagreement 
between the European Union and the United States is limited to the degree of competition across 
models and also as between the extremes of Boeing's and Airbus' product ranges.  In these 
circumstances, we will assess below to  what extent the United States' claims of displacement can be 
upheld on the basis of the uncontested evidence on th e Panel record and the ev idence of displacement 
in those country markets in wh ich the European Union acknowledges that there is a competitive 
interaction between model types of Airbus and Boeing LCA.   
                                                      
2514European Union's appellant's submission, para. 376. 
2515European Union's appellant's submission, para. 376. 
2516European Union's appellant's submission, Annex III (Displacement Annex), para. 6.  We also note 
that the European Union expressly s eeks completion of the analysis in re spect of displacement in particular 
product markets. ( Ibid., para. 392)  Specifically, in the event of a reversal of the Panel's single product market 
finding, the European Union requests the Appellate Body to complete the analysis and find that there is a 
separate single-aisle LCA market.  With respect to the markets for wide-body LCA, the European Union 
recognized that "the evidence is less clear and might  support the existence of four or two wide-body LCA 
product markets."  Thus, in framing its request for reve rsal, the European Union accepts some displacement in 
these markets. ( Ibid., para. 392)   
2517European Union's appellant's submission, Annex III (Displacement Annex), para. 4.   
2518The United States contends that there is competition not only between similar models of LCA 
manufactured by Airbus and Boeing but between all models of LCA manufactured by Airbus and Boeing.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 499  
 
  1149.  One Member on the Division wishes to set out a separate view on the issue of whether the 
Appellate Body can complete the legal analysis on the United States' claims of displacement.  While 
recognizing the particular circumstances in this case, this Member is of the opinion that the Appellate 
Body cannot complete the legal analysis on displacem ent.  This Member recalls that we have found 
above that the Panel failed to comply with its ob ligations under Article 11 of the DSU because it did 
not undertake an objective assessment of the rele vant market in which the subsidized and like 
products compete;  and that, in the absence of an objective determination of the product market by the 
Panel, its conclusion that "there is a singl e subsidized product and a single corresponding like 
product" cannot stand. Consequently, we have reve rsed above the Panel's finding of displacement on 
the basis of a single subsidized product and a single  like product.  Moreover, after a review of the 
relevant factual findings of the Panel and the undisputed evidence on the Panel record, we have 
concluded above that we are unable to complete the analysis to find that there are one or more LCA 
product markets.  As we have pointed out, our ma ndate under Article 17.6 of the DSU does not allow 
us to conduct the type of factual assessment that  would be required properly to define the product 
market(s) in this case.  We are thus unable to ma ke our own determination of what is (or are) the 
relevant product market(s).  This Member is of the view that a finding on displacement requires a 
determination of the relevant pr oduct market(s).  Therefore, this  Member considers that, in the 
absence of such a determination, the Appellate Body cannot complete the analysis on displacement.  
According to this Member, this is so even in the particular circumst ances of this case set out above 
and explained in more detail below.  While this Me mber disagrees with the co mpletion of the analysis 
on displacement, this Member agrees with the in terpretation of the concept of displacement in 
Article 6.3(a) and (b) of the SCM Agreement , as set out in subsection (b) below. 
1150.  The European Union's appeal challenges the Pa nel's findings of displacement under the first 
step of the Panel's two-step approach.
2519  The Panel's findings are summarized in subsection (a).  
In subsection (b) we examine the meaning of di splacement under Article 6.3(a) and (b) of the 
SCM Agreement .  We assess the European Union's allegations of error in subsection (c). 
(a) The Panel's findings  
1151.  At the outset, the Panel addressed the appr opriate reference peri od against which the 
United States' adverse effects claims under Article 5( a) and (c) and Article 6.3(a), (b), and (c) should 
be assessed.  The United States originally presen ted data and arguments covering the period 2001 
                                                      
2519The Panel's two-step approach is described in section IX.A of this Report. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 500  
 
  through 2005, and subsequently presented additional data for the calendar year 2006.
2520  T h e  
European Communities argued that the appropriate re ference period in which to examine whether the 
subsidies presently caused adverse effects should incl ude data from 2004 to 2006  and, where available 
and reliable, 2007.2521  The Panel observed that the provisions at issue did not provide any specific 
guidance as to the appropriate length of the referenc e period, and that Article 6.4 only established a 
minimum reference period of one year to be consid ered in normal circumstances.  In the absence of 
any specific guidance on the appropriate reference period, the Panel found it "should avoid making an 
a priori  choice of reference period."2522  Rather, the Panel found that its duties under Article 11 of the 
DSU required it to examine the evidence put forward by the United States, and the rebuttal evidence 
presented by the European Communities, includi ng recent information "where relevant and 
reliable".2523 
1152.  Turning to the United States' claims under Article 6.3(a) and (b) of the SCM Agreement , the 
Panel agreed with the panel in Indonesia – Autos  that displacement "relates to a situation where sales 
volume has declined, while impedance relates to a situation where sales which otherwise would have 
occurred were impeded."2524  Like the panel in Indonesia – Autos , the Panel in this case focused on 
market share data when analyzing th e United States' displacement claims.2525  However, the Panel 
emphasized that data showing a decline in Boeing's sh are of the markets at issue, while sufficient to 
demonstrate "displacement", would not be sufficient to establish "impedance".  In order to conclude 
that imports or exports of Boeing LCA were impe ded over the relevant refe rence period, the Panel 
said it would have to be satisfied that th ose sales would have "actually taken place".2526  
1153.  The Panel next recalled its earlier rejecti on of the European Communities' objections 
regarding the subsidized and like products, the appr opriate reference period, and the use of delivery 
data rather than orders.2527  The Panel then turned to the United States' claim of displacement from the 
market of the subsidizing Member under Article  6.3(a), focusing on the data submitted by the 
United States concerning LCA deliver ies in the European Communities.2528  After reviewing the data, 
                                                      
2520Panel Report, para. 7.1681 (referring to United States' second written submission to the Panel, 
paras. 698, 701, 703, 731, and 734;  Panel Exhibit US-616 (BCI), containing US LCA market information on the Boeing 737NG family;  and United States' response to Panel Question 238).  
2521Panel Report, para. 7.1686.  
2522Panel Report, para. 7.1694.  
2523Panel Report, para. 7.1694.  
2524Panel Report, para. 7.1738 (quoting Panel Report, Indonesia – Autos , para. 14.218).  
2525Panel Report, para. 7.1739.  
2526Panel Report, para. 7.1739.  
2527Panel Report, paras. 7.1742-7.1745, 7.1774, and 7.1777.  
2528The Panel did "not consider the data presented by the European Communities on LCA deliveries to 
the EC market to be accurate or relia ble for the purpose of evaluating the Un ited States' claims of displacement 
and impedance under Article 6.3(a) of the SCM Agreement." (Panel Report, para. 7.1756)    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 501  
 
  the Panel concluded that it was "clear that Boeing's share of LCA deliveries to the EC market declined 
over the period, while Airbus' share of that market increased."
2529  The Panel added that, "{a}s the 
only other competitor in the market was Airbus, it follows that the evidence we have reviewed 
demonstrates that imports of United States' LCA into the EC market were displaced by Airbus LCA over the relevant period."
2530 
1154.  As regards the claim of present displacement from certain third country markets raised by the 
United States under Article 6.3(b) of the SCM Agreement , the Panel began its evaluation with the 
Australian market.2531  On the basis of the United States' data, the Panel observed that Airbus' market 
share in Australia increased 18% between 2001 and 2005, while Boeing's market share declined by 
the same amount.2532  A similar pattern emerged from the Unite d States' data for the LCA market in 
China, where Airbus' market share increased 25% between 2001 and 2006, while Boeing's market 
share declined by the same amount.2533 
1155.  With respect to the United States' claim allegi ng threat of displacement from the LCA market 
in India, the United States did not present data on deliveries, but the Panel considered that the 
United States' data on orders were an "indicator of  likely future deliveries" and thus a relevant 
indicator of "threat of future displacement  or impedance of exports" from that market.2534  The Panel 
considered that order data for the 2001-2005 period sugg ested that Airbus won most of the orders in 
the Indian market.  In particular, the Panel found th at Airbus' 225 orders (compared to Boeing's 98) in 
2005 represented a "massive increase"2535 of Airbus orders in the Indian market.  For the Panel, this 
indicated that, as deliveries for such LCA take place, it is likely that Airbus will have a "significantly 
greater share" of the Indian market than Boeing.2536 
1156.  In relation to the other individual third c ountry markets, the Panel observed that the 
United States' annual delivery data for 2001 to 2005  showed increases in Ai rbus' market share in 
Brazil (from 50 to 86%), Korea (from 17 to 44%), Mexico (from 29 to 50%), Singapore (from 11 to 
                                                      
2529Panel Report, para. 7.1758.  The Panel also noted that, "{d}espite the different values reflected, the 
data presented by the European Communities, when aggreg ated, supports the same conclusion, although, as we 
have explained, the {European Communities'} data is not a reliable basis for our evaluation." ( Ibid.) 
2530Panel Report, para. 7.1758. 
2531The Panel also noted that the European Communities' third country markets data could not be 
deemed to be "accurate or reliab le". (Panel Report, para. 7.1779) 
2532Panel Report, para. 7.1780.  The Panel also noted that the European Communities' aggregated data, 
though inaccurate and unreliable,  revealed a similar pattern. ( Ibid.) 
2533Panel Report, para. 7.1781.  The Panel also noted that the European Communities' aggregated data, 
though inaccurate and unreliable,  revealed a similar trend. ( Ibid.) 
2534Panel Report, para. 7.1783.  
2535Panel Report, para. 7.1784.  
2536The Panel found that a similar pattern emerged from the European Communities' aggregated data, 
though it did not consider these data "accurate" or "reliable". (Panel Report, para. 7.1784)  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 502  
 
  73%), and Chinese Taipei (from 38 to 56%).
2537  The European Communities submitted data on the 
number of LCA delivered to each relevant thir d country market between 2001 and 2006.     
1157.  The Panel concluded that the evidence demons trated that Boeing exports of LCA were 
displaced from the markets of Australia and China by sales of Airbus LCA over the period examined, 
and that there was a likelihood of future displaceme nt of Boeing LCA by Airbus LCA from the Indian 
market.2538  The Panel regarded the evidence concerni ng the markets of Brazil, Korea, Mexico, 
Singapore, and Chinese Taipei "less compelling"2539, because sporadic sales and relatively small 
volumes in those markets made the identification of trends more difficult.  Nevertheless, the Panel reasoned that, as Airbus was the only other compe titor in these markets during the relevant period, 
any market share achieved by Airbus in those market s was at the expense of Boeing.  On this basis, 
the Panel concluded that Boeing LCA exports were also displaced from these markets by sales of 
Airbus LCA over the period under review.
2540 
1158.  The Panel further declined the United States' requ est to make a finding in relation to all third 
country markets "as a whole".2541  The Panel reasoned that, insofa r as Article 6.3(b) referred to 
"a third country market", it had "serious doubts" as to whether it would be permissible to assess 
displacement from all third country markets under Artic le 6.3(b), and in any event was not required to 
resolve that question in this case.2542  
(b) The meaning of "displacement" under Article 6.3(a) and (b) of the 
SCM Agreement   
1159.  Subparagraphs (a) and (b) of Article 6.3 of the SCM Agreement  provide: 
Serious prejudice in the sense of pa ragraph (c) of Article 5 may arise 
in any case where one or several of the following apply: 
(a) the effect of the subsidy is to displace or impede the imports 
of a like product of another Memb er into the market of the 
subsidizing Member; 
(b) the effect of the subsidy is to displace or impede the exports 
of a like product of another  Member from a third country market; 
                                                      
2537Panel Report, para. 7.1785.  
2538Panel Report, para. 7.1790.  
2539Panel Report, para. 7.1791.   
2540Panel Report, para. 7.1791.  Later in its analysis, the Panel found that the United States had failed to 
substantiate its claims of impedance  of Boeing LCA exports from third country markets. (See ibid., 
para. 7.2027) 
2541Panel Report, para. 7.1789.  
2542Panel Report, para. 7.1789.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 503  
 
  1160.  As noted above
2543, this is the first time that the Appellate Body examines claims of 
displacement under subparagraphs (a ) or (b) of Article 6.3 of the SCM  Agreement .2544  W e  h a v e  
analyzed the concept of substitutability in th e section "Subsidized Product and Product Market" 
above.2545  For the reasons set out there, we understand the term displacement to connote that there is 
a substitution effect between the subsidized product and the like product of the complaining 
Member.2546  This means that displacement arises unde r subparagraph (a) of Article 6.3 where the 
effect of the subsidy is that imports of a like product of the complaining Member are substituted by 
the subsidized product in the market of the subsid izing Member.  Similarly, under subparagraph (b), 
displacement arises where exports of the like produc t of the complaining Member are substituted in a 
third country market by exports of the subsidized product. 
1161.  We are not called upon in this appeal to inte rpret the term "impede" in Article 6.3.  
Nevertheless, considera tion of the term can provide cont ext for a better understanding of 
displacement.  The term connotes a broader arra y of situations than the term "displace".2547  It refers to 
situations where the exports or imports of the like product of the complaining Member would have 
expanded had they not been "obstructe d" or "hindered" by the subsidized product.  It could also refer 
to a situation where the exports or imports of th e like product of the complaining Member did not 
materialize at all because production was held back by the subsidized product.2548 
1162.  We recognize that it may be difficult to draw a clear demarcation betw een the concepts of 
displacement and impedance.  One possibility is to draw a distinction similar to the one drawn by the 
Appellate Body in US – Upland Cotton (Article 21.5 – Brazil)  between the concepts of "price 
                                                      
2543See supra , para. 1115. 
2544The focus of the European Union's appeal is on th e term "displacement", as the Panel did not make 
any affirmative findings of "impedance". (See supra , footnote 2540) 
2545Section IX.B, paras. 1119-1123. 
2546The term "displace" is defined as to "remove; replace with something else; take the place of, 
supplant". ( The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), 
Vol. 1, p. 698)   
2547The term "impede" is defined as to "obstruct, hinder". ( The New Shorter Oxford English Dictionary , 
4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 1319)  
2548There also could be situations where displacement and impedance overlap.  However, in the light of 
the principle of effective treaty interpretation, a distinc tion needs to be made as to the concepts covered by each 
term. (See Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, 3, at 21;  and Appellate Body Report, 
Japan – Alcoholic Beverages II,  p. 12, DSR 1997:I, 97, at 106) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 504  
 
  depression" and "price suppression" in Article 6.3(c) of the SCM Agreement .
2549  On this approach, 
evidence that actual sales have declined would be  relevant for a determin ation of displacement, 
whereas evidence that sales would ha ve increased more than they did, or would have declined less 
than they did, would be relevant to a claim of impedance.2550  We do not need to resolve this issue in 
this appeal because the United States premised its allegations of displacement on there being an 
observable decline in Boeing's market share.2551   
1163.  As we have explained in secti on A above, we believe that the most appropriate approach to 
assess the effect of a subsidy under Article 6.3 of the  SCM Agreement  is through a unitary 
counterfactual analysis.  In the case of displacement  and impedance, the counterfactual analysis would 
involve estimating what the sales of the complaining Member would have been in the absence of the 
challenged subsidy.  The counterfactual sales of th e complaining Member would then be compared to 
its actual sales.  Displacement or impedance would arise where the counterfactual analysis shows that 
the sales of the complaining Member would have d eclined less or would have been higher in the 
absence of the challenged subsidy.   
1164.  The Panel in this case, however, adopted a two- step approach in its assessment of whether 
displacement was the effect of the challenged subsid ies.  As set out above, we have reservations about 
this type of two-step approach because it may not gauge the particular phenomena described under 
Article 6.3(a) and (b) of the SCM Agreement  as well as a unitary counterfactual analysis.  We 
recognize, however, that a two-step approach is a permissible approach to assess the effects of the 
                                                      
2549Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 351.  In the original 
proceedings, the panel described "price suppression" as the situation where prices "either are prevented or 
inhibited from rising (i.e. they do not increase when they otherwise would have) or they do actually increase, but 
the increase is less than it otherwise would have been", and defined "price depression " as the situation where 
prices "are pressed down, or reduced." (Panel Report, US – Upland Cotton , para. 7.1277)  The Appellate Body 
recognized that situations where prices are prevented or inhibited from rising and the situation where "prices" are pressed down, or reduced, could overlap, but it also pointed out that Article 6.3(c) mentioned price 
suppression and price depression as distinct concepts.   
In US – Upland Cotton (Article 21.5 – Brazil) , the Appellate Body noted that "price depression is a 
directly observable phenomenon, {whereas} price suppression is not so.  Falling prices can be observed;  by 
contrast, price suppression concerns whether prices are less than they would otherwise have been in 
consequence of various factors, in th is case, the subsidies.  The identific ation of price suppression, therefore, 
presupposes a comparison of an observa ble factual situation (prices) with a counterfactual situation  (what prices 
would have been) where one has to determine whether, in the absence of the subsidies ..., prices would have 
increased or would have increased more than they actually did. (Appellate Body Report, US – Upland Cotton 
(Article 21.5 – Brazil) , para. 351 (emphasis added)) 
2550We note that there may be situations in which the imports or exports of the like product of the 
complaining Member are declining, but are declining by more than they othe rwise would.  To the extent that 
there is an observable decline in the imports or exports,  it could be considered a situation of displacement.  At 
the same time, there is an aspect of the decline that is not directly observable—the decline is sharper than it 
would otherwise have been.  In this respect, this situati on could be considered one of impedance.  These issues, 
however, are not before us given the manner in  which the United States framed its case.   
2551United States' response to questi oning at the oral hearing.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 505  
 
  challenged subsidies under Article 6.3(a) and (b) of the SCM Agreement .  Nevertheless, any 
conclusions under the first step of such a two-step  approach are necessarily preliminary and of limited 
significance in coming to a conclusion under Article 6.3( a) or (b).  This is so because it is only once 
the second step has been completed that it is po ssible to determine if the like product has been 
displaced by the subsidized product, as an effect of the challenged subsidies.  This, as explained in our 
analysis of the subsidized product and product market in section IX.B of this Report, is a function of 
substitutability in the relevant product market.  Therefore, any definitive determination of 
displacement under Article 6.3(a) and (b) must aw ait consideration of the effect of the subsidy.
2552   
1165.  In this case, the Panel examined trade2553 volumes and market share data over a reference 
period.2554  In the light of the manner in which the United States presented its case and the Panel's 
two-step approach, the focus on trade volumes and market shares was appropriate.  This is so because 
it is not sufficient to examine trade volumes to dete rmine whether the imports or exports of the like 
product are being substituted by the subsidized product , in particular when total consumption in the 
market increases or decreases.  Therefore, it is necessary to consider the relative movement of the 
volumes of the subsidized and the like product, that is , their market shares.  In a duopoly situation, as 
in the present case, a decrease in th e market share of one competitor w ill be reflected in an increase in 
the market share of the other comp etitor.  The analysis is made mo re difficult where there are more 
than two competitors in the market, as it will be nece ssary to analyze more fully  the market share data 
of various competitors in order to  determine whether the substitution e ffect is between the subsidized 
product and the like product of the complaining Member.  Both participants agr eed at the oral hearing 
that focusing on market shares is appropriate in  this case in the light of how the United States 
presented its claims.2555  
                                                      
2552The Panel recognized the preliminary nature of its findings of the "existence" of displacement and 
lost sales. (See Panel Report, paras. 7.1732, 7.1758, and 7.1792) 
2553Article 6.3(a) of the SCM Agreement  refers to the imports of a like product and Article 6.3(b) refers 
to the exports of a like product.  In this sense, Article 6.3(a) and (b) can be said to be concerned with trade 
volumes.  However, trade volumes are ultimately a functi on of sales.  Thus, in the analysis that follows, we 
focus on sales volumes. 
2554The Panel noted that "{a} market share approach is consistent with previous dispute settlement 
reports." (Panel Report, para. 7. 1751 (referring to Panel Report, Indonesia – Autos , para. 14.211;  and Panel 
Report, Korea – Commercial Vessels , para. 7.555)) 
2555As mentioned earlier, we note that such relative movements in market shares do not, by themselves, 
establish that a decline in market sh are is the effect of the challenged su bsidies under the two-step approach 
followed by the United States to show displacement w ithin the meaning of Article 6.3(a) and (b) of the SCM 
Agreement .   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 506  
 
  1166.  We further note that Article 6.4 of the SCM Agreement  provides that the change in relative 
market shares shall be demonstrated "over an  appropriately representative period sufficient to 
demonstrate clear trends in the developmen t of the market for the product concerned".
2556  This view 
was espoused by the Appellate Body in US – Upland Cotton , where it observed that Article 6.4 
requires that "displacement or impeding of expo rts be demonstrated 'over an appropriately 
representative period' … so that 'clear trends' in  changes in market share can be demonstrated."2557  
For the Appellate Body, this suggested that the effect of a subsidy must be examined "over a 
sufficiently long period of time and is not limited to the year in which it was paid"2558 because 
consideration of developments over a longer period "provides a more robust basis for a serious 
prejudice evaluation."2559 We further note that, in Argentina – Footwear (EC) , the Appellate Body 
clarified, albeit in a safeguards context, that i nvestigating authorities were required to consider " trends  
in imports over the period of investigation (rather than just comparing the end points)"2560, as this may 
mask trends developing in the intervening period.  The Appellate Body concluded that "intervening 
trends" had not been considered adequately because of "the sensitivity of the analysis to the particular 
end points of the investigation period used."2561  Similarly, a panel assessing a claim of displacement 
would have to look at clearly discernibl e trends during the reference period.   
1167.  The identification of a trend will be more accu rate the larger the data set used in the 
analysis.2562  At the same time, we recognize that too st rict a requirement concerning the size of the 
data set could preclude a Member from timely challenging subsidies that cause adverse effects to its 
interests.  While the United States initially s ubmitted data relating to th e period 2001-2005 it had 
proposed, the Panel decided to examine displacement  over a reference period spanning six years, from 
2001 up to and including 2006.2563  We agree with the Panel that th e most recent available data should 
not be excluded from consideration.  However, we disagree with other aspects of the Panel's approach 
because the assessment of the claims of displaceme nt put forward by the United States called for an 
examination of whether there were trends  in the market shares during the reference period, rather than 
a mere comparison of market shares at the end points of that period.   
                                                      
2556Similarly, Article 6.3(d) of the SCM Agreement requires a "consistent trend" of increase in the 
world market share of the subsidizing Member. 
2557Appellate Body Report, US – Upland Cotton , para. 478.  
2558Appellate Body Report, US – Upland Cotton , para. 478.  
2559Appellate Body Report, US – Upland Cotton , para. 478 (quoting Panel Report, US – Upland Cotton , 
para. 7.1199). 
2560Appellate Body Report, Argentina – Footwear (EC) , para. 129. (original emphasis) 
2561Appellate Body Report, Argentina – Footwear (EC) , para. 129. 
2562There are various statistical methods available that could be used to identify whether there are 
trends in the data, such as calcu lating weighted least squares.   
2563These findings of the Panel are not ap pealed. (Panel Report, para. 7.1694)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 507  
 
  1168.  Article 6.3(a) of the SCM Agreement  is concerned with displacement in "the market of the 
subsidizing Member", while Article 6.3(b) refers to displacement from "a third country market".  As 
discussed in section B above, there is both a ge ographic and product market component to the 
assessment of displacement.  In the case of Article 6.3(a), the geographic market is the market of the 
subsidizing Member.  The reference to the "lik e product of another Member" in Article 6.3(b) 
indicates that the third country referred to in that pr ovision is a market other than the market of the 
complaining Member.
2564  
1169.  A further interpretative question that arises is wh ether subparagraphs (a) and (b) of Article 6.3 
of the SCM Agreement contain a minimum threshold requirement for the establishment of 
displacement or impedance.  The Panel concl uded that Article 6.3(b) "does not contain any 
requirement that the displacement or impedance of  exports from a third country market rise to any 
particular level or degree."2565  We note that neither subparagraph (a) nor (b) expressly qualifies the 
level or degree of displacement or impedance re quired for a finding under those provisions.  By 
contrast, subparagraph (c) of Article 6.3 requires th at the phenomena described in that provision be 
"significant".  While Article 6.3(a) and (b) does not expressly state that displacement must be 
significant, we agree with the European Union that the displacement must be discernible.  Otherwise, 
we do not see how displacement could be clearly id entified and amount to "serious prejudice" within 
the meaning of Articles 5(c) and 6.3 of the SCM Agreement .2566 
1170.  To summarize, where a complainant puts forward a case based on the existence of 
displacement as a directly observable phenomenon a nd the panel opts to examine it under a two-step 
approach, as was done in this dispute, displacement arises under Article 6.3(a) of the SCM Agreement  
where imports of a like product of the complaining Member are declining in the market of the subsidizing Member, and are be ing substituted by the subsidized product.  Similarly, under 
Article 6.3(b), displacement arises where exports  from the like product of the complaining Member 
are declining in the third country market concer ned, and are being substituted by exports of the 
subsidized product.  As noted above, displaceme nt must be discernible.  The identification of 
displacement under this approach should focus on tre nds in the markets, looking at both volumes and 
                                                     
 
2564The third country market is also different from that of the subsidizing Member, which is specifically 
addressed by Article 6.3(a).   
2565Panel Report, footnote 5322 to para. 7.1791.  The Panel did not make a similar statement with 
respect to Article 6.3(a). 
2566The introductory clause to Article 6.3 provides  that "{s}erious prejudice in the sense of 
paragraph (c) of Article 5 may arise in any case where one or seve ral of the following apply".  In US – Upland 
Cotton , the Appellate Body clarified that "serious prejudice " within the meaning of Article 5(c) will not arise 
where the "effect of the subsidy" is to cause small varia tions in the prices of the like product. (See Appellate 
Body Report, US – Upland Cotton , para. 426 (quoting Panel Report, US – Upland Cotton , para. 7.1326))  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 508  
 
  market shares.  The trend has to be clearly id entifiable and an assessment based on a static 
comparison of the situation of the subsidized produc t and the like product at the beginning and at the 
end of the reference period would be inadequate .  Where a two-step approach is used under 
Article 6.3(a) and (b), and displacement has been  shown on a preliminary basis, the complaining 
Member will have to establish, in addition, that such displacement is the effect of the challenged 
subsidies.  
1171.  The European Union's appeal in cludes the Panel's finding of threat of displacement in the 
Indian market.  We note that neither subpa ragraph (a) nor (b) of Article 6.3 of the SCM Agreement  
expressly refers to "threat of displacement".  Neve rtheless, we recall that the introductory paragraph 
of Article 6.3 states that "{s}erious prejudice in the sense of paragraph (c) of Article 5 may arise" 
where there is one of the market phenomena de scribed in the subparagr aphs listed under that 
provision, including (a) and (b).  Fo otnote 13 to Article 5(c), in turn, clarifies that "{t}he term 'serious 
prejudice to the interests of another Member' is used in this Agreement in the same sense as it is used 
in paragraph 1 of Article XVI of {the} GATT 1994, and includes threat of serious prejudice".  Although Article 15.7 of the SCM Agreement  concerns threat of material  injury , we believe that it 
also provides relevant guidance for understanding the concept of threat of serious prejudice  under 
Article 5(c).  Thus, as with a determination of thr eat of material injury, we consider that it is 
reasonable to require that the determination of th reat of serious prejudice "be based on facts and not 
merely on allegation, conjecture or remote possibility " and that "{t}he change in circumstances" that 
would create a situation in which the subsidy woul d cause displacement "must be clearly foreseen and 
imminent."
2567   
1172.  With these considerations in mind, we turn to the specific allegations of the European Union. 
(c) The European Union's allegations of error 
1173.  The European Union challenges the Panel's finding of displacement under Article 6.3(a) 
and (b) of the SCM Agreement .  The appeal against the finding unde r Article 6.3(a) concerns imports 
of Boeing LCA into the market of the European Union.   This part of the European Union's appeal is 
premised on its claim that the Panel erred by assessing displacement on the basis of a single LCA 
product market.  The same claim is made by the European Union against the Panel's findings of 
displacement under Article 6.3(b) of the SCM Agreement  with respect to exports of Boeing LCA to 
Australia, Brazil, China, Korea, Me xico, Singapore, and Chinese Taipei.2568  The European Union 
                                                      
2567Article 15.7 of the SCM Agreement . 
2568European Union's appellant's submission, para. 318.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 509  
 
  makes two additional claims that are limited to a narrower group of geographic markets.  Both of 
these claims are made under the assumption that th e Panel did not err by assessing displacement on 
the basis of a single LCA product market.  First, as regards Brazil, Korea, Mexico, Singapore, and 
Chinese Taipei, the European Union ar gues that the displacement finding  is erroneous in the light of 
the absence of a trend, and the Panel's statement th at "sales were sporadic and volumes were relatively 
small" such that "identification of any trend {was} more difficult."
2569  Second, the European Union 
submits that the Panel erred under Articles 5(c) and 6.3(b) of the SCM Agreement  in finding 
displacement in Mexico and Brazil, because "in those markets there simply was not {a} drop in market share during the reference period."
2570  In addition, the European Union challenges the Panel's 
finding of threat of displacement in the Indian market.2571  According to the Eu ropean Union, "there 
was no overall threat of displacement for Boeing' s market share, based on a flawed single LCA 
product market", and there is no "threat of displ acement in any of the separate product markets".2572  
1174.  We recall that, in section B above , we have found that the Panel erred in its interpretation and 
application of the term "market" in Article 6.3(a) and (b) of the SCM Agreement  and acted 
inconsistently with its obligati ons under Article 11 of the DSU by concluding that it was not required 
to "make an independent determination of the 's ubsidized product', as opposed to relying on the 
complaining Member's identification of that product" .  We have also found that, in the absence of an 
objective determination of the rele vant product market by the Panel, its conclusion that there is a 
single subsidized product and a single like product ca nnot stand, and consequently we have reversed 
the Panel's findings of displacement on that basis.   We have explained above that we are unable to 
complete the analysis regarding the existence of a single or multiple product markets.  As we noted 
earlier and explain more fully below, even though we are unable to complete the analysis on the 
relevant product market, the particular circumstan ces in this case are such  that we are able to 
complete—at least to some extent—the analysis of  the United States' claims of displacement.    
1175.  First, the European Union's appeal of the Pane l's finding of displacement is limited.  The 
European Union expressly states that it does not requ est us to "reverse the displacement findings in 
their entirety".2573  Specifically, in the event of a reversal of  the Panel's single product market finding, 
the European Union requests the Appellate Body to complete the analysis and find that there is a 
separate single-aisle LCA market.  With resp ect to the markets for wide-body LCA, the 
                                                      
2569European Union's appellant's submission, para. 320 (quoting Panel Report, para. 7.1791). 
2570European Union's appellant's submission, para. 317. 
2571European Union's appellant's submission, para. 386. 
2572European Union's appellant's subm ission, para. 386 (referring to  Annex III (Displacement Annex), 
section 2).   
2573European Union's appellant's submission, para. 376. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 510  
 
  European Union recognized that "the evidence is less  clear and might support the existence of four or 
two wide-body LCA product markets."
2574  On this basis, the Europ ean Union further requested the 
Appellate Body to reverse the Panel's findings, in paragraphs 7.1791 and 8.2(b) of its Report, that 
there was displacement in the LCA markets of Brazil, Mexico, Singapore and Chinese Taipei;  to 
reverse  the Panel's finding, in paragraphs 7.1784, 7.1790, and 8.2(c) of its Report, that there is a threat 
of displacement in the LCA markets of India;  to  reverse the Panel's finding, in paragraphs 7.1780, 
7.1790, and 8.2(b) of its Report, that there was di splacement in the LCA markets of Australia, with 
the exception of the single-aisle LC A market;  to reverse the Panel's findings, in paragraphs 7.1781, 
7.1790, 7.1791, and 8.2(b) of its Report, that ther e was displacement in the LCA markets of China and 
Korea, with the exception of the single-aisle and 200-300 seat LCA (or twin-aisle)  markets;  and to 
reverse the Panel's finding, in para graphs 7.1758 and 8.2(a) of its Report, that there was displacement 
in the LCA markets of the European Union, with  the exception of the single-aisle, 200-300 seat and 
300-400 LCA (or twin-aisle) markets.2575  In other words, the European Union does not seek reversal 
of the findings of displacement (under the first step  of the Panel's two-step approach to analyzing 
serious prejudice) in the single-aisle, 200-300 seat and 300-400 LCA (or twin-aisle) markets of China, 
Korea and European Union, and the single-aisle LCA market of Australia.  Thus, in its appeal, and 
more particularly in framing its request for rever sal, the European Union ac knowledges that there is 
some displacement in these markets under the fi rst step of the Panel's two-step approach. 
1176.  Second, the United States and the European Un ion agree that there is competition between 
similar models of LCA.  Their disagreement is li mited to the degree of competition across models and 
also as between the extremes of Boeing's and Airbus ' product ranges.  The European Union notes that 
the displacement could be assessed  on the basis of either three or five product markets.2576  In its 
appellant's submission, the European Union "accepts that any displacement found under either of the 
two multiple product-market approaches would constitute properly observed displacement."2577   
1177.  Third, we have before us uncontested evidence of Airbus' and Boeing's volume of sales and 
market shares  for each of the geographic markets at  issue.  On appeal, th e European Union focused 
on the aggregation of these data for three product mark ets for each of the geographic markets at issue.  
                                                      
2574European Union's appellant's submission, para. 392. 
2575European Union's appellant's submission, para. 392. 
2576European Union's appellant's submission, paras. 371-375.   
2577European Union's appellant's submission, Annex III (Displacement Annex), para. 6.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 511  
 
  The data are derived from data on the Panel record.
2578  While the United States maintains that there is 
a single LCA product market, it confirmed at the oral  hearing that the disaggregated data submitted by 
the European Union are derived from data that was be fore the Panel and made it clear that it did not 
have any objections with respect to the data.   
1178.  In these circumstances, we consider it possible and appropriate to complete the analysis and 
examine the claims of displace ment on the basis of undisputed evidence regarding three product 
markets:  the single-aisle LCA product market;  th e twin-aisle LCA product market;  and the Very 
Large Aircraft product market.  By proceeding in this manner, we are examining the data from a perspective proposed by the responding party and not rejected by the complaining party.  While we 
are mindful of the scope of our jurisdiction under Article 17.6 of the DSU, we note that one of the functions of the WTO dispute settlement system is the "prompt settlement of situations in which a 
Member considers that any benefits accruing to it di rectly or indirectly under the covered agreements 
are being impaired by measures taken by another Memb er", as reflected in Article 3.3 of the DSU.   
1179.  We recall that the Panel entertained the United States' claim of displacement on the basis of 
an assessment of whether there w as an observable decline in the sales of Boeing.  Thus, we will limit 
our assessment to the question of whether a decline in the sales of Boeing during the reference period 
can be observed from the data.  Th is means that there would be no displacement, under the approach 
put forward by the United States before the Panel, where Boeing's sales increased during the reference 
period in a particular product market, where Boeing made no sales in a product market throughout the 
reference period, or where Boeing was the sole su pplier in a product market.  The latter situation 
occurred in every geographic market in the Ve ry Large Aircraft product market, because the 
Boeing 747 was the only product in that market duri ng the reference period.  Deliveries of the A380 
started subsequent to the reference period.
2579  We also recall that a tre nd of declining sales must be 
                                                      
2578The European Union explains that "{a}ll of the information set out in this Annex is found in the 
record, and is appropriately documented and cross-referenced. (European Union's appellant's submission, 
Annex III (Displacement Annex), para. 4)  At the oral hearing, the United Stat es agreed that the information in 
the Annex is based on evidence that was on the Panel record.  The European Union added that "{t}he delivery and market share data are extracted from the Aircla ims CASE database, as submitted to the panel as 
exhibit EC-21.  The accuracy of the data source—Airclaims—has never been contested between the Parties.  
Indeed, both parties derived their market share data from  Airclaims and the Panel relied on Airclaims data in its 
Report". ( Ibid.)  
The Appellate Body has previously found that it is not necessary that data be presented to it in 
precisely the same form in which it was presented to a panel.  The Appellate Body has cautioned, however, that exhibits presenting evidence in a fo rm that differs from the way in wh ich the evidence was presented to the 
panel are admissible only if:  (i) the data presented can be clearly traced to data on the panel record;  and (ii) the 
way in which the data has been converted into the form  in which it is presented on appeal can be readily 
understood. (Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina) , para. 13) 
2579The first delivery of the A380 occurred in 2007. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 512  
 
  discernable  from the data and that an end point-to-end point analysis is not sufficient to make out 
displacement.  
(i) European Union 
1180.  The data presented for the three product markets in  the European Union is summarized below.   
Table 4.1.  Volumes and market shares for three  LCA product markets in  the European Union: 
2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 93 62% 83 61% 84 61% 87 59% 84 66% 93 67% 
Boeing 58 38% 52 39% 53 39% 60 41% 43 34% 46 33% 
Twin-aisle LCA 
Airbus 21 60% 31 74% 14 61% 22 63% 19 79% 23 72% 
Boeing 14 40% 11 26% 9 39% 13 36% 5 21% 9 28% 
Very Large Aircraft 
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0 
Boeing 9 100% 6 100% 5 100% 4 100% 2 100% 1 100% 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1181.  The European Union accepts that there was disp lacement in the single-aisle and twin-aisle 
LCA market during the reference period.2580  Looking at the data above, we note that Boeing's market 
share in the twin-aisle LCA product market declin ed between 2001 and 2006.  In the single-aisle LCA 
product market, Boeing's market share remained relatively stable between 2001 and 2004, but 
declined in 2005 and 2006.  Boeing was the sole supplier of Very Large Aircraft throughout the 
reference period. 
1182.  Consequently, we find that there was displace ment over the reference period in the single-
aisle and twin-aisle LCA product ma rkets in the European Union. 
                                                      
2580European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 49.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 513  
 
  (ii) Australia 
Table 4.2.  Volumes and market shares for th ree LCA product markets in Australia: 2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 0 0% 0 0% 0 0% 6 33% 9 50% 6 43% 
Boeing 7 100% 27 100% 16 100% 12 67% 9 50% 8 57% 
Twin-aisle LCA 
Airbus 0 - 2 100% 4 100% 5 100% 3 100% 0 - 
Boeing 0 - 0 0% 0 0% 0 0% 0 0% 0 - 
Very Large Aircraft 
Airbus 0 - 0 0% 0 0% 0 - 0 - 0 - 
Boeing 0 - 3 100% 3 100% 0 - 0 - 0 - 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1183.  We note that the European Union does not contest  on appeal that there was displacement in 
the single-aisle LCA product market during the reference period.2581  The data above show that 
Boeing's dominance of the single-aisle LCA pr oduct market was eroded by Airbus during the 
reference period.  Although Boeing's market sh are increased slightly between 2005 and 2006 (from 
50% to 57%), its market share remained far below the levels in 2001-2003.  Boeing made no sales of 
twin-aisle aircraft in Australia during the referenc e period.  The absence of any Boeing deliveries of 
twin-aisle LCA does not support the United States' case which was premised on an observable decline 
in sales.  Boeing was the sole supplier of Very  Large Aircraft throughout the reference period. 
1184.  Therefore, we find that there was displacement  during the reference period in the single-aisle 
LCA product market in Australia.   
                                                      
2581European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 35. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 514  
 
  (iii) China 
Table 4.3.  Volumes and market shares for three LCA product markets in China: 2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 9 33% 7 21% 19 41% 33 63% 52 51% 60 50% 
Boeing 18 67% 27 79% 27 59% 19 37% 49 49% 60 50% 
Twin-aisle LCA 
Airbus 0 0% 0 0% 3 100% 2 67% 4 100% 16 89% 
Boeing 4 100% 2 100% 0 0% 1 33% 0 0% 2 11% 
Very Large Aircraft 
Airbus 0 - 0 0% 0 - 0 - 0 0% 0 0% 
Boeing 0 - 2 100% 0 - 0 - 1 100% 4 100% 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1185.  The European Union accepts that  the evidence shows displacem ent in the single-aisle and 
twin-aisle LCA product markets.2582  Indeed, the data show Boeing losing market share to Airbus in 
the single-aisle and twin-aisle LCA markets.  Boei ng was the sole supplier of Very Large Aircraft 
throughout the reference period. 
1186.  Accordingly, we find that there was displace ment during the reference period in the single-
aisle and twin-aisle LCA product markets in China. 
(iv) Other third country markets – Brazil, Korea, Mexico, 
Singapore, and Chinese Taipei 
1187.  The Panel observed that in the markets of Br azil, Korea, Mexico, Singapore, and Chinese 
Taipei, "sales were sporadic and volumes were re latively small, making identification of any trends 
more difficult."2583  The Panel, however, stated that "as Airbus was the only other competitor in these 
markets over the period we are considering, it follows  that any market share achieved by Airbus was 
at the expense of Boeing."2584  On this basis, the Panel conclude d "that the evidence demonstrates that 
United States' exports of LCA were displaced from these markets by sales of Airbus LCA over the period we examined as well."
2585   
1188.  The flaws in the Panel's assessment of displ acement in these geographic markets go beyond 
the errors that resulted from its failure to objectively determine the product market.  In 
subsection 1(b), we have explained that, under th e Panel's two-step approach, the analysis of 
                                                      
2582European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 42. 
2583Panel Report, para. 7.1791. (footnote omitted) 
2584Panel Report, para. 7.1791. 
2585Panel Report, para. 7.1791.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 515  
 
  displacement required an assessment of trends over the entire reference period.  No such assessment 
of trends is evident from the Panel's analysis.  In  fact, we do not see how the Panel could have made 
an assessment of trends on the basis of only two data points, corresponding to the market share of 
Airbus in 2001 and 2005, the end-points of the refe rence period proposed by the United States, also in 
view of the Panel's determination that the reference period would end in  2006.
2586  For 2006, the 
Panel relied on the data submitted by the European  Union disaggregated into product markets and 
used them in aggregated form.  Moreover, having  recognized in respect of the markets of Brazil, 
Korea, Mexico, Singapore, and Chinese Taipei that "sales were sporadic and volumes relatively small, 
making identification of any trends more difficult", th e Panel went on to state that "as Airbus was the 
only other competitor in these markets over the period we are considering, it follows that any market 
share achieved by Airbus was at the expense of Boeing."2587  Such a general statement that any sale to 
Airbus is at the expense of Boeing does not provide any analysis of market share developments, much 
less identify clear trends over the reference period in  the relevant geographic market.  With the same 
considerations that we outlined above2588 in mind, we turn to examine the data for these geographic 
markets, proceeding on the undisputed basis that there is competition within three product markets.  
    B r a z i l   
 
Table 4.4.  Volumes and market shares for three LCA product markets in Brazil: 2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 9 56% 16 67% 0 - 0 0% 5 100% 9 43% 
Boeing 7 44% 8 33% 0 - 1 100% 0 0% 12 57% 
Twin-aisle LCA  
Airbus 0 0% 4 100% 0 - 0 - 1 50% 0 - 
Boeing 2 100% 0 0% 0 - 0 - 1 50% 0 - 
Very Large Aircraft  
Airbus 0 - 0 - 0 - 0 - 0 - 0 - 
Boeing 0 - 0 - 0 - 0 - 0 - 0 - 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1189.  We do not consider that the volume and market share data based on three product markets 
sufficiently establish that Boeing's exports were di splaced from the Brazilian market.  Boeing's market 
share in the single-aisle LCA product market decreased  in 2002;  there were no sales in 2003;  Boeing 
took the entire single-aisle market in 2004, and Airb us did the same in 2005.  In 2006, Boeing's sales 
                                                      
2586As we observed above, an examination of data at the end points of a reference period is insufficient 
for an assessment of displacement.   
2587Panel Report, para. 7.1791. 
2588See supra , paras. 1176 and 1179. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 516  
 
  in single-aisle market increased again to 57%.  The twin-aisle LCA product market shows Boeing and 
Airbus each taking 100% of the market in 2001 and 2002, respectively, a nd then splitting it 50%-50% 
in 2005, with no sales in 2003, 2004, and 2006.  We  do not believe that this data sufficiently show 
that there is a trend of Boeing losing market shar e to Airbus in Brazil for the twin-aisle LCA product 
market.  There were no deliveries of Very Large Ai rcraft by either producer throughout the reference 
period.   
1190.  Thus, we find that the data do not establish that there was displacement in the Brazilian 
market during the reference period. 
    K o r e a
 
 
Table 4.5.  Volumes and market shares for three LCA product markets in Korea: 2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 1 11% 3 33% 2 33% 4 50% 2 67% 3 60% 
Boeing 8 89% 6 67% 4 67% 4 50% 1 33% 2 40% 
Twin-aisle LCA 
Airbus 2 33% 2 33% 1 50% 1 50% 2 40% 2 50% 
Boeing 4 66% 4 66% 1 50% 1 50% 3 60% 2 50% 
Very Large Aircraft 
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0% 
Boeing 3 100% 3 100% 3 100% 3 100% 1 100% 3 100% 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1191.  The European Union concedes that the data  would support a finding of displacement for 
single-aisle and twin-aisle LCA product markets.2589  The single-aisle LCA product market data show 
that Boeing lost market share to Airbus through out the reference period.  In the twin-aisle LCA 
product market, the two-third to one-third split of th e Korean market in favour of Boeing in the initial 
two years becomes a 50%-50% split of the market in 2003, 2004, and 2006.  Boeing was the sole 
supplier of Very Large Aircraft throughout the reference period. 
1192.  Therefore, we find that there was displacement  during the reference period in the single-aisle 
and twin-aisle LCA product markets in Korea. 
                                                      
2589European Union's appellant's submission, para. 383 and Annex III (Displacement Annex), para. 46.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 517  
 
      M e x i c o
  
 
Table 4.6.  Volumes and market shares for th ree LCA product markets in Mexico: 2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 2 29% 4 100% 4 40% 4 31% 7 50% 3 25% 
Boeing 5 71% 0 0% 6 60% 9 69% 7 50% 9 75% 
Twin-aisle LCA 
Airbus 0 - 0 - 0 - 0 - 0 - 0 - 
Boeing 0 - 0 - 0 - 0 - 0 - 2 100% 
Very Large Aircraft 
Airbus 0 - 0 - 0 - 0 - 0 - 0 - 
Boeing 0 - 0 - 0 - 0 - 0 - 0 - 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1193.  The data show deliveries by Airbus only in the single-aisle LCA product market.  In that 
product market, however, Boeing's share remained re latively stable throughout the reference period 
and, therefore, the data do not support the United States' allegation of displacement, which was based 
on an observable decline in Boeing's market share.  In 2006, Boeing ma de deliveries in the twin-aisle 
LCA  product market.  There are no deliveries by either producer of Very Large Aircraft throughout 
the reference period. 
1194.  In the light of the above, we find that the data  do not establish that there was displacement in 
the Mexican market during the reference period. 
    Singapore  
 
Table 4.7.  Volumes and markets share for three  LCA product markets in Singapore: 2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 2 100% 1 100% 1 100% 8 100% 11 100% 6 100% 
Boeing 0 0% 0 0% 0 0% 0 0% 0 0% 0 0% 
Twin-aisle LCA 
Airbus 0 0% 0 0% 4 31% 3 43% 0 0% 0 0% 
Boeing 12 100% 12 100% 9 69% 4 57% 3 100% 6 100% 
Very Large Aircraft 
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0% 
Boeing 5 100% 1 100% 2 100% 2 100% 1 100% 1 100% 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1195.  The data show that there were no sales of Boeing in the single-aisle LCA product market 
during the reference period.  Boeing was the sole supplier in the twin-aisle LCA product market in WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 518  
 
  2001 and 2002.  Airbus made deliveries in 2003 a nd 2004, reducing Boeing's market share during 
those years to 69% and 57%.  However, Boeing was again the sole supplier in 2005 and 2006 and 
retained its dominance in the twin-aisle LCA produc t market.  Boeing was the sole supplier of Very 
Large Aircraft throughout the refe rence period.  The data show that Airbus was dominant in the 
single-aisle LCA product market, that Boeing was dom inant in the twin-aisle LCA and Very Large 
Aircraft product markets, and that their respective shares remained stable over the reference period.  
1196.  Consequently, we find that the data do not establish that there was displacement in the 
Singaporean market during the reference period. 
    Chinese Taipei 
 
 
Table 4.8.  Volumes and market shares for three LCA product markets in Chinese Taipei: 2001-2006 
2001 2002 2003 2004 2005 2006  
units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 0 0% 0 0% 0 - 0 - 0 - 0 - 
Boeing 3 100% 2 100% 0 - 0 - 0 - 0 - 
Twin-aisle LCA 
Airbus 5 100% 0 - 3 100% 7 100% 9 82% 5 71% 
Boeing 0 0% 0 - 0 0% 0 0% 2 18% 2 29% 
Very Large Aircraft  
Airbus 0 0% 0 0% 0 0% 0 0% 0 0% 0 0% 
Boeing 5 100% 4 100% 3 100% 4 100% 5 100% 2 100% 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1197.  Boeing was the sole supplier in the single-ais le LCA product market.  Airbus dominated the 
twin-aisle LCA product market, making 100% of th e deliveries between 2001 and 2004, when Boeing 
started to penetrate that market.  Boeing made 18%  of deliveries in 2005 and 29% in 2006, but Airbus 
retained more than two-thirds of the market in bot h years.  Boeing was the sole supplier of Very Large 
Aircraft throughout the reference period.  In these circumstances, the data do not support the 
United States' case of displacement, which was based on the allegation that Boeing's market share 
decreased during the reference period.   
1198.  Accordingly, we find that the data do not establis h that there was displacement in the Chinese 
Taipei market during the reference period.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 519  
 
  (v) India 
1199.  The United States made a claim of threat of disp lacement in relation to the Indian market.  
The Panel recalled its earlier observation that it did not consider orders data to be "persuasive 
evidence of current displacement", but added that "o rders are an indicator of likely future deliveries, 
albeit imperfect".
2590  The Panel therefore decided it would "review the {orders} information 
presented as an indicator of threat of future displacement or impedance of exports from the Indian market"
2591 and found that the data on orders fo r the period 2001 to 2005 presented by the 
United States demonstrated that Airbus gained most of the orders for LCA in the Indian market during 
that period.2592 
Table 4.9.  Volume and market sh are data based on quantity of LCA ordered for three LCA product 
markets in India: 2001-2006 
2001 2002 2003 2004 2005 2006  units m/s units m/s units m/s units m/s units m/s units m/s 
Single-aisle LCA 
Airbus 0 - 0 - 0 0% 2 100% 196 83% 56 74% 
Boeing 0 - 0 - 1 100% 0 0% 39 17% 20 26% 
Twin-aisle LCA 
Airbus 0 - 0 - 0 - 0 - 20 25% 5 33% 
Boeing 0 - 0 - 0 - 0 - 60 75% 10 66% 
Very Large Aircraft  
Airbus 0 - 0 0% 0 - 0 - 5 83% 0 0% 
Boeing 0 - 2 100% 0 - 0 - 1 17% 4 100% 
Source :  European Union's appellant's subm ission, Annex III (Dis placement Annex). 
 
1200.  Neither company won orders in the single-aisle LCA product market in 2001 and 2002.  
Boeing won 100% of the market in 2003, but this w as with a single order.  Airbus dominated that 
product market as of 2004, capturing the orders for two aircraft placed during the period.  Nevertheless, the data do not provide a basis for the United States' case of threat of displacement 
based on Boeing's declining market share given th at Boeing had one order for a single aircraft 
between 2001 and 2004. If anything, Boeing was ga ining market share in 2005 and 2006 (from 0% in 
2004 to 17% in 2005 and 26% in 2006). The twin-ais le LCA product market shows no orders between 
2001 and 2004.  Boeing captured a majority of the orders in 2005 and 2006, but its market share declined from 75% to 66%.  This decline in mark et share in a period of only two years does not 
provide a sufficient basis for a finding of threat of displacement.   
                                                     
 
2590Panel Report, para. 7.1783. (footnote omitted) 
2591Panel Report, para. 7.1783. 
2592Panel Report, para. 7.1784. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 520  
 
  1201.  Because the data concern orders, the data incl ude sales by Airbus in the Very Large Aircraft 
product market.  Boeing had 100% of the two Very La rge Aircraft ordered in 2002.  The number of 
total aircraft ordered went up to six in 2005 and Airbus won 83% of  these orders.  However, Boeing 
won 100% of the four aircraft ordered in 2006, with the highest volume of aircraft ordered it achieved 
during the reference period.  In th ese circumstances, the data do not support a finding of displacement 
in the Very Large Aircraft product market.   
1202.  Therefore, we find that the uncontested evidence does not establish that there was a threat of 
displacement in the Indian market during the reference period.
2593 
(vi) Summary of conclusions 
1203.  In respect of the first step of the Panel's two-step approach2594, we find, on the basis of 
uncontested evidence on the Panel record, that there was displacement under Article 6.3(a) and under 
Article 6.3(b) of the SCM Agreement  during the reference period: 
(a) in the single-aisle and twin-aisle LCA product markets in the European Union; 
(b) in the single-aisle LCA product market in Australia;  
(c) in the single-aisle and twin-aisle LCA product markets in China;  and 
(d) in the single-aisle and twin-aisle  LCA product markets in Korea. 
1204.  We find that the uncontested evidence does not  establish displacement over the reference 
period in Brazil, Mexico, Singapore, and Chinese Taip ei.  In addition, we find that the uncontested 
evidence does not establish threat of displace ment over the reference period in India. 
                                                      
2593In the light of our finding, we need not examine the European Union's clai m that the Panel erred by 
failing to consider delivery data for the end of 2006 or the beginning of 2007. (European Union's appellant's submission, para. 389) 
2594These findings are in paragraphs 7.1758, 7.1790, and 7.1791.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 521  
 
  1205.  As noted above, one Member on the Division takes the position that, in the absence of a 
determination of the relevant product market(s), th e Appellate Body cannot complete the analysis on 
displacement.  This Member, therefore, does not agree with the above findings on displacement.  
However, this Member agrees with the legal inte rpretation of the concept of displacement in 
Article 6.3(a) and (b) of the  SCM Agreement , as set out above in paragraphs 1159 and following of 
this Report, and agrees that the analysis below rega rding the question of whether the displacement is 
the effect of the challenged subsidies, as set out  below in paragraphs 1229 and following of this 
Report, follows logically from the view of the ot her Members on the Division with respect to the 
existence of displacement. 
1206.  We review, in section IX.D below,  the second step of the Panel's two-step analysis, that is, the 
Panel's finding that the displacement is the effect  of the challenged subsidies, under Article 6.3(a) 
and (b) of the SCM Agreement . 
2. Lost Sales
 
1207.  We move now to the European Union's appeal of the Panel's finding of lost sales under the 
first step of the Panel's two-step approach.  A summary of the Panel's findings is provided in 
subsection (a).  We examine the European Uni on's allegations of error in subsection (b). 
(a) The Panel's findings 
1208.  The United States presented "anecdotal evidence"2595 allegedly showing that Boeing had lost 
several sales campaigns to Airbus by virt ue of Airbus' aggressive pricing practices.2596  In particular, 
the United States argued that Airbus had captured sales to Air Asia, Air Berlin, Czech Airlines, 
easyJet, Emirates Airlines, Iberia, Qantas, Singapore Airlines, South African Airways, and Thai Airways.
2597  The evidence submitted by the United States to support this contention consisted 
                                                      
2595Panel Report, para. 7.1800.  
2596The United States also provided this evidence in support of its claim of significant price 
undercutting. 
2597Panel Report, para. 7.1801.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 522  
 
  primarily of media reports
2598, press releases2599, and public disclosures by certain airlines2600 
allegedly suggesting that discounts offered by Airb us in competitive bids against Boeing were the 
main reason why Boeing had lost those sales campaigns. 
1209.  The European Communities did not dispute that  in the sales campaigns identified by the 
United States, Boeing "lost" the sales in question,  in the sense that it did not succeed in selling its 
LCA to the customer in question.2601  However, the European Communities argued that non-price 
factors such as Boeing's mismanagement of customer relationships2602, political considerations2603, 
technical specifications2604, and fleet and route structure2605 were responsible for Boeing's failure to 
                                                      
2598For example, easyJet's CEO is quoted as saying that speculation about a 60% discount over list 
prices offered by Airbus "is 'a bit ambitious, but not far off'." (Panel Report, para. 7.1803 (quoting C. Baker, 
"Easy does it", Airline Business , 1 December 2002 (Panel Exhibit US-408) ))  Media reports al so suggested that 
Airbus had trumped Boeing for the Air Berlin campaign "by offering steep discounts and other financial 
guarantees that {Boeing} was unwilling to match." ( Ibid., para. 7.1807 (quoting "Airbus to Beat Boeing Once 
Again", Wall Street Journal , 8 November 2004 (Panel Exhibit US-412 )))  A Czech Airlines executive is quoted 
as noting that although both offers met the company's specifications, "Airbus offered the better price". ( Ibid., 
para. 7.1810 (quoting "Ceske Aeroline: Order for Jets Worth CZK10B-CZK12B", Oster Dow Jones Commodity 
Wire , 15 October 2004 (Panel Exhibit US-424)))  For the Air Asia campaign, the United States produced a 
media report suggesting that Boeing was not prepared to match the price offered by Airbus. (See ibid., 
para. 7.1814 (quoting "Airbus to Beat Boeing Once Again", Wall Street Journal , 8 November 2004 (Panel 
Exhibit US-412)))  Similarly, the United States presented media reports suggesting Airbus had offered "special 
price concessions", "extra credits", and payments to "pha se out" existing aircraft to win the Thai Airways bid. 
(Ibid., para. 7.1825) 
2599For the Iberia campaign, the United States produc ed a press release announ cing that the company 
was "taking advantage of exceptional terms" offered by Airbus. (Panel Report, para. 7.1818 (quoting Iberia 
press release, " Iberia opta por Airbus para la renovación de su flota B-747 ", 30 January 2003 (Panel Exhibit 
US-415))) 
2600The United States presented easyJet's 2005 annual report indicating a 56% discount over the A319 
list prices. (See Panel Report, para. 7.1804)  Similarly, the 2002 Group Audited Results of South African Airways described the LCA bought from Airbus as "aggressively priced". ( Ibid., para. 7.1822 (quoting South 
African Airways, "Group Audited Results, Year Ended 31 March 2002" (Panel Exhibit US-417))) 
2601Panel Report, para. 7.1802. 
2602The European Communities submitted that Air Berlin officials "were unhappy with Boeing's 
business and production practices". (Panel Report, para . 7.1809 (referring to European Communities' first 
written submission to the Panel, para. 1903))  Similarly,  the European Communities argued that Boeing lost the 
Air Asia campaign due to its "arrogant" and "inflexible" negotiating positions. ( Ibid., para. 7.1815 (quoting 
"Platt:  Boeing will do what it takes", Seattle Post-Intelligencer Aerospace Reporter , 15 June 2005 (Panel 
Exhibit EC-464))) 
2603The European Communities argued th at the Czech Airlines sale was won by Airbus due to a dispute 
between the Czech Government and Boeing over the state-owned company Aero Vodochody. (See Panel 
Report, para. 7.1811) 
2604The European Communities posited th at Emirates Airlines, Qantas , and Singapore Airlines each 
ordered the A380 not because of its price, but because it offered unique advantages  in seating capacity, range, 
and operating economics that were not available from any competing Boeing LCA at that time. (See Panel 
Report, para. 7.1829) 
2605The European Communities suggested that performance advantages of the Airbus A340 at hot, 
high-altitude airports were a distinct advantage in the Iberia and South African Airways campaigns. (Panel 
Report, para. 7.1819 (referring to European Communities'  first written submission to the Panel, para. 2095) and 
para. 7.1823)  The European Communities also suggested that "fleet commonality" was also perceived as an important factor by Iberia. ( Ibid., para. 7.1819 (referring to European  Communities' first written submission to 
the Panel, para. 2096))   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 523  
 
  win those sales campaigns.  It was the Europ ean Communities' contention that these factors 
demonstrate that the lost sales could not be considered to be an effect of the subsidies.
2606   
1210.  In the Panel's view, the evidence before it su ggested that price was:  "the determining 
factor"2607 in the easyJet campaign;  "a crucial element"2608 for Air Berlin;  "a critical 
consideration"2609 for Air Asia;  and "an important element"2610 in the Iberia campaign.  The Panel 
also found that price played a "significant role" in  the Emirates Airlines, Qantas, Singapore Airlines, 
and South African Airways campaigns.2611  Although the Panel acknowledged that Czech Airlines 
"was not well inclined towards Boeing", it noted that  the evidence indicated that Airbus did offer the 
better price.2612  As regards the Thai Airways campaign, the Panel considered that, at the time of the 
sale, the Airbus A340-500/600 was the only LCA in production that could meet Thai Airways'  operational needs.
2613 
1211.  The Panel expressed reservations as to whether th e "anecdotal evidence" before it provided an 
appropriate evidentiary basis to support a finding of  significant price undercutting under Article 6.3(c) 
of the SCM Agreement .2614  This is because such evidence consis ted mostly of offer prices, rather than 
actual prices.  Moreover, while recognizing that pri ce—in the sense of the overall value of the offer to 
the customer's business—"remain{ed}  one of the, if not the only, determinative factors in the 
customer's decision"2615, the Panel did not consider that public statements reflecting the calculation of 
the relative value of competing offers provided a su fficient basis for an actual comparison of prices. 
1212.  The Panel found that it could not, on the basis of  the evidence before it, draw any conclusions 
with respect to significant price undercutting within the meaning of Article 6.3(c).2616  However, the 
Panel observed that "this does not mean that there were not significant lost sales".2617  The Panel went 
on to state its view that "it is clear that Boeing lost sales to Airbus involving purchases by easyJet, Air Berlin, Czech Airlines, Air Asia, Iberia, South African Airways, Thai Airways International, 
Singapore Airlines, Emirates Airlines, and Qantas."
2618  The Panel then turned to the issue of 
                                                      
2606Panel Report, para. 7.1802. 
2607Panel Report, para. 7.1806.  
2608Panel Report, para. 7.1809.  
2609Panel Report, para. 7.1817.  
2610Panel Report, para. 7.1821.  
2611Panel Report, paras. 7.1824 and 7.1832.   
2612Panel Report, para. 7.1813.  
2613Panel Report, para. 7.1827.  
2614Panel Report, para. 7.1833.  
2615Panel Report, para. 7.1839.  
2616Panel Report, para. 7.1840.  
2617Panel Report, para. 7.1845. 
2618Panel Report, para. 7.1845. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 524  
 
  significance and found that, in the light of the number of aircraft and the dollar amounts involved in 
the sales, their strategic importance, the learning e ffects and economies of scale they generate, and the 
advantages of incumbent supplier provided by  the sales, these lost sales were significant.
2619 
(b) Did the Panel err in finding lost sales in relation to the sale of A380 
LCA to Emirates Airlines? 
(i) What are "lost sales"? 
1213.  Article 6.3(c) of the SCM Agreement establishes that serious prejudice within the meaning of 
Article 5(c) of the SCM Agreement  may arise in any case where "the effect of the subsidy" is 
"a significant price undercutting ... or significant price suppression, price depression or lost sales in the same market."  Similarly to displacement under Artic le 6.3(a) and (b), this is the first time that the 
Appellate Body will examine claims of "lost sales" under Article 6.3(c) of the SCM Agreement .   
1214.  We consider that a sale that is "lost" is one that a supplier "failed to obtain".
2620  We further 
understand lost sales to be a relati onal concept that includes considera tion of the behaviour of both the 
subsidized firm(s), which must have won the sales,  and the competing firm(s), which allegedly lost 
the sales.2621  In US – Upland Cotton , the Appellate Body held that the phrase "in the same market" 
applied to all four situations set forth in Article 6.3(c), including "lost sales".2622  According to the 
Appellate Body, the subsidized pr oduct and the like product of the co mplaining Member will be in the 
same market "if they were engaged in act ual or potential competition in that market."2623  Thus, sales 
can be lost "in the same market" within the meaning of Article 6.3(c) if the subsidized product and the 
like product are competing products in the same product market. 
1215.  The term "significant" in the second clause of Ar ticle 6.3(c) appears before the terms "price 
suppression, price depression or lost sales".2624  We read the term "significant" as qualifying all three 
                                                      
2619Panel Report, para. 7.1845. (footnote omitted)  The Panel had earlier concluded that the term 
"significant" applies "to  each of the situations" described in Article 6.3(c) of the SCM Agreement , including lost 
sales. ( Ibid., para. 7.1796) 
2620The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), 
Vol. 1, p. 1632.  
2621The United States asserted before the Panel that a "' lost' sale is any sale that is captured by the 
subsidized product instead of the product of the complaining Member." (Panel Report, para. 7.1797 (quoting United States' first written submission to the Panel, para. 776)) 
2622Appellate Body Report, US – Upland Cotton , para. 407. 
2623Appellate Body Report, US – Upland Cotton , para. 408.  
2624The term "significant" also appears in the first clause of Article 6.3(c), which describes "price 
undercutting".  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 525  
 
  situations.  In other words, a complaining Member invoking Article 6.3(c) must show that the alleged 
"lost sales" are "significant".
2625 
1216.  As with the other market phenomena referred to in Article 6.3 of the SCM Agreement , the lost 
sales must be the "effect" of the challenged subsid y.  Thus, like the analysis of displacement under 
Article 6.3(a) and (b), we believe that a useful  and appropriate approach to assessing whether lost 
sales are the effect of the challenged subsidy is thr ough a counterfactual analysis.  This would involve 
a comparison of the sales actually made by the competing firm(s) of the complaining Member with a 
counterfactual scenario in which the firm(s) of th e respondent Member would not have received the 
challenged subsidies.  There would be lost sales wh ere the counterfactual scenario shows that sales 
won by the subsidized firm(s) of the respondent Member would have been made instead by the 
competing firm(s) of the complaining Member, thus re vealing the effect of the challenged subsidies.  
It is not impermissible to assess lost sales under Article 6.3(c) of the SCM Agreement  using a two-step 
approach like the one adopted by the Panel.   However, as we have discussed above2626, any 
conclusions reached under the first step are prel iminary because they will show only who lost and 
who made the sales.  A definitive determination that  the lost sales are the ef fect of the challenged 
subsidy within the meaning of Article 6.3(c) must aw ait completion of the second step of the analysis.   
1217.  The United States directed its allegations of lost sales in this case against specific sales 
campaigns and the Panel focused its analysis on th ose sales campaigns.  The European Union has not 
challenged the Panel's approach on appeal.  We agre e that an assessment of lost sales focused on an 
examination of specific sales campaigns may be appropriate given the particular characteristics of a 
market.2627  At the same time, we note that Article 6.3(c) is concerned with lost sales "in the same 
market".  It will sometimes be necessary to look beyond individual sales campaigns fully to 
understand the competitive dynamics that are at play in  a particular market.  Thus, an approach in 
which sales are aggregated by supplier or by custom er, or on a country-wide or global basis, rather 
than examined individually, is also permissible.   
1218.  We acknowledge that when looked at from this broader, market-wide perspective, there could 
be some overlap between the concept of lost sales and the concepts of displacement and impedance in 
Article 6.3(a) and (b) of the SCM Agreement .  Although the concepts of displacement and impedance 
                                                      
2625At the oral hearing, both participants agreed that th e lost sales, within the meaning of  Article 6.3(c) 
of the SCM Agreement , must be "significant". 
2626See section IX.A of this Report. 
2627We recognize that Article 6.3(c) of the SCM Agreement  refers to "lost sales" in the plural.  While 
the United States' allegations of lost sales in this case related to individual sales campaigns, each of these 
campaigns involved the sale of a number of LCA.  We  are therefore in this case not faced with the question 
whether Article 6.3(c) can be invoked in relation to an allegedly lost sale of a single unit of a product. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 526  
 
  are presented from the perspective of imports or  exports under subparagraphs (a) and (b) of 
Article 6.3, those imports or exports are a function of  the firms' sales.  At the same time, we see some 
distinctions between the concepts.  First, th e assessment of displacement or impedance under 
subparagraphs (a) and (b) of Article 6.3 has a we ll-defined geographic focus.  By contrast, the 
reference to the "same market" in subparagraph (c) allows more flexibility in defining the relevant 
market, which can include the world market.
2628  Second, the requirement in Article 6.3(c) that the lost 
sales be "significant" implies th at the assessment can have quan titative and qualitative dimensions.  
The assessment of displacement and impedance under Article 6.3(a) and (b) is primarily quantitative 
in nature.  
1219.  The Panel in this case referred to several factors that it considered relevant to the question of 
whether the lost sales were significant: 
In our view, it is clear that Boeing lost sales to Airbus involving 
purchases by easyJet, Air Berlin, Czech Airlines, Air Asia, Iberia, 
South African Airways, Thai Airways International, Singapore 
Airlines, Emirates Airlines, and Qantas.  Moreover, it is apparent to us that if winning a particular sale is of "strategic importance" to Airbus, as the European Communities asserts with respect to the easyJet campaign discussed above, the lo ss of that sale to Boeing is 
similarly important, and can justifia bly be considered a significant 
lost sale.  In addition, lost sales ar e important to the extent that they 
delay a manufacturer's ability to benefit from the important learning effects and economies of scale in th is industry, and thus have a 
significance beyond their direct revenue effects.  Moreover, both parties recognize the advantages to being the incumbent supplier with 
a given customer with respect to subsequent purchases, which also 
adds to the significance of lost sales.  While it is true that a manufacturer may be able to recoup some of these disadvantages by finding another customer to take advantage of delivery slots, this does not, in our view, detract from the significance of a lost sale.  
Given the number of aircraft and the dollar amounts involved in 
                                                     
 
2628As the Appellate Body explained in US – Upland Cotton : 
The only express qualification on the type of "market" referred to in 
Article 6.3(c) is that it must be "the same" market.  Aside from this 
qualification ..., Article 6.3(c) imposes  no explicit geographical limitation 
on the scope of the relevant market.  This contrasts with the other 
paragraphs of Article 6.3...  We agr ee with the Panel that this difference 
may indicate that the drafters did not intend to confine, a priori , the market 
examined under Article 6.3(c) to any particular area.  Thus, the ordinary 
meaning of the word "market" in Article  6.3(c), when read in the context of 
the other paragraphs of Article 6.3, neither requires nor excludes the possibility of a national market or a world market. 
(Appellate Body Report, US – Upland Cotton , para. 406 (footnotes omitted))  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 527  
 
  those sales, as well as the considerations just described, we conclude 
that these lost sales are significant.
2629 (footnotes omitted) 
Neither participant has challenged the criteria articu lated by the Panel in its assessment of significance 
or the way in which the Panel applied them.2630   
1220.  To summarize, we consider that, under Article 6. 3(c), "lost sales" are sales that suppliers of 
the complaining Member "failed to obtain" and that  instead were won by suppliers of the respondent 
Member.  It is a relational concept and its assessment  requires consideration of the behaviour of both 
the subsidized firm(s), which must have won the sales, and the competing firm(s), which allegedly 
lost the sales.  The assessment can focus on a speci fic sales campaign when such an approach is 
appropriate given the particular ch aracteristics of the market or it ma y look more broadly at aggregate 
sales in the market.  The complainant must show th at the lost sales are signi ficant to succeed in its 
claim.  Where lost sales are assessed under a two-step  approach such as the one adopted by the Panel 
in this case, the finding of lost  sales in the first step is n ecessarily preliminary and of limited 
significance in coming to a conclusion under Article 6.3(c).  Similarly to the phenomena of 
displacement under Article 6.3(a) and (b), a definiti ve determination under Ar ticle 6.3(c) must await 
consideration of whether such lost sales are the ef fect of the challenged subsidy.  While a two-step 
approach to the assessment of lost sales is permissi ble, in our view, the most appropriate approach to 
assess whether lost sales are the effect  of the challenged subsidy is through a unitary counterfactual 
analysis.  This would involve a comparison of the sal es actually made by the competing firm(s) of the 
complaining Member with a counterfactual scenario in which the firm(s) of the respondent Member 
would not have received the challe nged subsidies.  There would be lo st sales where the counterfactual 
analysis shows that, in the absence  of the challenged subsidy, sales won by the subsidized firm(s) of 
the respondent Member would have been made inst ead by the competing firm(s) of the complaining 
Member.   
(ii) Do the sales of the A380 to Em irates Airlines constitute "lost 
sales"? 
1221.  The European Union does not appeal the Panel's interpretation of lost sales under its two-step 
approach to assessing the United States' claim under Article 6.3(c) of the SCM Agreement .  Instead, 
the European Union challenges the Panel's applicati on of Article 6.3(c) and the Panel's assessment of 
the evidence under Article 11 of th e DSU.  We turn to the speci fic allegations raised by the 
European Union below.  Our review proceeds on the basis of the two-step approach adopted by the 
                                                      
2629Panel Report, para. 7.1845. 
2630European Union's and United St ates' responses to questioni ng at the oral hearing. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 528  
 
  Panel under Article 6.3(c) and, at this stage, is c oncerned exclusively with the Panel's finding of lost 
sales under the first step. 
1222.  According to the European Union, the Panel erre d in the application of Article 6.3(c) of the 
SCM Agreement  because it failed to "make explicit findi ngs whether Emirates would have ordered 
any Boeing LCA if it had not ordered the A380 in 2000".
2631  The European Union does not contest 
that Airbus won this particular sales camp aign involving the A380.  The focus of the 
European Union's claim is on the alleged lack of  findings as to whether Boeing would have secured 
the order from Emirates Airlines had the airline not purchased the A380.  At the oral hearing, the 
European Union asserted that Boeing failed to "tur n up" for the sales campaign and thus could not 
have lost the sales.   
1223.  We find it difficult to reconcile the European Union's argument with the Panel's findings as to 
the conditions of competition in the LCA industry.  The Panel found that airlines consider the LCA of 
both Airbus and Boeing, even when an airlin e does not formally request offers from both 
manufacturers or where one of the two does not  present an offer.  It explained that: 
Given the importance of LCA costs to the customers' successful 
operations, we cannot accept the implication that customers knowledgeable about the market would not consider the competitive products available from the two producers in most cases, even if formal offers are neither requested nor made in a particular 
instance.
2632 
This finding has not been appealed by the European  Union.  Given the conditions of competition in 
the LCA industry, it was not necessary for Boeing to have made a formal offer to Emirates Airlines—
or "turn up" to use the European Union's expressi on—for the sales to qualify as sales that Boeing 
"failed to obtain".  As the Panel explained, ev en in the absence of a formal offer from Boeing, 
Emirates could be expected to have considered  the products manufactured by Boeing before making 
its purchase decision.  We do not understand the Eur opean Union to have argued that Boeing would 
not have had the production capacity to  fill the order and offer a 747.  
1224.  Turning to the European Union's allegation that the Panel acted inconsistently with Article 11 
of the DSU, we note that the European Union fau lts the Panel for "failing to address and reasonably 
explain"2633:  (i) evidence that Emirates Airlines would not have purchased competing Boeing aircraft;  
                                                      
2631European Union's appellant's submission, para. 588. (original emphasis)   
2632Panel Report, para. 7.1722.  
2633European Union's appellant's submission, para. 597.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 529  
 
  and (ii) evidence that Boeing was not interested in  launching a competitor to the A380 at the time of 
the Emirates sales campaign.
2634  
1225.  As noted elsewhere in this Report, Article 11 of  the DSU requires a panel, in the discharge of 
its responsibilities under the DSU, to "make an objective assessment of the matter before it, including 
an objective assessment of the facts of the case" .  The duty to make an "objective assessment" 
generally requires a panel to "consider all the eviden ce presented to it, assess its credibility, determine 
its weight, and ensure that its factual findi ngs have a proper basis in that evidence."2635  Within these 
parameters, it is generally "within the discretion of the Panel to decide which evidence it chooses to 
utilize in making findings"2636, and panels "are not required to accord to factual evidence of the parties 
the same meaning and weight as do the parties".2637   
1226.  The European Union's claim under Article 11 of  the DSU focuses on the timing of Boeing's 
decision to market the 747-X.  The underlying premi se of the European Union's argument is that the 
A380 would only compete against the 747-X a nd not with other versions of the 747.2638  I n  o t h e r  
words, the European Union's argument is predicat ed upon its position that five product markets exist 
and that the A380 is not "like" and does not compet e with the other versions of the 747.  As noted 
                                                      
2634European Union's appellant's submission, para. 597. 
2635Appellate Body Report, Brazil – Retreaded Tyres , para. 185 (referring to Appellate Body Report, 
EC – Hormones , paras. 132 and 133).  See also Appellate Body Report, Japan – Apples , para. 221;  Appellate 
Body Report, Australia – Salmon , para. 266;  Appellate Body Report, EC – Asbestos , para. 161;  Appellate 
Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 170, 177, and 181;  Appellate Body Report, EC – 
Sardines , para. 299;  Appellate Body Report, EC – Selected Customs Matters , para. 258;  Appellate Body 
Report, EC – Tube or Pipe Fittings , para. 125;  Appellate Body Report, Japan – Agricultural Products II , 
paras. 141 and 142;  Appellate Body Report, Korea – Alcoholic Beverages , paras. 161 and 162;  Appellate Body 
Report, Korea – Dairy , para. 138;  Appellate Body Report, US – Carbon Steel , para. 142;  Appellate Body 
Report, US – Gambling , para. 363;  and  Appellate Body Report, US – Oil Country Tubular Goods Sunset 
Reviews , para. 313. 
2636Appellate Body Report, US – Carbon Steel , para. 142 (quoting Appellate Body Report, EC – 
Hormones , para. 135). 
2637Appellate Body Report, Australia – Salmon , para. 267. 
2638The United States argues that "{f}or the European Union's argument to be relevant, however, it 
would have had to demonstrate that the 747-X is the only aircraft that Emirates would have considered if the A380 were not available".  It further notes that "the Panel found that airlin es consider all available aircraft, and 
the evidence shows that Emirates itself purchased other Boeing aircraft to fulfil its needs for seats, thus 
demonstrat{ing} that the 747-X was not the only aircraft that Emirates would have considered if the A380 were not available to it". (United States' appellee's submission, paras. 646 and 647)  The Panel referred to a press 
Article submitted by the United States that indicated that Emirates had tu rned to the Boeing 777 to replace the 
delayed A380. (Panel Report, para. 7.1831 (referring to "Singapore Airlines may buy more Boeing 777s", International Herald Tribune , 10 December 2006 (Panel Exhibit US-6 11)))  The United States also argued 
before the Panel that "the European Communities acknowl edge{d} that factors such as seating capacity are 
routinely 'monetized' in sales campaigns and, to the extent  practicable, can be offset by price concessions, with 
the result that even if the A380 may be better suited to a particular airline's business plan than a smaller plane 
like the 777, the two aircraft can —and do—fly the same routes." ( Ibid., para. 7.1831 (referring to United States' 
second written submission to the Panel, para. 719, in turn  referring to Expert statement of Christian Scherer, 
Head of Future Programmes, Airbus, "Commercial Aspects of the Aircraft Business from the Perspective of a 
Manufacturer" (Panel Exhibit EC-14 (BCI), para. 69))   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 530  
 
  above, however, although we have re versed the Panel's finding that there is a single LCA market, we 
also have not endorsed the five product market a pproach proposed by the European Communities.  
During these appellate proceedings, the European Union has accepted an approach based on three 
product markets, in which the Boeing 747 and the Airbus A380 form part of the same product 
market.
2639  This is also the position espoused in the Airbus A380 business case, which is HSBI.  The 
A380 business case is an internal Airbus docum ent, assessing the economic viability of the A380, 
including conditions of competition in the marketpla ce and particularly with certain Boeing models.  
That Airbus considered the 747 as a competitor to the A380 is also evident in the EADS Offering 
Memorandum, a public document which states: 
Since the development of the 747 in the 1960s, Boeing has had a 
monopoly on the high end (in excess of 400 seats) of the large aircraft sector.  To counter this and to meet the expected growth in air 
travel over the next 20 years, Airbus has studied a program for a family of ultra-large four-engine aircraft, designated the 
"A3XX"{
2640}, to establish its commercial, technical and industrial 
feasibility.  Such a program would allow Airbus not only to compete head-to-head with the 747 but also to develop a new market for aircraft larger than the 747.
2641  
1227.  At the oral hearing, the European Union pl aced emphasis on the final clause of the quoted 
statement, which indicates that the A380 would allo w Airbus "to develop a new market for aircraft 
larger than the 747".  The Panel found that the A380  and the 747 competed with each other even if 
"the A380 offered unique characteristics" to Emir ates Airlines, Qantas, and Singapore Airlines.2642  
Ultimately the European Union seems to be arguing that in th e absence of the A380 and the 
unavailability of a larger 747 (such as the 747-X), Em irates would not have purchased any other LCA.  
We find this to be a somewhat unrealistic propos ition in the light of Emirates Airlines' rapid 
expansion and ambitious growth strategy.  A more  likely scenario would have been that Emirates 
would have considered the 747, which was the largest LCA available, or smaller LCA manufactured 
by Airbus and Boeing.2643  In the light of these considerations, we do not believe that the Panel failed 
to make an objective assessment of the matter and we  see no reason to interfere in the Panel's findings 
and reasoning on this point.  
                                                      
2639The European Union accepted this in the Displ acement Annex to its appellant's submission.  
(European Union's appellant's submi ssion, Annex III (Displacement Annex), para. 6)  If the Boeing 747 and 
Airbus A380 are in the same product market for purposes  of the assessment of displacement, we fail to see why 
they would not be in competition for purposes of an assessment of lost sales.   
2640As noted supra , footnote 2377, the A3XX is an earlier denomination given to the A380.  
2641EADS' Offering Memorandum, supra , footnote 163, p. 71. 
2642Panel Report, para. 7.1832. 
2643Although this has little evidentia ry weight because of its ex post  nature, the record indicates that 
Emirates leased Boeing 777 LCA after delivery of the A380s was delayed. (United States' and European Union's 
response to questioning at the oral hearing)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 531  
 
  1228.  For these reasons, we are not persuaded by the European Union's allegation that the Panel 
erred, under the first step of its two-step appro ach, in finding that the order of A380 by Emirates 
constitutes lost sales.  In our view, the Panel's fi ndings that there is competition between the Airbus 
A380 and the Boeing 747 and that Airbus and Boei ng competed for the Emirates sale even though 
formal offers may not have been requested or made , provided a sufficient basis for the Panel's finding 
of lost sales.  Therefore, we uphold the Panel's findi ng, under the first step of its two-step approach, 
that Boeing lost the Emirates Airlines sale to Ai rbus and that the lost sale is "significant".
2644  We 
examine the European Union's appeal of the Pane l's finding, under the second step of its two-step 
approach, that the lost sales were the effect of the subsidies in subsection D.2(b) below.2645 
D. Causation 
1. Causation – Displacement  
1229.  We turn next to the European Union's claims of error in relation to the second step of the 
Panel's two-step analysis, namely whether the subs idies provided to Airbus caused serious prejudice 
to the United States' interest s within the meaning of Articles 5(c) and 6.3 of the SCM Agreement , in 
the form of displacement of Boeing LCA and lost sales. 
(a) Establishing a "causal link" between the subsidy and the market 
situations described in Article 6.3 of the SCM Agreement  
1230.  We recall that Article 6.3 of the SCM Agreement , provides in relevant part: 
6.3 Serious prejudice in the sense of paragraph (c) of Article 5 
may arise in any case where one or several of the following apply: 
(a) the effect of the subsidy is to displace or impede the imports 
of a like product of another Memb er into the market of the 
subsidizing Member; 
(b) the effect of the subsidy is to displace or impede the exports 
of a like product of another  Member from a third country market; 
(c) the effect of the subsidy is a significant price undercutting by 
the subsidized product as compared with the price of a like product of another Member in the same market or significant price suppression, price depression or lost sales in the same market{.} 
                                                     
 
2644Panel Report, para. 7.1845. (footnote omitted) 
2645The Panel's findings on lost sales involved in addition purchases by Air Asia, Air Berlin, Czech 
Airlines, easyJet, Iberia, Qantas, Singapore Airlines, Sout h African Airways, and Thai  Airways International.  
The Panel's findings of lost sales in relation to these sales campaigns, under the first step of its two-step 
approach, were not appealed.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 532  
 
  1231.  The Appellate Body has found that Article 6.3(c)  requires the establishment of a causal link 
between the subsidies and the particular market s ituations being claimed under that provision.  The 
Appellate Body explained: 
... Article 6.3(c) does not use the wo rd "cause";  rather, it states that 
"the effect of the subsidy is … significant price suppression".  However, the ordinary meaning of the noun "effect" is "{s}omething 
… caused or produced; a result, a consequence".  The "something" in 
this context is significant price suppression, and thus the question is whether significant price suppression is "caused" by or is a "result" or "consequence" of the challenged s ubsidy.  The Panel's conclusion 
that "{t}he text of the treaty re quires the establishment of a causal 
link between the subsidy and the significant price suppression" is 
thus consistent with this ordinary meaning of the term "effect".  This 
is also confirmed by the context provided by Article 5(c) of the SCM Agreement  … .
2646 (footnote omitted) 
1232.  Moreover, the Appellate Body has observed th at to satisfy the causation requirement under 
Articles 5(c) and 6.3(c), it must be shown that there is a "genuine and substan tial relationship of cause 
and effect" between the subsidies and the alleged market phenomenon.2647  In addition, the Appellate 
Body has stated that panels assessing claims under Arti cles 5(c) and 6.3(c) must ensure that the effects 
of other factors are not improperly attributed to the challenged subsidies.2648  The Appellate Body's 
guidance concerning the assessment of causation was provided in the context of a dispute involving 
Article 6.3(c) of the SCM Agreement .  The language of subparagraphs (a ) and (b) of Article 6.3 of the 
SCM Agreement  expresses the causation requirement in very similar terms to those used in 
subparagraph (c).  Under s ubparagraphs (a) and (b), displacement or impedance must be shown to be 
"the effect of the subsidy".  We see no reason wh y the standard for causation and non-attribution 
should be different under subparagra phs (a) and (b) than under subparagr aph (c), and the participants 
and third participants have not suggested that a different standard applies.   
1233.  The Appellate Body has said furthermore th at it may be possible to assess whether the 
particular market phenomena are the effect of the subsidies by recourse to a "but for" approach.2649  
Thus, one possible approach to the assessment of ca usation is an inquiry that seeks to identify what 
would have occurred "but for" the subsidies.  In so me circumstances, a determination that the market 
                                                      
2646Appellate Body Report, US – Upland Cotton , para. 435. 
2647Appellate Body Report, US – Upland Cotton , para. 438;  Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 374. 
2648Appellate Body Report, US – Upland Cotton , para. 437.  
2649Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 374 and 375.  The 
Appellate Body explained that a "but for" test may be "too undemanding" if the subsidy is "necessary, but not 
sufficient, to bring about" a market phenomenon, and "too rigorous if it required the subsidy to be the only cause."  Instead, the "but for" test should determine that there is a "genuine and substantial relationship of cause 
and effect". ( Ibid., para. 374)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 533  
 
  phenomena captured by Article 6.3 of the SCM Agreement  would not have occurred "but for" the 
challenged subsidies will suffice to establish causation.   This is because, in some circumstances, the 
"but for" analysis will show that the subsidy is both a necessary cause of the market phenomenon and 
a substantial cause.  It is not required that the "but  for" analysis establish that the challenged subsidies 
are a sufficient cause of the market phenomenon pr ovided that it shows a genuine and substantial 
relationship of cause and effect.  However, there are circumstances in which a "but for" approach does 
not suffice.  For example, where a necessary cau se is too remote and other intervening causes 
substantially account for the market phenomenon.   This example underscores the importance of 
carrying out a proper non-attribution analysis.
2650   
1234.  At the outset of its causation analysis, the Pane l described the task at hand as a determination 
of whether "the particular market phenomena ob served over the period 2001 to 2006 were caused by 
the specific subsidies we have found were provided to Airbus."2651  Then the Panel appears to have 
proceeded in its analysis on the basis of a "but for" test as evidenced by its frequent reference to this 
test in the Panel Report.2652  This may have been, in part, a reflection of the United States' argument 
that "market distortion and adverse effects flow directly from Airbus' entry at a particular time with a 
particular aircraft, which in the United States' view would not have been possible but for  the 
subsidies."2653  The Panel's extensive reference to a "but fo r" test would suggest that this was the test 
that the Panel in fact applied in its analysis.  As  we noted above, a "but for" test is one possible 
approach to the assessment of causation.  Neverthe less, in applying a "but for" test, a panel must 
ensure that the assessment demonstrates that the subs idies are a "genuine and substantial" cause of the 
particular market situation that is alleged.  Thus , the Panel in this case should have clearly indicated 
that, in applying a "but for" standard, it would seek to establish whether there was a "genuine and 
substantial relationship of cause and effect"2654 between the challenged subsidies and the displacement 
and lost sales.  Furthermore, it should have indicated  that, in doing so, it would also ensure that the 
                                                      
2650At the oral hearing, Brazil referred to the situati on where there are two concurring necessary causes, 
each of which could on its own have caused a particular event. (Brazil's oral stat ement at the oral hearing 
(referring to H.L.A Hart and T. Honoré, Causation in the Law  (Oxford University Press, 1985)))  We note that 
the situation described by Brazil is not common, nor has is it been alleged that it is the situation before us in this 
appeal.  
2651Panel Report, para. 7.1876.  
2652See Panel Report, paras. 7.1906, 7.1910, 7.1920, 7.1939, 7.1940, 7.1948, 7.1956, 7.1976, 7.1979, 
7.1985, 7.1986, 7.1989, and 7.1993. 
2653Panel Report, para. 7.1879. (emphasis added)  The Panel observed that "{t}he United States makes 
this central argument in a variety of ways throughout its submissions." ( Ibid., footnote 5533 to para. 7.1879 
(referring to United States' first written submission to the Pa nel, paras. 78 and 810;  United States' oral statement 
at the first Panel meeting, para. 131;  and United States ' second written submission to the Panel, para. 571))  
2654Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 374. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 534  
 
  effects of other factors were not improperly attributed to the challenged subsidies.
2655  W e  r e v i e w  
below the Panel's assessment of whether displace ment and lost sales were the effects of the 
challenged subsidies.  Before doing so, we discuss the issue of the age of a subsidy. 
(b) The age of a subsidy 
1235.  The European Communities argued before the Pane l that several of the LA/MSF "subsidies in 
this dispute are 'decades old' and cannot, for that reason, be causing present serious prejudice to the United States' interests."
2656  In a section entitled "The Age of the LA/MSF Subsidies", the Panel 
noted that:   
{i}t is true that the first grant of LA/MSF, for the A300, was agreed 
by the governments of Germany and France in 1969 and by Spain in 
1970.  However, this was but the first of a series of grants of LA/MSF provided in respect of each subsequent model of Airbus LCA.  Thus, LA/MSF was provided by those same governments with respect to the A310 in 1978.  The governments of France, Germany, Spain and the United Kingdom provided LA/MSF with respect to the 
A320 in 1984, and with respect to the A330/A340 in 1987.  LA/MSF 
was again provided by the government of France for the A330-200 in 1995, and by the governments of France and Spain for the A340-500/600 in 1997.  The most recent grant of LA/MSF was in 2000, by the governments of France, Germany, Spain and the United 
Kingdom, with respect to the A380.
2657 
1236.  In previous sections of this Report, we have found that a challenge to subsidies granted prior 
to 1 January 1995 is not precluded.  We have also  found, however, that, in order properly to assess a 
claim under Article 5 of the SCM Agreement , a panel must take into account in its ex ante  analysis 
how a subsidy is expected to materialize over time. A panel is also required to consider whether the 
life of a subsidy has ended, for example, by reason of  the amortization of the subsidy over the relevant 
period or because the subsidy was removed from the r ecipient.  Moreover, we have emphasized that 
the effects of a subsidy will generally diminish a nd come to an end with the passage of time.   
                                                      
2655There is another aspect of the Panel's approach th at is difficult to understand.  A "but for" test 
generally reflects a "unitary" approach to causation, that is, it contemplates the simultaneous assessment of both 
the existence of the particular market phenomenon—in this case, displacement or lost sales—and of whether the 
market situation is "the effect" of the challenged subsidy.   Yet, the Panel clearly indi cated at the outset of its 
analysis that it was pursuing a tw o-step approach, in which it would first determine the existence of the 
particular market phenomenon before proceeding to exam ine whether the market phe nomenon was the effect of 
the subsidy.   
2656Panel Report, para. 7.1973.  
2657Panel Report, para. 7.1973.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 535  
 
  1237.  Regarding the effects of subsidi es over time, the Panel found that: 
{w}hile the effect of a single subsidy may well dissipate over time , ..., 
the fact that the subsidies at issu e in this dispute were repeatedly 
granted over the entire history of Airbus' LCA development with respect to that same product has had rather the opposite effect , 
through the learning and spillover effects, and production synergies that are inherent in this industry, which spread the ef fect of LA/MSF 
for the development of one model of LCA, and of other subsidies, to 
both subsequent and earlier models.
2658 
1238.  We do not agree that it is only the effect of a "single subsidy" that would dissipate over time, 
while multiple subsidies may have the "opposite effect ".  To the contrary, in general, the effects of 
any subsidy  can be expected to diminish and eventually  come to an end with the passage of time.  
This is true for single as well as multiple acts of subsidization.  The question of whether there are 
residual effects is a fact-specific matter that may have to be considered. 
1239.  Regarding the effects of particular subsidies,  we note that the A300 and A310 were launched 
more than 30 years ago, that is, in 1969 and 1978 respectively.2659  The first delivery of an A300 to a 
customer took place in 1974, while the A310 was first delivered to a customer and put in service in 
1985.2660  According to the European Union, Ge rman LA/MSF for these LCA models was fully 
disbursed by the end of 19882661;  LA/MSF provided by France was disbursed by 19862662;  and 
Spanish LA/MSF for the A300 and A310 was full y provided to CASA by the end of 1992.2663   
1240.  In its additional memorandum following the firs t session of the substantive oral hearing, the 
European Union argued that, taking into account th e marketing life of LCA—which according to the 
European Union is 17 years from the launch of th e aircraft, and "less for derivatives such as the 
A310"—and applying amortization rules, no "continuing benefits" existed after 1 January 1995 for the 
A300 and the A310.2664  In response, the United States recognized  that "allocation is one tool that may 
                                                      
2658Panel Report, para. 7.1976.  
2659Panel Report, paras. 7.1933 and 7.1935.  
2660Panel Report, footnote 5146 to para. 7.1704.  
2661European Union's appellant's submission, para. 62 (referring to Sondergutachten 18 der 
Monopolkommission, Zusammenschlu βvorhaben der Daimler-Benz AG m it der Messerschmitt-Bölkow-Blohm 
GmbH  ("Special Opinion 18 of the Monopoly Comm ission, Merger Project of Daimler-Benz AG and 
Messerschmitt-Bölkow-Blohm GmbH") (Panel Exhibit US-30), p. 71, table 11). 
2662European Union's appellant's submission, para. 63 (referring to Rapport d'information 367 
(1996/1997) du Sénat  ("Senate Report 367 (1996/1997)") (Panel Exhibit US-18), p. 67).  
2663European Union's appellant's submission, para. 64 (referring to Cuadernos CDTI (Centro para el 
Desarrollo Tecnológico Industrial ) ("Centre for Industrial Technological Development") (prepared by the State 
Secretariat of Industry, Ministry of Science and Technology), Report of July 1993, Section 8: Airbus (Panel Exhibit US-54), p. 91, table entry " fondos recibidos del Estado " for the A300 and A310). 
2664European Union's additional memorandum following the first session of the oral hearing, para. 10. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 536  
 
  be used" but emphasized that allocation was not required to "analyze the benefit of a subsidy."
2665  
The United States further noted that "it was not part of the U.S. demonstration of the existence of the 
subsidies or the adverse effects they caused , or of the Panel's findings on these issues."2666  T h e  
United States added that the European Union "has d one nothing to show that allocation was required 
in this dispute" and "had not demonstrated that a 17-year period, rather than the period during which 
any financing is outstanding, was appropriate."2667   
1241.  The United States recognizes "allocation is one tool that may be used" in analyzing 
benefit.2668  Although we neither endorse nor reject the specific amortization methodology proposed 
by the European Union in this case, we see no reason to disagree with the notion that allocation of a 
subsidy over the anticipated marketing life of an aircraft programme may be one way to assess the 
duration of a subsidy over time.2669  As a matter of logic, it thus follows that LA/MSF for the A300 
and A310 are likely to cause minimal, if any, a dverse effects during the reference period 2001-2006. 
(c) The Panel's assessment of causation 
1242.  In order properly to assess the European Union's appeal, we find it helpful to lay out first the 
key aspects of the Panel's analysis.   
1243.  The United States advanced two theories of cau sation, referred to by the Panel as the 
"product" and "pricing" theories of causation.  We are concerned in this appeal only with the 
"product" theory of causation.2670  Under this theory, the United States argued that the subsidies had 
an impact on "Airbus' ability to launch and bring to the market models of LCA that the United States 
submits would not otherwise have been possible at the time and in the way that it did without the support of those subsidies".
2671  The Panel explained:  
                                                      
2665United States' comments on the European Union's additional memorandum following the first 
session of the oral hearing, para. 6.  
2666United States' comments on the European Union's additional memorandum following the first 
session of the oral hearing, para. 6.  
2667United States' comments on the European Union's additional memorandum following the first 
session of the oral hearing, para. 6.  
2668United States' comments on the European Union's additional memorandum following the first 
session of the oral hearing, para. 6.  
2669We further note in this regard that the 1992 Ag reement refers to a "reasonable expectation of 
recoupment" of support for the development of a new LCA programme "within 17 years  from the date of first 
disbursement of such support, of all costs ..., includin g repayment of government su pports". (Article 4 of the 
1992 Agreement (emphasis added)) 
2670The Panel rejected the United States' "pricing" theo ry of causation. (Panel Report, paras. 7.2010 
and 7.2024)  The United States has not appeal ed this aspect of the Panel's analysis. 
2671Panel Report, para. 7.1877.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 537  
 
  The United States does not consider that its arguments depend on 
finding that, in the absence of LA/MSF, Airbus would not exist.  Rather, the United States argues th at in the absence of LA/MSF 
Airbus would not have been in a pos ition to develop the aircraft it did 
when it did.  For the United States, market distortion and adverse 
effects flow directly from Airbus' entry at a particular time with a 
particular aircraft, which in the United States' view would not have been possible but for the subsidies.
2672 
1244.  The Panel further explained that the Unite d States relied on two types of evidence.2673  First, 
the United States relied on a series of public statements and one state aid decision of the European Commission allegedly revealing the views held by various officials from Airbus and other 
relevant public bodies on the impact of LA/MSF on the ability of Airbus to launch LCA.
2674  Second, 
the United States submitted a report prepared by Dr. Gary Dorman, which purportedly demonstrated 
the impact of LA/MSF-type measures on the decision to launch an LCA.2675 
1245.  Dr. Dorman's report was the first item examined by the Panel.  The report "simulates cash-
flows generated by a hypothetical wide-body ai rplane programme under a variety of LA/MSF 
contribution, price, produ ction and cost scenarios."2676  Six different LA/MSF programmes were 
modelled after actual LA/MSF packages, and each of the six programmes was examined under three 
different repayment schedules.2677  The impact of LA/MSF was assessed by calculating a base case 
scenario in which the NPV of the programme was cal culated without LA/MSF.  The Panel noted that 
the Dorman Report showed "positive returns in the base case (i.e., a NPV of USD 1.35 billion)."2678  
Yet, the Panel went on to observe that "relatively small variations to the forecasts give rise to 
uneconomic results".2679  For the Panel, given the long-term na ture of an aircraft programme, such 
variations in forecast parameters constituted "realistic scenarios"2680 that a manufacturer would have 
to consider when making a launch decision.  Th e Panel noted that the "Dorman Report does not 
explicitly conclude that each Airbus  LCA model, or indeed any par ticular Airbus LCA model, would 
                                                      
2672Panel Report, para. 7.1879 (referring to United States' first written submission to the Panel, 
paras. 78 and 810;  United States' oral statement at the first Panel meeting, para. 131;  and United States' second 
written submission to the Panel, para. 571). 
2673Panel Report, para. 7.1880. 
2674Panel Report, para. 7.1880. 
2675Dorman Report, supra , footnote 1042. 
2676Panel Report, para. 7.1882. 
2677Panel Report, para. 7.1882.  The three scenarios are:  (i) level repayment (equal per-aircraft 
payments set on the basis of forecast deliveries);  (ii) graduated repaymen t (increasing per-aircraft payment);  
and (iii) delayed level repayment (equal per-aircraft payments starting with the 60th airplane delivery). ( Ibid., 
footnote 5536 to para. 7.1882 (referring to Dorman Report, supra , footnote 1042, p. 5))  
2678Panel Report, para. 7.1883. 
2679Panel Report, para. 7.1883. 
2680Panel Report, para. 7.1887.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 538  
 
  not have been launched in the absence of LA/MSF."  Nevertheless, it considered this "to be a clear 
implication of the conclusion it advances on the basis of the results it predicts."
2681 
1246.  The European Communities submitted a critique of  the Dorman Report prepared by Dr. Paul 
Wachtel (the "Wachtel Report")2682, which challenged the results of the Dorman Report simulation on 
the following three grounds.  First, Dr. Wachtel criticized the Dorman Report because it was premised 
on Boeing retaining monopoly profits and market share in the absence of LA/MSF.  Dr. Wachtel 
argued, instead, that the LCA market was a "natural duopoly".2683  Second, Dr. Wachtel questioned 
some of the parameters used in the Dorman Report simulation, and assumptions of costs and demand.
2684  Dr. Wachtel also questioned the specific parameter values and Dr. Dorman's NPVs 
resulting from small variations of forecast paramete rs.  Third, Dr. Wachtel criticized the Dorman 
Report simulation for failing to take account of the effective size of the subsidy (the interest rate 
differential) and the impact of the repayment structure of LA/MSF.2685   
1247.  The Panel disagreed with Dr. Wachtel's conten tion that the Dorman Report was premised on 
the view that Boeing would hold a monopoly positi on in the absence of a competitor subsidized 
through LA/MSF.2686  The Panel referred to the Dorman Re port's conclusion that LA/MSF "allows the 
recipient to undertake airplane development project s at a pace and scale that would be much more 
difficult—perhaps impossible—for a competitor that does not have access to launch aid."2687  The 
Panel explained that "{w}hile a Boeing monopoly may be one way of understanding what the 
Dorman Report states about the implications of LA/MSF on the operations of the incumbent LCA 
manufacturer, it is also possible to understand those im plications in the context of a world where the 
incumbent manufacturer would face competition from another player; a weaker entrant that entered without the assistance of LA/MSF."
2688  Additionally, the Panel stated that "the real significance for us 
of the simulation presented in the Dorman Report is not so much what it says about the impact of 
LA/MSF on the operations of the incumbent manufacture r, but rather what it tells us about whether a 
potential new entrant, or an existing manufactur er, will decide to launch a new model of LCA."2689 
                                                      
2681Panel Report, para. 7.1887. 
2682P. Wachtel, "Critique of 'The Effect of Launch Aid on the Economics of Commercial Airplane 
Programs' by Dr. Gary J. Dorman" (31 January 2007) (Panel Exhibit EC-12) and clarification (20 May 2007) (Panel Exhibit EC-659).  
2683Panel Report, para. 7.1894.  
2684Panel Report, para. 7.1888.  
2685Panel Report, para. 7.1899.  
2686Panel Report, para. 7.1893. 
2687Panel Report, para. 7.1893 (referring to Dorman Report, supra , footnote 1042). 
2688Panel Report, para. 7.1893. 
2689Panel Report, para. 7.1893.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 539  
 
  1248.  Next, the Panel addressed Dr. Wachtel's second criticism, namely, that the Dorman Report 
derived "its conclusions about the effects of LA /MSF from sensitivity tests performed on a simulation 
that is constructed with unrealistic paramete r values and assumptions of costs and demand".
2690  The 
Panel rejected this criticism and instead agreed with the United States that the simulation in the 
Dorman Report demonstrated that LA/MSF will ha ve a significant impact on the NPV of any given 
aircraft project, irrespective of the specific parame ters used to model costs and income streams, by 
increasing potential profits and limiting potential losses.2691  The Panel noted that by limiting potential 
losses, LA/MSF transfers risk from Airbus to the governments supplying LA/MSF, thereby rendering it more likely, in any given case, that an LCA programme will be undertaken.
2692   
1249.  The Panel then turned to Dr. Wachtel's third criticism, which concerned the Dorman Report's 
alleged failure "to take into account the full econom ic implications of the structure of LA/MSF 
repayments."2693  The Panel was not persuaded by Dr. W achtel's argument that LA/MSF repayments 
will tend to increase the price at which Airbus sells  its LCA because the repayments are tied to LCA 
deliveries.  The Panel observed, in this regard, that Dr. Wachtel did not consider that this alleged price 
effect would be certain to result from LA/MSF's sales-dependent repayment terms.2694  The Panel also 
rejected Dr. Wachtel's allegation that the Dorman  Report simulation does not take into account the 
amount of the subsidy associated with LA/MSF, as opposed to the principal amount actually loaned.
2695  The Panel found that the simulation in the Do rman Report did, in effect, take into account 
the amount of subsidization, as defined by the European Communities, but, unlike the European Communities, used a 10% discount rate.
2696  The Panel further found that this discount rate 
was within the range of market interest rates that  it had concluded would be  appropriate benchmarks 
for the relevant LA/MSF contracts.2697   
                                                      
2690Panel Report, para. 7.1888 (referring to Wachtel Report and clarification, supra , footnote 2682). 
2691Panel Report, para. 7.1898. 
2692Panel Report, para. 7.1898. 
2693Panel Report, para. 7.1888 (referring to Wachtel Report and clarification, supra , footnote 2682). 
2694Panel Report, para. 7.1901. 
2695Panel Report, para. 7.1902. 
2696Panel Report, para. 7.1904. 
2697Panel Report, para. 7.1905.  The Panel noted that the 10% discount rate used in the Dorman Report 
was below the market interest rates determined for the A320 package.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 540  
 
  1250.  Having reviewed Dr. Wachtel's criticisms of the Dorman Report, the Panel concluded: 
All else being equal, we consider that the provision of LA/MSF, 
which makes a project more profitable if successful and limits downside risk if unsuccessful, makes it more likely that any given aircraft will be launched.  This  does not, however, conclusively 
establish that, but for the grant of LA/MSF, any particular Airbus model would not have been launched when it actually was.
2698 
1251.  The Panel then noted that the United States' acceptance that Boeing would face competition 
from at least some other entity in the absen ce of LA/MSF, and reasoned from this that:  
If the United States concedes that Boeing would, in the absence of 
LA/MSF, face some competition it must, presumably, concede that at 
least some competing planes would have been launched (by Airbus 
or some other entity) over the peri od since Airbus launched its first 
LCA.  The Dorman simulation does not provide a basis for assessing the circumstances of any competitiv e launches in the absence of 
LA/MSF.  Insofar as its results suggest that there would be no entry, and insofar as it does not distinguish between the type of entry which 
is modelled and other forms of en try which might otherwise occur, 
we consider that it is not possible to conclude on the basis of the Dorman Report alone  that, but for LA/MSF, any particular Airbus 
aircraft model would not have been launched.
2699  
1252.  The Panel cautioned that this did not mean that "{it did} not consider that the Dorman Report 
supports the United States' argument regardin g the impact of LA/MSF on Airbus' launch 
decisions."2700  It then summarized the elem ents of the United States' ca se that were supported by the 
Dorman Report: 
{T}he Dorman Report does  in our view demonstrate that LA/MSF 
will have a significant impact on the NPV of any particular project, 
and that irrespective of the specific parameters used to model costs and income streams, LA/MSF will increase potential profits and act to limit potential downside losses.  It also demonstrates that in some circumstances, the availability of LA/MSF makes the difference 
between a positive or negative NPV, or  alters the risk profile of a 
project sufficiently to make an affirmative decision to launch a particular aircraft more likely.
2701 (original boldface) 
1253.  Before completing its assessment of the Dorman  Report, the Panel referred to "a putative 
'Boeing 787 business case'" submitted by the Europ ean Communities and which showed a NPV and 
IRR higher that those the European Communiti es asserted were generated by the Dorman 
                                                      
2698Panel Report, para. 7.1906. 
2699Panel Report, para. 7.1910.  
2700Panel Report, para. 7.1911. 
2701Panel Report, para. 7.1911.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 541  
 
  simulation.
2702  The Panel did not consider "that the results of an ex post facto business case for a 
Boeing LCA constructed on the basis of public in formation for purposes of this dispute has any 
relevance to our assessment of the effect of LA/MSF subsidies on Airbus".2703  It explained that, even 
assuming the correctness of the exercise, which the Panel considered to be "unclear", it did not see how the conclusion that the NPV and IRR of this Boeing 787 business case are higher than those of 
the Dorman Report simulation informed its assessment of the effect of LA/MSF on Airbus.
2704   
1254.  The Panel concluded: 
Thus, we conclude that the Dorman Report demonstrates that the 
provision of LA/MSF is likely to change the behaviour of the 
recipient with respect to a decisi on to launch a LCA by increasing the 
likelihood of an affirmative decision to go forward with the launch.
2705 
1255.  Having completed its assessment of the Dorman Report, the Panel turned to other evidence 
adduced by the United States.  The Panel engaged in a detailed analysis of the business cases of 
various Airbus LCA projects and the public statements relied upon by the United States.2706  Recalling 
its earlier analysis of the Dorman Report, and rely ing also on certain public statements and its own 
understanding of the history and risks associated w ith development of LCA in general, and of the 
A300 in particular, the Panel said it was satisfied that "LA/MSF was necessary for Airbus to have 
launched the A300 as originally designed and at the time that it did."2707  As regards the A310, the 
Panel considered that the Dorman Report simila rly provided persuasive support for the conclusion 
that had Airbus not obtained LA/MSF for the A310 , it "would not have been able to launch it as 
originally designed and at the time that it did."2708  In respect of the A320, the Panel noted that "it 
would have been extremely difficult, if not impossible, to launch the A320 in 1984 as originally designed, without access to LA/MSF" and thus that LA/MSF was necessary for the launch of the 
A320 "at the time it did and as originally designed."
2709  Similarly, the Panel found that Airbus could 
                                                      
2702Panel Report, para. 7.1912 and footnote 5587 thereto (referring to International Trade Resources,  
787 Business Case (Panel Exhibit EC-662 (HSBI))).  The Panel noted that the Dorman Report does not in fact 
calculate an IRR for its hypothetical launch programme and that the estimate of 11.92% referred to by the 
European Communities as generated by the Dorman Report  simulation was actually infe rred by Mr. Carballo, as 
described in the "Carballo Declaration" (Panel Exhibit EC-665 (HSBI))).  The Carballo Declaration is a written 
statement by Francisco-Javier Riaza-Carballo, dated 25 May 2007.  At the time he made the statement, 
Mr. Carballo was Vice-President at Airb us SAS.  He had formerly been wi th the A380 Progra mme Directorate. 
2703Panel Report, para. 7.1912. 
2704Panel Report, para. 7.1912. 
2705Panel Report, para. 7.1912. 
2706See Panel Report, paras. 7.1913-7.1949. 
2707Panel Report, para. 7.1934. 
2708Panel Report, para. 7.1936. 
2709Panel Report, para. 7.1938. (footnote omitted) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 542  
 
  not have launched the A330/A340 project in 1987 as originally designed without access to LA/MSF, 
and concluded that LA/MSF was necessary for the la unch of the A330/A340 "at the time when it did 
and as originally designed."
2710  With respect to the A330-200, the Panel observed that, "while the 
particular grant of LA/MSF specific to the A330-20 0 may not have been necessary to its launch", it 
concluded that on the whole LA/MSF was necessar y to the launch of the A330-200 because "without 
the grant of LA/MSF for the development of the original model (and all models preceding that 
model), the A330-200 could not have been la unched when it was without significantly higher 
costs."2711  The Panel further considered that LA/MSF w as "essential to the development of the A340-
500/600" because it was derived from the A340,  whose launch it had found depended upon the 
provision of LA/MSF.2712   
1256.  As regards the A380, the Panel noted that the Airbus A380 business case "clearly 
demonstrates that LA/MSF has a significant imp act on the economics of the programme", but also 
recognized that the "A380 business case predicts a positive NPV for the programme even assuming 
no LA/MSF is provided, as well as a positive NPV in circumstances where a Realistic Worst Case scenario is contemplated in situations where the project is supported by LA/MSF."
2713  Ultimately, the 
Panel concluded that the A380 business case "sugg ests, but by no means demonstrates, that as a 
stand-alone proposition the project might have b een economically viable even without LA/MSF".2714  
The Panel went on, however, to point out that "Air bus' technical capabilities derived in part from its 
experience in the development of its earlier m odel LCA funded in significant part by LA/MSF."2715  It 
added that, in the light of the "significant amount of  debt that developing its previous models of LCA 
would have generated", it considered  that "Airbus would not have been in a position to obtain market 
financing for the A380, had it not financed the development of its earlier model LCA in significant part through LA/MSF."
2716  Therefore, the Panel found that "either directly or indirectly, LA/MSF was 
a necessary precondition for Airbus' launch in 2000 of the A380."2717 
                                                      
2710Panel Report, paras. 7.1938 and 7.1939. 
2711Panel Report, para. 7.1940. 
2712Panel Report, para. 7.1941. 
2713Panel Report, para. 7.1943. 
2714Panel Report, para. 7.1948. 
2715Panel Report, para. 7.1948. 
2716Panel Report, para. 7.1948. 
2717Panel Report, para. 7.1948.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 543  
 
  1257.  The Panel concluded: 
In summary, we conclude that the United States has demonstrated 
that LA/MSF shifts a significant portion of the risk of launching an aircraft from the manufacturer to the governments supplying the funding, which we recall is on non-commercial terms.  Based on our review of the development of successive models of Airbus LCA, we conclude that Airbus' ability to launch, develop, and introduce to the 
market, each of its LCA models was dependent on subsidized 
LA/MSF.
2718 
1258.  Next, the Panel turned to the effect of the ot her subsidies challenged by the United States.  
We discuss this issue in subsection 3 below.  The Panel then discussed certain additional 
considerations raised by the European Communities, such as the magnitude of the subsidies, the age 
of the LA/MSF, and competition in the LCA industry in the absence of subsidies.2719  The Panel's 
conclusions concerning competition in the LCA indust ry in the absence of subsidies are particularly 
relevant to the issues raised by the European Uni on's appeal and we consider it useful to reproduce 
them in full: 
Thus, our evaluation of the argumen ts and evidence the parties have 
submitted leads us to conclude that there are multiple possibilities for 
the LCA industry in the counterfactual world that would exist in the absence of subsidies to Airbus.  In one scenario, Airbus would not have entered the LCA market at all and Boeing would be in a monopoly position, holding 100 percent of the market.  In this 
scenario, the link between the subsidi es that enabled Airbus to enter 
the LCA market and Boeing's loss of market share and sales is self-evident.  Any market displacement and lost sales actually suffered by Boeing would be directly attributable to the subsidies granted to Airbus, which enabled it to launch and develop its own family of 
LCA.  In a second plausible scenario, Airbus would not have entered 
the market, but there would nevert heless have been two players, 
which on the basis of the evidence before us, would most likely have been Boeing and McDonnell Douglas, the latter having merged with Boeing in 1997.{*}  As both Boeing and McDonnell Douglas are (or were) US LCA manufacturers, there would once again be no question 
about the nexus between the subs idies which enabled the non-US 
company, Airbus to enter the LCA market and serious prejudice to the United States' interests (displacement of Boeing and/or McDonnell Douglas LCA from the LCA markets and lost sales).  Finally, in a third and a fourth scenario, Airbus might have entered the LCA market without subsidies, either in competition with Boeing 
alone, or in competition with a United States' industry comprising 
Boeing and another US producer.  In either case, Airbus could not conceivably have been present in the LCA market with the same aircraft and at the same times as it actually was, given our 
                                                     
 
2718Panel Report, para. 7.1949. 
2719See Panel Report, paras. 7.1962-7.1984. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 544  
 
  conclusions concerning the cumulative effect of LA/MSF and the 
other subsidies in dispute on Air bus' ability to launch successive 
models of LCA as and when it did.  In our view, it is simply not feasible that, without LA/MSF and the other subsidies, relying entirely on non-subsidized financing, Airbus could have undertaken 
the pace of aircraft development th at would have enabled it to launch 
the range of LCA that it has successfully launched to date, which has resulted in its present position in the ma rket for LCA.  It follows that 
even in the unlikely even t that Airbus would have been able to enter 
the LCA market as a non-subsidized competitor, we are confident 
that it would not have achieved the market presence it did over the 
period 2001 to 2006 and that we ha ve described in the previous 
sections of this Report.
2720 (footnote omitted) 
{*original footnote 5754} We note in this regard the United States' assertion 
that competition from Airbus was a factor in McDonnell Douglas' exit from 
the LCA industry.  {United States' oral  statement at the first Panel meeting 
(BCI)}, para. 68.  In addition, we note that Lockheed, the other competitor 
in the market at an earlier date, had already exited the ma rket in 1981, and 
neither party has suggested that any other pre-existing entity was or would have been in a position to enter the LCA industry, or that any entity other 
than Boeing sought to purchase McDonnell Douglas. 
1259.  Finally, the Panel addressed certain "non-attri bution" factors that had been raised by the 
European Communities, including alleged misman agement of customer relations by Boeing, 
geopolitical considerations, and the role of engine manufacturers in the sales campaigns.2721  T h e  
Panel's discussion here is also pa rticularly relevant, and thus we reproduce the relevant parts below: 
We noted that there are numerous factors involved in a customer's 
decision as to which LCA to purchase.  However, one factor which is essential is the availability of a particular model or models of LCA 
suitable for a particular customer's needs at the time of the sale.  We 
have concluded that, but for LA/MSF and the other subsidies in dispute, Airbus would not have b een able to launch the particular 
LCA it did at the time it did.  Thus, the presence of these subsidized LCA in the market is a fundamental cause of the lost sales observed.  
But for the subsidies, Airbus would not have been competing for 
these sales with the LCA it actually sold.{*}  Similarly, Airbus' market share is directly attributable  to its ability to sell and deliver to 
the European Communities and relevant third country markets, LCA which it would not have had availa ble but for the subsidies which 
supported the launch of every model of Airbus LCA.
2722 
{*original footnote 5758} Whether it might have been competing at all for 
those sales, for instance with a different LCA developed without subsidies, 
is questionable, as the lost sales all involved aircraft we have concluded 
would not have been developed by Airbus at the relevant times had earlier 
models not benefited from subsidies.  
                                                      
2720Panel Report, para. 7.1984. 
2721Panel Report, para. 7.1985.   
2722Panel Report, para. 7.1985.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 545  
 
  1260.  The Panel brought its examination of the United States' "product" theory of causation to a 
close as follows: 
It is in our view clear that Airbus would have been unable to bring to 
the market the LCA that it launched but for the specific subsidies it 
received from the European Communities and the governments of 
France, Germany, Spain and the United Kingdom.  We reiterate that we do not conclude that Airbus n ecessarily would not exist at all but 
for the subsidies, but merely that it would, at a minimum, not have been able to launch and develop the LCA models it has actually 
succeeded in bringing to the ma rket.  Had Airbus successfully 
entered the LCA industry without subsidies, it would be a much different, and we believe, a much weaker LCA manufacturer during the period we examined, with at b est a more limited offering of LCA 
models.  Thus, under either scenario , Airbus would not have had the 
market presence and ability to win orders for LCA that it did have 
during the period 2001-2006, and the United States' LCA industry, at a minimum, would not have lost sales to Airbus and would have had a larger market share in the EC a nd certain third country markets than 
it actually did over that period.  We consider that Airbus' market presence during the period 2001-2006, as reflected in its share of the 
EC and certain third country markets and the sales it won at Boeing's 
expense, is clearly an effect of the subsidies in this dispute.  We therefore conclude that the displacement of United States' LCA from the EC and certain third country markets and lost sales we have found during the period 2001-2006 are an effect of the specific 
subsidies to Airbus that we have found.
2723   
1261.  Thus, the Panel contemplated four distinct scen arios as to what the LCA industry would have 
looked like in the absence of the challenged subsidie s.  In scenarios 1 and 2, Airbus would not have 
entered the market without subsidies, and Boei ng would have been a monopolist (scenario 1) or 
would have competed with another US LCA manufac turer (scenario 2).  However, the Panel did not 
rule out entry into the market by a non-subsidized Airbus, either in competition only with Boeing (scenario 3) or with Boeing and another US LCA ma nufacturer (scenario 4).  Yet, in order to fully 
understand the Panel's assessment, it is important to recognize that the Panel ascribed different 
probabilities to these scenarios.  The Panel descr ibed the first two scenarios as "plausible".
2724  By 
contrast, the Panel described the third and fourth scenarios as being "unlikely".2725  The Panel further 
explained that, in the unlikely event that Airbus w ould have entered the market without subsidies, it 
would have been a significantly different LCA manuf acturer.  According to the Panel, "Airbus could 
not conceivably have been present in the LCA market with the same aircraft and at the same times as 
                                                      
2723Panel Report, para. 7.1993. 
2724Panel Report, para. 7.1984.  The Panel used the term "plausible" when setting out the second 
scenario.  However, we understand the Panel's reference to "a second plausible scen ario" as connoting that the 
Panel also considered the first scenario to be plausible. 
2725Panel Report, para. 7.1984. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 546  
 
  it actually was, given {its earlier} conclusions c oncerning the cumulative effect of LA/MSF and the 
other subsidies in dispute on Ai rbus' ability to launch successive models of LCA as and when it 
did."
2726  The Panel added that "it {was} simply not feasible that, without LA/MSF and the other 
subsidies, relying entirely on non-subsidized financ ing, Airbus could have undertaken the pace of 
aircraft development that would have enabled it to  launch the range of LCA that it has successfully 
launched to date, which has resulted in its  present position in the market for LCA".2727   
1262.  The European Union emphasizes that the Pa nel's "focus" was on the third and fourth 
counterfactual scenarios in which a non-subsidized Ai rbus would have entered the market, albeit later 
and with different LCA.2728  In support, the European Union re fers to the Panel's statement that 
"{w}hether it might have been competing at all for those sales, for instance with a different LCA 
developed without subsidies, is questionable, as the lost sales all involved aircraft we have concluded 
would not have been developed by Airbus at the relevant times had earlier models not benefited from 
subsidies".2729  According to the European Union, the Pa nel "did not resolve the issue it considered 
'questionable'", and thus "left open whether, in th e four single-aisle sales campaigns at issue, a non-
subsidised Airbus could have offered 'di fferent LCA developed without subsidies'."2730  A s  t h e  
European Union sees it, the result of this is that the Panel was required to "complete the 
counterfactual"2731 by conducing "a comparison of (i) Airbus' actual sales at issue in the 2001-2006 
reference period with (ii) a non-subsidised Airbus ' ability to secure these sales in a counterfactual 
scenario".2732  The European Union appeals the Panel's fa ilure to conduct this assessment and, more 
particularly, its failure to respond to the following five questions:  (i) what particular aircraft a 
non-subsidized Airbus would have launched;  (ii) wh at would have been their level of technology;  
(iii) what would have been the prices at which Airbus  could have offered those aircraft;  (iv) whether 
there would have been any commonality advantage or  disadvantage;  and (v) whether there were any 
non-attribution factors that would have prevented Boeing from securing some of the sales.2733  
1263.  An initial point to make about the European Un ion's appeal of the alleged non-completion of 
the counterfactual is that it is premised exclusively on scenarios 3 and 4, on which the European Union claims the Panel "focused".  We do not agree that this is a proper characterization of 
the Panel's findings.  In fact, the Panel found that  scenarios 3 and 4, in which Airbus would have 
                                                     
 
2726Panel Report, para. 7.1984. 
2727Panel Report, para. 7.1984. 
2728European Union's appellant's submission, para. 453. 
2729Panel Report, footnote 5758 to para. 7.1985. 
2730European Union's appellant's submission, para. 455. 
2731European Union's appellant's submission, para. 489. 
2732European Union's appellant's submission, para. 453. 
2733European Union's appellant's submission, para. 489.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 547  
 
  entered the market without subsidies, were "unlikely" .  Therefore, if one were to describe the Panel as 
having "focused" on particular scenarios, it would have to be scenarios 1 and 2—scenarios the Panel 
considered "plausible"—in which Airbus would no t have entered the market without subsidies.  
Moreover, the issue is not one of "focus", but rather one of assigning probabilities to particular 
scenarios. 
1264.  Under scenarios 1 and 2, there was no need for the Panel to proceed further in its 
counterfactual analysis.  Without the subsidies, Ai rbus would not have existed under these scenarios 
and there would be no Airbus aircraft on the market .  None of the sales that the subsidized Airbus 
made would have occurred.  As Boeing (or the othe r US manufacturer envisaged by the Panel) would 
be the only supplier(s) of LCA, it (or they) would ha ve made the sales instead.  Thus, the conclusion 
under scenarios 1 and 2 satisfies, without more, the "g enuine and substantial relationship" standard 
articulated by the Appellate Body in US – Upland Cotton .  This chain of reasoning establishes that the 
subsidies are a sufficient cause of the lost sales a nd the displacement.  The additional questions that 
the European Union asserts the Panel should have cons idered would be moot.  It would be pointless to 
attempt delineating the features of something that w ould not have existed without the subsidies.  It 
would be unnecessary to consider:  (i) what particular aircraft Airbus would have launched;  (ii) their 
level of technology;  (iii) prices;  (iv) any co mmonality advantage or disadvantage;  or (v) any 
non-attribution factors. 
1265.  As regards the non-attribution factors in particular, we note that the effects of other factors 
can be assessed as part of a properly designed coun terfactual that adjusts for the subsidies while 
maintaining everything else equal.  This was recognized by the Appellate Body in US – Upland 
Cotton (Article 21.5 – Brazil) .
2734  Moreover, we agree with the Panel that in the particular 
circumstances of this case the need to fully examine the particular non-attribution factors raised by the 
European Communities depended on whether a non-subs idized Airbus would have had any aircraft 
available to sell at the time the relevant sales were made.2735  If Airbus had not existed without the 
subsidies, the airlines involved in the relevant sales campaigns would have had a limited choice:  
purchase aircraft from Boeing or possibly from the ot her US manufacturer envisaged in the Panel's 
counterfactual scenario 2.  We have difficulty unde rstanding how the non-attribution factors raised by 
the European Communities could have led an airl ine in those circumstances not to purchase the 
desired aircraft from Boeing or the other US ma nufacturer.  For example, the European Union 
                                                      
2734Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 375. 
2735Panel Report, para. 7.1985:  "We noted that ther e are numerous factors invo lved in a customer's 
decision as to which LCA to purchase.  However, one factor which is essential is the availability of a particular 
model or models of LCA suitable for a particular customer's needs at the time of the sale." WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 548  
 
  underscores that Boeing had mishandled its rela tionships with some customers and that one 
government may have been unhappy with Boeing over a joint venture.
2736  However, the fact remains 
that, in the absence of Airbus, these airlines would have had no choice but to purchase aircraft from 
Boeing or the other US manufacturer.  Thus, these non- attribution factors would not be relevant under 
scenarios 1 and  2 referred to above (under which a non-subsidized Airbus w ould not have entered the 
market).  The European Communities also men tioned "the severe downturn in the market in 
2001-2003" following the events of the 11 September 2001 attacks on the World Trade Center 
("9/11"), and exacerbated by the start of the wa r in Iraq and the outbreak of SARS in Asia.2737  
Because Airbus LCA would not have been available in the absence of subsidies, those airlines that 
purchased LCA during the "downturn" could only ha ve purchased them from Boeing or the other US 
manufacturer under scenarios 1 and 2. 
1266.  In its appellant's submission, the European Union accepts that, "had there been a basis to find 
that a non-subsidised Airbus would not exis t, and could not have launched any LCA, quod non , then 
the Panel would have been correct to find that the specific sales at issue were lost by Boeing due to 
the subsidies."2738  The fact is that the Panel found that scenarios 1 and 2, in which Airbus would not 
have entered the market, were the most likely scenar ios in the absence of the challenged subsidies.  
We cannot ignore this.  On the contrary, in our vi ew, the Panel's findings that scenarios 1 and 2 were 
plausible, whereas scenarios 3 and 4 were unlikely,  are important considera tions in determining the 
extent to which the Panel was required to fu rther pursue the counterfactual analysis.   
1267.    Having said that, we agree with the European  Union that the Panel could have provided a 
fuller analysis under scenarios 3 and 4.  In particular , the Panel could have more fully explored how a 
non-subsidized Airbus would have  developed during the more than 35 years that elapsed between 
1969, when Airbus launched the A300 , and the end of the reference period.  Nonetheless, looking at 
the Panel's analysis as a whole, we understand the Panel to have concluded that, under scenarios 3 
and 4, a non-subsidized Airbus would have been si gnificantly retarded in its efforts to develop LCA 
that were capable of competing in the market and that it would not have been able to overcome this 
competitive disadvantage by the end of the reference period.   
1268.  We recall that the Panel found, in this regard, that "Airbus could not conceivably have been 
present in the LCA market with the same aircraft and at the same times as it actually was, given {its 
earlier} conclusions concerning the cumulative effect  of LA/MSF and the other subsidies in dispute 
                                                      
2736European Union's appellant's submission, paras. 493-496. 
2737Panel Report, para. 7.1987. 
2738European Union's appellant's submission, para. 488.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 549  
 
  on Airbus' ability to launch successive models of LCA as and when it did."
2739  For the Panel, "it 
{was} simply not feasible that, without LA/MSF and the other subsidies, relying entirely on non-
subsidized financing, Airbus coul d have undertaken the pace of aircraft development that would have 
enabled it to launch the range of LCA that it has su ccessfully launched to date, which has resulted in 
its present position in the market for LCA".2740  The Panel concluded that "even in the unlikely event 
that Airbus would have been able to enter the LCA market as a non-subsidized competitor, we are 
confident that it would not have achieved the market presence it did over the period 2001 to 2006  and 
that we have described in the previous sections of this Report."2741  The Panel reiterated later in its 
analysis that it did "not conclude that Airbus necessa rily would not exist at all but for the subsidies, 
but merely that it would, at a minimum, not have been able to launch and de velop the LCA models it 
has actually succeeded in br inging to the market."2742  At this point, the Panel again referred to the 
market presence of a non-subsidized Airbus during th e reference period.  The Panel stated that, "at a 
minimum", a non-subsidized Airbus "would not ha ve been able to launch and develop the LCA 
models it has actually succeeded in bringing to the market" and that Airbus "would be a much different, and we believe, a much weaker LCA manufacturer during the period we examined , with at 
best a more limited offering of LCA models."
2743  
1269.  The Panel's findings that, duri ng the reference period, a non-s ubsidized Airbus would be a 
"much weaker LCA manufacturer" and would have had "at best a more limited offering of LCA 
models" are consistent with the Pa nel's findings concerning the considerable barriers to entry into the 
LCA industry.2744  The Panel found that entry into the LCA industry "requires huge up-front 
investments".2745  It further observed that "{e}conomies of scale arising from the huge sunk 
development cost give incumbent firms a considerable competitive advantage."2746  The incumbents' 
advantage is reinforced by learning effects, which induce dynamic economies of scale.2747  Moreover, 
                                                      
2739Panel Report, para. 7.1984. 
2740Panel Report, para. 7.1984. 
2741Panel Report, para. 7.1984. (emphasis added;  footnote omitted) 
2742Panel Report, para. 7.1993. 
2743Panel Report, para. 7.1993. (emphasis added) 
2744The Panel noted that its findings on the conditions of competition of the LCA industry "establish the 
background and context for {its} analysis of whether the subsidies {it had} found to exist cause{d}, or 
threaten{ed} to cause, adverse effect s within the meaning of Articles 5( a) and (c) of the SCM Agreement." 
(Panel Report, para. 7.1716) 
2745Panel Report, para. 7.1717.  The Panel discussed the following additional barriers to entry: 
switching costs; airlines' preference for fleet commonality; the incentive for incumbent firms to adopt entry 
deterring price strategies; the fact that few airplane pr ogrammes have been financial successes; and the costs of 
exchange rate fluctuations to whic h non-United States manufacturers are ex posed because aircraft are typically 
sold in United States dollars. 
2746Panel Report, para. 7.1717. 
2747Panel Report, para. 7.1717. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 550  
 
  "{e}conomies of scope make it difficult to enter one market segment only."
2748  According to the 
Panel, it is difficult to obtain financing on capital ma rkets to finance the "huge development costs" of 
LCA development because "{u}ncertainty is considerable".2749  The Panel referred back to these 
considerations when it focused on the launch of the particular projects.  When examining the launch 
of the A300, the Panel recalled that "the parti es have described the development of LCA as an 
endeavour that requires 'huge up-front investment s' and a commitment of 'tremendous resources'' in 
the face of a business environment that is shaped by factors 'whose very foreseeability is impossible 
by definition'."2750  Then, looking at the launch of the A 310, the Panel recalled that "static and 
dynamic ('learning curve') economies of scope and scale achieved in the context of one model of LCA 
are an important part of the development and production of other LCA models has also been recognized by economists."
2751  In this respect, the Panel found th at the evidence demonstrated that 
the A310 benefited from the earlier launch of the A300.2752  The Panel was also persuaded that "the 
launch of the A320 in 1984, as originally designed, was to a very large degree made possible by Airbus' successful launches of the A300 and A310  over the previous decade with the assistance of 
LA/MSF."
2753  Likewise, as regards the A330/A340 proj ect, the Panel found that "LA/MSF provided 
for the previous LCA models, the A300, A310 and A320, played a significant role in placing Airbus 
in a position to be able to launch the A330/A340 project in 1987".2754  As for the A330-200 and 
A340-500/600, the Panel said that knowledge a nd experience acquired in the earlier projects has 
particular significance since they were derivatives of existing models.2755  Finally, the Panel explained 
that the technical capabilities that made it possible for Airbus to embark on the A380 project were 
"derived in part from its experience in the devel opment of its earlier model LCA funded in significant 
part by LA/MSF".2756 
1270.  As we see it, the Panel's conclusion that a no n-subsidized Airbus would not have "achieved 
the market presence it did over the period 2001 to  2006", which followed from its views that a 
non-subsidized Airbus would be a "much weaker LC A manufacturer" with "at best a more limited 
                                                      
2748Panel Report, para. 7.1717. 
2749Panel Report, para. 7.1717. 
2750Panel Report, para. 7.1933 (quoting European Comm unities' first written submission, paras. 30, 31, 
and 112). 
2751Panel Report, para. 7.1936 (referring to D. Neven and P. Seabright, "European Industrial Policy: 
The Airbus Case" (1995) (Panel Exhibit US-382);  and Airbus A380 business case (Panel Exhibit EC-362 
(HSBI)), p. 36). 
2752Panel Report, para. 7.1936. 
2753Panel Report, para. 7.1938. 
2754Panel Report, para. 7.1939. (footnote omitted) 
2755Panel Report, para. 7.1940.  
2756Panel Report, para. 7.1948.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 551  
 
  offering of LCA models", provided enough of a b asis to establish a "genuine and substantial 
relationship of cause and effect"
2757 in this case.   
1271.  In the case of displacement, the Panel's conclusion clearly implies that the sales of a 
non-subsidized Airbus would have been lower th an those actually made by Airbus during the 
reference period.  This is what th e Panel concluded when it stated that the subsidies "enabled Airbus 
to bring to the market LCA that it would not othe rwise have been able to develop and launch as and 
when it did, and thus caused displacement of Unite d States' imports of LCA from the EC market and 
of United States' exports from the markets of cert ain third countries, as demonstrated in the data 
concerning market share before us."2758  The Panel could have be tter explained how it saw the 
findings of displacement, in the first step of its  analysis, and its findings on causation, in the second 
step, coming together.  However, given that the Pa nel was satisfied that the sales of a non-subsidized 
Airbus would have been lower, we do not believe th at it was necessary for the Panel to have made a 
precise quantification of the extent of the disp lacement caused by the LA/MSF subsidies.   
1272.  We reach a similar conclusion as regards lost sales.   As noted earlier, the Panel found that  
"{w}hether {Airbus} might have been competing at all for those sales, for instance with a different 
LCA developed without subsidies, is questionable,  as the lost sales all involved aircraft we have 
concluded would not have been de veloped by Airbus at the releva nt times had earlier models not 
benefited from subsidies."2759  The European Union understands the Panel's finding that Airbus would 
be "different" without subsidies to mean only th at Airbus would have a smaller range of LCA.2760  We 
read the Panel to have found not only that a non-s ubsidized Airbus would have  had a smaller range of 
LCA, but also that any LCA that a non-subsidized  Airbus could have offe red during the reference 
period would be inferior to competing LCA.  As  a result, the Panel was not persuaded that a 
non-subsidized Airbus would have won the sales campaigns that the Panel concluded had been "lost" 
by Boeing.  This reasoning is reflected in the Pane l's conclusion that the "subsidies caused lost sales 
of United States' LCA because, but for the subsidi es, Airbus would not have had available the LCA 
that it was able to sell to the customers at issu e in the sales we have found were lost by Boeing 
                                                      
2757Appellate Body Report, US – Upland Cotton , para. 438.  
2758Panel Report, para. 7.2025.  The Panel had earlier explained that, even if a non-subsidized Airbus 
had been able to enter the market, "Airbus would not have had the market presence and ability to win orders for LCA that it did have during the period 2001-2006, and the United States' LCA industry, at a minimum, would 
not have lost sales to Airbus and would have had a larger market share in the EC and certain third country 
markets than it actually did over that period." ( Ibid., para. 7.1993) 
2759Panel Report, footnote 5758 to para. 7.1985. 
2760See, for example, European Union's appellant's submission, paras. 399 and 461. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 552  
 
  between the years 2001 and 2006."
2761  In coming to our views as to the sufficiency of the Panel's 
analysis, we have been mindful of the fact that th e Panel found that scenarios 3 and 4 were "unlikely".   
1273.  We examine below whether a fuller considera tion of the counterfactual scenarios 3 and 4 
along the lines of the five questions that the Eu ropean Union asserts the Panel was required to 
examine to "complete the counterfactual"2762 would lead to a different conclusion based on the 
evidence on the record and in  the light of the Panel's overall reasoning.  Before doing so, we note that 
the European Union "accepts the Panel's finding th at a non-subsidised Airbus would have had a 
smaller 'market presence' in 2001-2006 compared to the market share and sales that Airbus actually obtained."
2763  The European Union further accepts that a non-subsidized Airbus would not have been 
able to launch the A300, A310, and A340 LC A projects by the 2001-2006 reference period.2764  
However, the European Union considers that "t here are significant findings by the Panel and 
substantial evidence in the record supporting the co nclusion that a non-subsidised Airbus could have 
launched, sold and delivered by 2001-2006, a singl e-aisle LCA and a 200-300 seat twin-aisle LCA, 
and launched and sold a 500+ seat LCA by 2001".2765  In the light of its position as to the LCA 
projects that could have been developed by a non-s ubsidized Airbus, the European Union limits its 
appeal to the Panel's causation findings with resp ect to seven lost sales involving the A320 and A380 
and for the displacement the Panel observed.2766  We address below the European Union's arguments 
as to the completion of the counterfactual analysis w ith respect to the claim of lost sales relating to 
four sales campaigns involving the A320 (Air Asia, Air Berlin, Czech Airlines, and easyJet) and to 
the observed displacement.  The European Union's arguments concerning the lost sales involving the 
A380 are addressed in subsection 2 below.   
1274.  The first question that the European Union contends the Panel should have considered is 
whether the non-subsidized Airbus envisioned in th e Panel's counterfactual scenarios 3 and 4 could 
have launched "different" LCA at a later date and sold the LCA, during the 2001-2006 reference 
period, to the relevant airlines and in the relevant country markets at issue.2767  The European Union 
maintains that the evidence befo re the Panel would have enable d the Panel to complete its 
counterfactual analysis and find that, although a non- subsidized Airbus woul d not have launched the 
A300 and A310 in 1969 and 1978, respectively, it  could have launched a single-aisle LCA with 
                                                      
2761Panel Report, para. 7.2025. 
2762European Union's appellant's submission, paras. 452 and 549. 
2763European Union's appellant's submission, footnote 456 to para. 394. 
2764European Union's appellant's submission, footnote 456 to para. 394. 
2765European Union's appellant's submission, footnote 456 to para. 394. 
2766European Union's appellant's submission, footnote 456 to para. 394. 
2767European Union's appellant's submission, paras. 452, 530, and 549.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 553  
 
  100-200 seats in or about 1987, and a twin-ais le LCA with 200-300 seats in or about 1991.
2768  In 
other words, a non-subsidized Airbus could have  launched an A320-type LCA and an A330-type 
LCA, three years and four years after Airbus actua lly launched the A320 and A330, respectively.  To 
support this proposition, the European Union refers to:  (i) the prior technological experience of the 
Airbus companies in the regional aircraft sector;  (ii) the growing demand for single-aisle LCA and twin-aisle LCA with 200-300 seats;  and (iii) Boeing's outdated product offerings.
2769   
1275.  We are not persuaded that the evidence on record should have led the Panel to conclude that a 
non-subsidized Airbus could have launched a single-aisle LCA with 100-200 seats in or about 1987, and a twin-aisle LCA with 200-300 seats in or abou t 1991.  As noted earlier, the Panel found that 
LCA development is "enormously complex an d expensive" and "requires huge up-front 
investments".
2770  The Panel further described the important economies of scope and scale, as well as 
learning effects, that are char acteristic of the LCA industry.2771  Moreover, Panel also found that 
LA/MSF covered 90-100% of the development costs of  the A300 and A310 at zero interest, up to 
90% of the development costs of the A320, and 60-90% of the development costs of the A330/A340
2772, and that the cost of obtaining market financing for the A300 and A310 was significant 
compared to LA/MSF.2773  Thus, an important question would be how Airbus could have obtained 
commercial financing to develop an A320-type LCA without subsidies.   
1276.  According to the European Union, the financ ial conditions for developing LCA would have 
been favourable in the light of the increased de mand in the 1980s and 1990s and the "technological 
obsolescence of existing" Boeing aircraft.2774  The European Union further maintains that "Boeing's 
contemporaneous massive investment in product launches and product development suggest that the 
financial markets viewed these as profitable."2775  We note, however, that Boeing, as the incumbent 
producer, enjoyed many advantages that would not ha ve been available to a non-subsidized Airbus 
attempting to enter the market in the 1980s.  As  the Panel found, "{e}conomies of scale arising from 
the huge sunk development cost give incumbent firms a considerable competitive advantage" and 
                                                      
2768European Union's appellant's submission, paras. 499-504 and 542;  and European Union's 
appellant's submission, Annex I (Counterfactual Annex) (BCI), paras. 59-64. 
2769European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), paras. 12-57. 
2770Panel Report, para. 7.1717 (referring to T.L. Boeder and G.J. Dorman, "The Boeing/McDonnell 
Douglas Merger: The Economics, Antitrust Law, and Politics of the Aerospace Industry" (Spring 2000) 
Antitrust Bulletin  (Panel Exhibit US-373), pp. 132-133). 
2771See supra , para. 1269. 
2772Panel Report, paras. 7.1933, 7.1935, 7.1937, and 7.1939. 
2773Panel Report, para. 7.1938.  The Panel also drew attention to the "interest rate benefit" it had found 
in relation to LA/MSF provided for the A330/A340 project. ( Ibid., para. 7.1939) 
2774European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 68. 
2775European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 68. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 554  
 
  "{l}earning effects induce dynamic economies of sc ale which reinforce incumbents' advantage."
2776  
In the scenario advanced by the European Union, the A320-type aircraft would have been the first 
aircraft launched by a non-subsidi zed Airbus.  As a new entrant to the market with less experience, it 
is not very plausible that a non-subsidized Airbus could find similar financi ng conditions as those that 
were available to Boeing as an incumbent LCA manuf acturer.  The scenario is also difficult to 
reconcile with the Panel's finding that "{u}ncerta inty is considerable, making it very difficult to 
finance the huge development cost on capital markets."2777   
1277.  The European Union contends that, by the la te 1980s, "the principal Airbus consortium 
members would have been well positioned to secure market financing" and that, "compared to the 
actual situation, … the balance sheets of the cons ortium members would not have been burdened by 
the losses incurred from the A300/A310 projects".2778  However, we recall the Panel's finding that 
LA/MSF covered 90 to 100% of the development costs of the A300 and A310 at zero interest.2779  The 
European Union does not indicate in its appellant's  submission to what extent the "losses incurred 
from the A300/A310 projects" went beyond the development costs, which, as noted above, were almost entirely covered by LA/MSF.  Even assumi ng a non-subsidized Airbus would have suffered 
lower losses, it would also have had lower revenues, as it would not  have sold any A300 and A310 
LCA.  The impact of this loss of revenue  is not addressed by the European Union. 
1278.  With respect to the launch of a hypothetical A330-type LCA in 1991, the European Union 
maintains that a non-subsidized Airbus would have  received significant "cash flow" generated by a 
single-aisle, A320-type LCA in 1987 and would have benefited from the "large number of single-aisle 
deliveries demanded by the market dur ing the late 1980s and early 1990s".
2780  We note, first, that this 
assertion depends on a non-subsidized Airbus havi ng launched an A320-type LCA in 1987.  As 
discussed above, this proposition is difficult to rec oncile with the Panel's findings on the complexities 
of developing LCA, economies of scope and scale, and learning effects.  Second, as the Panel found, 
the majority of proceeds from the sale of an ai rcraft are received at the time of delivery2781, and "{i}n 
general, LCA are not purchased one at a time for imme diate delivery, but rather tend to be ordered in 
large numbers with deliveries spread over a sub sequent period of sometimes several years."2782  The 
European Union does not explain how this would ha ve impacted Airbus' ability to finance the launch 
                                                      
2776Panel Report, para. 7.1717. 
2777Panel Report, para. 7.1717. 
2778European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), paras. 69 and 70. 
2779Panel Report, paras. 7.1934 and 7.1935. 
2780European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 38. 
2781Panel Report, paras. 7.1749 and 7.1750. 
2782Panel Report, para. 7.1750.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 555  
 
  in 1991 of an A330-type LCA from revenues genera ted from the A320-type LCA, which would have 
been launched only four years earlier in 1987.
2783   
1279.  The second question raised by the European Uni on is whether the single-aisle and twin-aisle 
LCA offered by a non-subsidized Airbus would nece ssarily be technologically inferior and could not 
meet the size, range and operating performance re quirements of the relevant airlines at issue.2784  The 
European Union asserts that the Panel found that "LCA manufacturers generally will wait to launch 
new LCA until they can offer technical advantages  over existing LCA".2785  In the European Union's 
view, the Panel's finding means that more recen tly-launched LCA will incorporate technological 
advances, and hence suggests that if a non-subsidis ed Airbus launched a single-aisle LCA sometime 
after 1984, it was possible, and even likely, that  the more recently launched LCA would have been 
technically superior to both the original A320 family, as well as the competing Boeing 737 family.2786  
1280.  The European Union further maintains that "every  year a manufacturer can afford to defer the 
launch of an aircraft programme will allow it to integrate better and more cost-saving technologies, 
improving the quality of the aircraft for consumers".2787  The European Union notes that the risk of a 
delayed launch is that a competitor is first to la unch an aircraft, but submits that, "between 1984 
and 1987, Boeing did not launch a new single-ai sle LCA or significantly improve its existing 
Boeing 737 which would have competed agai nst any Airbus A320-type LCA", and that, 
"between 1987 and 1991, Boeing did not make any significant improvements to  its twin-aisle 200-300 
seat 767 that would have competed with a non-subsidised Airbus A330-type LCA."2788  Therefore, it 
argues, "the evidence would support a conclusion that a launch of an A320-type LCA delayed by 
three years and the launch of an A330-type LCA delayed by four years would have permitted a non-subsidised Airbus to make full use of the ongoing technological progress, and to improve the 
technological characteristics and operating performan ce of the LCA that it eventually would have 
launched."
2789 
1281.  The Panel stated that "{t}he launch of a new model with improved performance 
characteristics can give an LCA manufacturer a competitive advantage".2790  It does not automatically
                                                      
2783The gap between the launch and the first delivery of Airbus' first two LCA, the A300 and A310, 
was 5 and 7 years respectively. (Panel Report, footnote 5644 to para. 7.1936 and footnote 5650 to para. 7.1938) 
2784European Union's appellant's submission, paras. 452, 530, and 549. 
2785European Union's appellant's submission, para. 469 (referring to Panel Report, para. 7.1726). 
(original emphasis) 
2786European Union's appellant's submission, para. 469. 
2787European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 45. 
2788European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 45. 
2789European Union's appellant's submission, Annex I (Counterfactual Annex) (BCI), para. 46. 
2790Panel Report, para. 7.1726. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 556  
 
  follow, however, that a single-aisle LCA launched sometime after 1984 by a non-subsidized Airbus 
would necessarily  have been technologically superior to the original A320, as well as the competing 
Boeing 737 family.  Rather, these factual statements of the Panel, as well as the 
European Communities'  arguments be fore the Panel, suggest otherwise.   Specifically, the Panel found 
that "{l}earning effects, both with respect to development, and in production, are significant"
2791, and 
that "static and dynamic ('learning curve') economi es of scope and scale achieved in the context of 
one model of LCA are an important part of the development and pr oduction of other LCA 
models".2792  The European Communities also acknowle dged, before the Panel, the important 
knowledge gained on each of its LCA programmes.2793  Indeed, the European Communities submitted 
before the Panel that "{t}he important role of R& D means that the learning curve is steep and even 
incremental technological innovation can translat e into decisive competitive advantage in the 
market."2794  Thus, without the "incremental technologi cal innovation" from the launch of the A300 
and A310, it is not plausible that a non-subsidized  Airbus would have made  the same technological 
progress, or would have had as much know-how as Airbus did in the early 1980s after having 
launched two LCA models.  We also fail to see evid ence on the record that should have led the Panel 
to find that the same kind of technological progress and experience gained through Airbus' 
development of two LCA models c ould have been gained by merely delaying the launch of an 
A320-type LCA by three years.  Thus, we are not persuaded that the evidence on the record would 
have permitted the Panel to conclude that, had a non-subsidized Airbus b een able to launch an aircraft 
in the late 1980s and/or 1990s, it would likely be  technologically superior to the A320 and A330. 
1282.  The third question raised by the European Uni on is whether a non-subsidised Airbus' inability 
to offer LCA in all market segments would have r esulted in its inability to meet the "commonality" 
requirement of the relevant airlines at issue.2795  According to the Panel, "commonality" refers to the 
idea that, "{o}nce an airline orders any particular  LCA model from a given manufacturer, efficiencies 
in operating a fleet of similar aircraft (including thos e related to spare parts, maintenance and training) 
favour follow-on orders of the same models, as well as orders of other aircraft models from the same 
manufacturer, in order to take advantage of commonalities across an LCA fleet."2796  The Panel found 
                                                      
2791Panel Report, para. 7.1623. 
2792Panel Report, para. 7.1936 (referring to Neven and Seabright, supra , footnote 2751;  and Airbus 
A380 business case (Panel Exhibit EC-362 (HSBI)), p. 36) 
2793See, for example, UK Project Appraisal No. 1 (Panel Exhibit EC-98 (HSBI)), para. 1.2(f). 
2794European Communities' first written submission to the Panel, para. 27. 
2795European Union's appellant's submission, paras. 452, 530, and 549. 
2796Panel Report, para. 7.1720.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 557  
 
  that one of the "fundamental characteristics of the LCA market" is that most airlines prefer fleet 
commonality so as to reduce operating costs.
2797   
1283.  The European Union alleges that undisputed ev idence before the Pane l demonstrated that 
Air Asia, Air Berlin, Czech Airlines, and easyJet purchased only LCA in the single -aisle market 
segment during 2001-2006, undermining any po ssibility that they were concerned about 
commonality.2798  The European Union further contends that "the Panel failed to assess whether 
'commonality'—i.e., the interest of an airlin e in securing all of its LCA from the same LCA 
manufacturer—was an issue for the airlines taking deliv eries of Airbus LCA in the country markets at 
issue."2799   
1284.  We note that, before the Panel, the European  Communities referred to fleet commonality as 
an important factor in an airline's decision to purchase aircraft.2800  Indeed, the 
European Communities' arguments before the Pane l argued that the ability of an LCA producer to 
offer a full range of LCA is important in an airlin e's decision to purchase aircraft.  For example, the 
European Communities submitted that "the need to  offer separate products whose commonality keep 
operating costs down for customer airlines across the fleet but which can perform the various missions 
dictated by an airline's route structure has historically meant that no manufacturer of a single product 
… has survived in the LCA industry."2801  Moreover, evidence on the Panel record indicates that 
Airbus' business strategy focused on an integrated family of LCA: 
To achieve its market success, Airbus has pursued a consistent 
product strategy to offer competitiv e airliners across the market.  The 
family of aircraft concept has enabled a high degree of commonality  
to be offered in all aspects of the aircraft operation from flight and 
cabin crew training to maintenance and spares.2802 
                                                      
2797See Panel Report, paras. 7.1717 and 7.1981.  
2798European Union's appellant's submission, para. 460 (referring to Airclaims CASE database, fleet 
summary, data query, 14 May 2007 (Panel Exhibit EC-768)). 
2799European Union's appellant's submission, para. 539. 
2800Panel Report, para. 7.1819 (referring to European Communities' first written submission to the 
Panel, para. 2096). 
2801European Communities' first written submission to the Panel, para. 30. 
2802Panel Report, para. 7.1665 (quoting BAE Systems, Annual Report 1999 (Panel Exhibit US-388), 
p. 15). (emphasis added)  The Panel Report also quotes the following testimony of an Airbus official: 
Since Airbus was established for the precise purpose of becoming a viable, 
profitable, long term enterprise, it was necessary to plan for a family of 
aircraft.  As early as 1973, Airbus I ndustrie proposed the development over 
time of five related aircraft types.  With the recent launch of the A330 and 
A340 programs, these five types are now in place. 
(Ibid. (quoting statement of Alan S. Boyd , Chairman of the Board, Airbus I ndustrie of North America, Inc. to 
US House of Representatives Subcommittee on Comme rce, Consumer Protection, and Competitiveness 
(23 June 1987) (Panel Exhibit US-386), p. 34)) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 558  
 
  1285.  Furthermore, even accepting the European Un ion's contention that commonality would not 
have influenced the purchasing decisions of Air Asia , Air Berlin, Czech Airlines, and easyJet, we still 
do not see a basis to conclude that the evidence on th e record should have led the Panel to conclude 
that Airbus could have developed a single-aisle LCA without subsidies, the aircraft purchased by 
these airlines.  Thus, whether these airlines were  interested or not in commonality, does not 
undermine the Panel's analysis.  We recall, in this regard, that the Panel found that "Airbus' ability to 
launch, develop, and introduce to the market, each  of its LCA models was dependent on subsidized 
LA/MSF".
2803  Thus, the Panel's analysis remains valid even if one were to agree with the 
European Union on this issue.  
1286.  The fourth question raised by the European Union is whether a non-subsidised Airbus could 
have offered its LCA at competitive prices.2804  The European Union alleges that "{a} non-subsidised 
Airbus would have sold LCA at prices as low, or  lower, than Airbus actually charged during the 
period 2001-2006".2805  The European Union bases this asserti on on the Panel's inference that "the 
resulting price levels", in the hypothetical scenario  in which two US producers and a non-subsidized 
Airbus compete in the market, "could … have been lo wer" than the price levels in the scenario where 
a subsidized new entrant (such as Airbus) comp etes with an incumbent producer (such as Boeing).2806  
In addition, according to the European Union, "t he Panel found that a non-subsidised competitor's 
incentive to offer low prices meant that Bo eing would not necessarily secure more sales."2807   
1287.  We note that the Panel found that "there are multiple possibilities for the LCA industry in the 
counterfactual world that would exist in the absence of subsidies to Airbus."2808  Among these 
possibilities is a hypothetical scenario in which a non-subsidized Airbus woul d not have entered the 
market and the LCA industry only had two US produ cers (referred to above as scenario 2), or a 
hypothetical scenario in which a non-subsidized Airbus  might have been able to enter the market and 
compete with a US industry comprising Boeing and another US producer (referred to above as 
scenario 4).  It is with respect to these two scenar ios that the Panel surmised that competition "could 
very well have been even more fierce" than co mpetition between Boeing and a subsidized Airbus.2809   
                                                      
2803Panel Report, para. 7.1949. 
2804European Union's appellant's submission, paras. 452, 530, and 549. 
2805European Union's appellant's submission, para. 471. 
2806Panel Report, para. 7.1995. 
2807European Union's appellant's submission, para. 540 (referring to Panel Report, para. 7.1979). 
2808Panel Report, para. 7.1984. 
2809Panel Report, para. 7.1995.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 559  
 
  1288.  The Panel had before it testimony regarding the e ffect of the subsidies on prices by Professors 
Joseph Stiglitz and Bruce Greenwald (the "Stiglitz /Greenwald statement"), which the Panel said 
"supports the view that prices in the aircraft mark et are lower than they would be in the Boeing 
monopoly counterfactual".
2810  As the Panel noted, "the Stiglitz/Greenwald statement does not help 
{the Panel} assess whether the prices  that prevailed in 2001 to 2006 we re higher or lower than those 
that would have resulted" had a non-subsidized Airbus entered the LCA market in the fourth 
counterfactual scenario.2811  Thus, this statement does not support the assertion that a non-subsidized 
Airbus could offer similar LCA at competitive prices.   Therefore, we do not see how the record would 
have allowed the Panel to concl ude that a non-subsidized Airbus could have offered LCA at more 
competitive prices. 
1289.  The fifth question, according to the Europ ean Union, is whether there were any non-
attribution factors relevant to the sales at i ssue that would suggest the absence of causation.2812  The 
European Union maintains that "there are a variety of non-attribution factors that the Panel failed to 
look at and that explain, in pa rt, why Airbus secured these orders".2813  As regards the Panel's finding 
of lost sales involving A320 LCA, the European Union specifically refers to two factors.  First, in 
relation to the sales to Air Asia, Air Berlin and easyJet, the European Union refers to the alleged 
mismanagement of these customers by Boeing.2814  Second, with respect to the sale to Czech Airlines, 
the European Union refers to an alleged "disput e between Boeing and the Czech government with 
respect to a Boeing{} investment in  a partially state-owned company".2815  Our own review of the 
Panel Report indicates that the Panel sufficiently addressed the two non-attribution factors that the 
European Union now alleges the Panel failed to consider .  The Panel did so in its analysis of lost sales 
under the first-step of its two-step approach.2816   
1290.  With respect to the sale to easy Jet, the focus of the European  Communities' argument before 
the Panel was on certain "non-produc t related considerations" that s upported Airbus' offer and that did 
not involve issues of customer mishandling, as we ll as on the date by which easyJet had "committed" 
to Airbus' offer.2817  It was in this context that the European Communities initially referred to the 
                                                      
2810Panel Report, para. 7.1995. 
2811Panel Report, para. 7.1995. 
2812European Union's appellant's submission, paras. 452, 530, and 549. 
2813European Union's appellant's submission, para. 497. 
2814European Union's appellant's submission, paras. 493-495. 
2815European Union's appellant's submission, para. 496.  The European Union observes that the impact 
of this alleged dispute was accentuated by the C zech Republic's entry into  the European Union. 
2816See Panel Report, paras. 7.1803 and 7.1817. 
2817European Communities' first written submission to the Panel, paras. 1890-1893.  These "non-
product related considerations" are HSBI. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 560  
 
  statement by the former CEO of easyJet which it quotes in its appellant's submission.
2818  The Panel 
addressed these "non-product related considerations", but concluded that pricing was the determinant 
factor in the sale and that the prices offered by Ai rbus already reflected the non-price considerations 
raised by the European Communities.2819  The European Communities subsequently referred to the 
statement by the former CEO of easyJet among its other examples of alleged customer mishandling by Boeing.
2820  Although the Panel did not specifically refer to the allegation of customer 
mismanagement in connection with the easyJet sale,  we do not believe this undermines the Panel's 
analysis.  As we noted, the Panel addressed the European Communities' allegation concerning "non-
product related considerations", which was the focus of the Euro pean Communities' argumentation 
and in which context it had first referred to the statement by the former CEO of easyJet.  We note, moreover, that the statement of the former CEO of  easyJet is rather vague as to how the alleged 
mismanagement of easyJet by Boeing cont ributed to Boeing losing the sale.   
1291.  As for the sales to Air Asia and Air Berlin, th e Panel Report shows that the Panel considered 
the European Communities' allegations of customer  mismanagement by Boeing.  However, the Panel 
concluded that customer relationship issues played  a secondary role and that in both instances the 
sales turned mainly on pricing.
2821  On appeal, the European Union repeats the public statements on 
which it based its allegations befo re the Panel, but does not devel op reasons substantiating why the 
Panel's assessment of the limited relevance of customer relationship issues in these sales campaigns should be questioned.   
1292.  The Panel also addressed the alleged disput e between Boeing and the Czech government, 
which allegedly played a role in the sales campaign involving Czech Airlines.  The Panel 
acknowledged that there was "evidence which suggest s that {Czech Airlines}  was not well inclined 
towards Boeing"
2822, yet it would appear that the Panel considered this factor to be less important than 
pricing.  On appeal, the European Union summa rizes some of background concerning the alleged 
dispute between Boeing and the Czech government and asserts that the Panel should have made 
"further findings"2823 given its recognition that Czech Air lines was not "well inclined" towards 
                                                      
2818The European Union noted that former CEO of easyJet stated: 
Before Christmas, the president of Boei ng sat down and said "this is the deal 
of the century".  Rubbish!  He undercut himself again and again.  Why 
should I believe them from now on? 
(European Union's appellant's submission, para. 495 (quoting "EasyJet's Stelios Haji-Ioannou Comments on 
Airbus Plane Order", Bloomberg News , 14 October 2002 (Panel Exhibit EC-439)) 
2819Panel Report, para. 7.1806.  The Panel's discussion of these issues was rather concise, which may be 
due to the fact that the European Communiti es had designated this evidence as HSBI. 
2820European Communities' second written submission to the Panel, para. 1158. 
2821Panel Report, paras. 7.1809 and 7.1817. 
2822Panel Report, para. 7.1813. 
2823European Union's appellant's submission, para. 496.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 561  
 
  Boeing.  Nonetheless, the European Union's argument  fails to account for the Panel's conclusion as to 
the role of pricing in this sales campaign, nor does it explain what "further findings" the Panel should 
have made once it had considered the alleged di spute between the Czech government and Boeing in 
the light of other factors which were relevant in the sale, namely pricing.
 2824  In sum, with respect to 
the A320 sales campaigns, we believe that the Pane l sufficiently addressed the non-attribution factors 
raised by the European Communities.  The Europ ean Union alleges that the Panel also failed to 
address country-specific non-attribution factors rele vant to the question whether displacement in 
particular countries was the effect of the challenged subsidies.2825  We note that the European Union 
does not mention any non-attribution factors with respect to the European Union market.   
1293.  As regards the Australian market, the European  Union asserts that Boeing lost market share 
because Boeing's  major customer in Australia, Virgin Blue , decided to lease Boeing LCA, instead of 
ordering new Boeing LCA.2826  It further explains that Boeing's post 9/11 deliveries to Australia were 
exaggerated because Boeing's main customers Virgin Blue and Qantas urgently needed large numbers 
of aircraft to take advantage of the post-9/ 11 bankruptcy of their domestic competitor Ansett 
Australia.2827  The European Union adds that, following  the exceptionally large deliveries in 2002, 
Qantas' requirement for new LCA steadily decreased and Virgin Blue decided to lease used 
Boeing 737s, instead of taking delivery of new Boeing LCA.2828  Even assuming the validity of these 
allegations, the two factors raised by the European  Union focus exclusively on Boeing's absolute sales 
volumes.  However, the two factors would not explain Boeing's loss of market share to Airbus, which 
was the basis of the finding of displacement.  Indeed , the European Union's argument fails to consider 
that Boeing also would have competed for the sal es that were made by a subsidized Airbus.   
1294.  With respect to the Chinese market, the Europ ean Union alleges that "airlines order (and, 
hence, take delivery) of LCA based on governmental political considerations".2829  Even assuming 
that political considerations play a role in sales to  the Chinese market, this does not demonstrate that 
political considerations were the cause of Boeing' s loss of market share to Airbus in China.  
Furthermore, the basis for the European Union's allegation that Boeing lost market share due to 
                                                      
2824The European Union observes that the Panel found that "Airbus' succe ss in each of the four sales at 
issue revolved, in considerable part, around low prices". (European Union's appellant's submission, para. 468) 
2825European Union's appellant's submission, para. 567. 
2826European Union's appellant's submission, para. 567.  
2827European Union's appellant's submission, para. 567.  
2828European Union's appellant's submission, Annex III (Displacement Annex), para. 107. 
2829European Union's appellant's submission, para. 567.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 562  
 
  political considerations consists of ex cerpts from a single newspaper article.
2830  Moreover, as the 
European Union recognizes, Airbus made sales  of A340 LCA in China during the reference 
period.2831  The European Union has accepted that the A340 would not have been launched without 
subsidies.  It further accepts that no further anal ysis is required for purposes of establishing causation 
with respect to the displacement involving sales of A340.2832   
1295.  As for the Korean market, the European Union submits that "Boeing lost market share in 
Korea over 2001-2006 because Korean Air's LCA requirements decreased significantly".2833  As with 
the Australian market, even assuming the validity of  the European Union's submission, it would only 
explain the absolute decline in Boeing's sales.  The European Union's argument, however, does not 
account for the sales made by a subsidized Airbus that could have been made by Boeing in the 
absence of the subsidies.  Even if  Airbus' deliveries in the Korean  market remained stable, as the 
European Union alleges2834, those deliveries could have been made by Boeing had Airbus not been 
subsidized, in which case Boeing's sales would not have declined.   
1296.  Given that we have reversed the Panel's findi ngs of displacement in the Brazilian, Mexican, 
Singaporean and Chinese Taipei markets, and the fi nding of threat of displacement in the Indian 
market, we need not address the non-attribution factor s raised by the European Union with respect to 
those markets.   
1297.  Finally, we note that the Panel found that, irrespective of other factors, the presence of the 
subsidized LCA in the market was a "fundamental  cause" of the lost sales and displacement.2835  The 
Panel concluded in this respect: 
We noted that there are numerous factors involved in a customer's 
decision as to which LCA to purchase.  However, one factor which is 
essential is the availability of a particular  model or models of LCA 
suitable for a particular customer' s needs at the time of the sale .2836  
1298.  In paragraph 1275 above, we have  observed that we are not persuaded that the evidence on 
record should have led the Panel to find that a non-subsidized Airbus coul d have launched an A320-
                                                      
2830European Union's appellant's submission, Annex III (Displacem ent Annex), para. 116 (quoting 
"Boeing stumbles in race for China", Seattle Times , 5 June 2005 (Exhibit EC-916)).  The other evidence referred 
to by the European Union generally describes the procedures that Chinese airlines allegedly must follow to acquire aircraft. 
2831The A340 sales represented 100% of Airbus' deliv eries of twin-aisle LCA in 2003 and 2004. (See 
European Union's appellant's submission, Annex III (Displacement Annex), paras. 119-122) 
2832European Union's appellant's submission, Annex III (Displacement Annex), para. 62. 
2833European Union's appellant's submission, para. 567. 
2834European Union's appellant's submission, Annex III (Displacement Annex), para. 130. 
2835Panel Report, para. 7.1985.  
2836Panel Report, para. 7.1985. (emphasis added)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 563  
 
  type LCA in 1987 and an A330-type LCA in 1991 .  This undercuts the contention that the 
non-attribution factors raised by the European Un ion could have diminished the effect of the 
subsidies.   
1299.  In sum, we do not believe that the Panel woul d have reached a different conclusion had it 
pursued its counterfactual analysis further along the lines of the five questions raised by the 
European Union.   
1300.  Therefore, we reject  the European Union's claims that the Panel "presumed causation" and 
failed to establish the required "cha in of causation" in its assessment  of whether the displacement and 
lost sales were the effect of the LA/MSF subsidies wi thin the meaning of Article 6.3(a), (b), and (c) of 
the SCM Agreement .  For similar reasons, we reject  the European Union's allegations that the Panel 
failed to make an objective assessment of the f acts under Article 11 of the DSU.  Instead, we find that 
the Panel's analysis sufficiently established a "g enuine and substantial" causal link between the 
LA/MSF subsidies and the displacement and lost sales. 
(d) The relevance of the 1992 Agreement 
1301.  The European Union also argues that the Panel erred by failing to consider the 
1992 Agreement in evaluating the Unite d States' claims of a dverse effects.  First, the European Union 
contends that, through the 1992 Agreement, the United States "agreed in its bila teral relations with the 
European Union to the acceptable level of gove rnment support that it now  alleges constitute{s} 
subsidies" and thus the United States cannot "subs equently allege that those same measures are 
actionable, causing adverse effects to its interests."
2837   
1302.  As we have noted in section VI.B.3(b), the LA/MSF measures fall within the category of 
government support to which Article 4 of the 1992 Agreement is addressed.  The 1992 Agreement, 
however, does not address the remedies  that each party could pursue at the multilateral level.  While 
the 1992 Agreement provides that the parties "sha ll seek to avoid any trade conflict on matters 
covered" by it2838, the Agreement does not say that either party could not challenge support provided 
by the other party to its LCA industry if such support caused adverse effects.2839  Indeed, the fifth 
recital of the 1992 Agreement states that it was the pa rties' "intention to act without prejudice to their 
                                                      
2837European Union's appellant's submission, para. 689. 
2838Article 10.1 of the 1992 Agreement.   
2839By contrast, Article 10.2 provides that the partie s "will not self-initiate action under their national 
trade laws with respect to government supports granted in conformity with this Agreement for as long as this 
Agreement is in force." WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 564  
 
  rights and obligations under the GATT and under other multilateral agreemen ts negotiated under the 
auspices of the GATT". 
1303.  At the other oral hearing, the European Un ion suggested that the 1992 Agreement delineated 
the "interests" of the United States in the area of government measures relating to the LCA industry 
and thereby limited the ability of the United States to  assert claims of adverse effects to its interests 
under the SCM Agreement .  The European Union did not provide a basis for concluding that any 
"interests" reflected in the 1992 Agreement exhaust the "interests" of the United States under Article 5 
of the SCM Agreement .  Nor do we see a basis for the argumen t that a bilateral agreement serves to 
limit the interests of the parties under a subsequent multilateral agreement.
2840       
1304.  The European Union also asserts that "the circumstance that these {challenged} measures 
were in conformity with an agreement between the pa rties is a fact that the Panel was required to take 
into consideration in assessing whether adverse effects exist." 2841  The European Union claims, in this 
regard, that "the Panel erred in its interpre tation and application of Article 5(c) of the SCM Agreement  
and Articles 12.7 and 11 of the DSU in failing to set  out the basic rationale for its findings and in 
failing to make an objective assessment of the law and the facts."2842  The European Union does not 
explain how the Panel was meant to have considered the allege d conformity of the challenged 
measures with the 1992 Agreement as a "fact".  Ev en assuming for the sake of argument that such a 
"fact" was indeed relevant, the European Union do es not explain why such fact would preclude the 
United States from making a clai m of adverse effects under the SCM Agreement .   
1305.  In these circumstances, we do not consider that  there is a basis for the European Union's 
allegation that the Panel's failure to consider the 1992 Agreement in the context of the assessment of 
adverse effects constitutes an error in the interp retation and application of  Article 5(c) of the 
SCM Agreement  or a violation of the Panel's duties under Articles 12.7 and 11 of the DSU. 
                                                      
2840At the oral hearing, the European Union also raised the following three questions in connection with 
the 1992 Agreement:  (1) How could LA/MSF measures, to which the United States consented, plausibly cause 
effects adverse to the interests of the United States in Brazil and Mexico when Boeing's share of those markets 
actually rose during the reference period?  (2) How could LA/MSF measures, to which the United States 
consented, plausibly cause displacem ent effects in various other market s adverse to the interest of the 
United States in the complete abse nce of any trend?  and (3) How co uld LA/MSF measures, to which the 
United States consented, relating to products between wh ich competition is "non-existent" or negligible, be 
plausibly lumped together to generate findings, even in the complete absence of any sales of the relevant aircraft 
(as, for example, in the case of Braz il)?  We note that these questions turn on issues that go beyond the 
1992 Agreement, such as, the existen ce of "trends", whether Boeing's mark et share increased or decreased, or 
what is the relevant product market, all of which were addressed earlier.  None, however, provides support for 
the allegation that the United States is barred from raising a claim of adverse effects under Articles 5 and 6.3 of 
the SCM Agreement . 
2841European Union's appellant's submission, para. 690. 
2842European Union's appellant's submission, para. 691.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 565  
 
  2. Causation – A380 Lost Sales
 
1306.  We turn next to the European Union's appeal of the Panel's finding that a non-subsidized 
Airbus would not have been ab le to launch the A380 in 2000.2843  In making this appeal, the 
European Union seeks to invalidate the Panel's c onsequential finding that the challenged subsidies 
caused Boeing to lose significant sal es in the Emirates Airlines, Qantas, and Singapore Airlines sales 
campaigns. These sales campaigns were won by Airbus selling A380 aircraft.2844  We begin our 
analysis with a summary of the Panel's findings in  subsection (a), followed by our analysis of the 
European Union's claims of error in subsection (b), and our conclusions in subsection (c).   
(a) The Panel's findings  
1307.  We recall that the Panel found that the Dorman  Report demonstrated that the provision of 
LA/MSF was "likely to change the behaviour of the recipient with respect to a decision to launch a 
LCA by increasing the likelihood of an affirma tive decision to go forward with the launch."2845  The 
Panel then reviewed a series of statements by go vernment and Airbus officials, which allegedly 
suggested that the subsidies "facilitated and accelerated the introduction"2846 of every major Airbus 
LCA model, including the A380.2847  Although the Panel recognized that such statements might have 
involved a certain "degree of self interest"2848, it noted that they were uncontested by the 
European Communities, and found that they "gen erally support the inference that, but for the 
                                                      
2843European Union's appellant's submission, para. 599 (referring to Panel Report, paras. 7.1947-
7.1949). 
2844European Union's appellant's submission, para. 628 (referring to Panel Report, paras. 7.1993, 
7.2025, and 8.2(d)). 
2845Panel Report, para. 7.1912.  
2846United States' first written submission to the Panel, para. 829. 
2847Panel Report, paras. 7.1913, 7.1917 and 7.1918.  The Panel noted that the UK Secretary of State for 
Trade and Industry was quoted as stating that the launch of the A380 "would not have been possible if it had not 
been for the commitment of the British Government". ( Ibid., para. 7.1917 (quoting answer of Patricia Hewitt, 
Secretary of State for Trade and Industry, UK Parliament House of Commons Hansard Debates for 3 March 2005 (Panel Exhibit US-436), column 1088)  In a similar vein, the UK Department of Trade and Industry 
website explained that "{t}he fundamental rationale of  launch aid is to address the apparent unwillingness of 
capital markets to fund projects with such high product  development costs, high technological and market risks 
and such long pay back periods". ( Ibid. (quoting "Aerospace and Defense Industries Launch Investment", DTI 
website (Panel Exhibit US-106)))  According to a 1997 French Senate Report, even if Aérospatiale would have 
been able to obtain outside financing to meet its requirements in respect of the A380, such financing would "add excessively to the financial expenses incurred by the firms and would throw their balance sheets out of 
equilibrium because of the low le vel of their equity capital". ( Ibid., para. 7.1918 (quoting Yvon Collin, Senator, 
Report No. 367 (1996-1997), Mission de contrôle effectuée sur le soutien public à la construction aéronautique 
civile  (Panel Exhibit US-18))   
2848Panel Report, para. 7.1919.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 566  
 
  provision of LA/MSF", Airbus would not have been able to launch its range of LCA, including the 
A380, as and when it did.
2849  
1308.  The European Communities sought to rebut the Un ited States' assertion that Airbus would not 
have been able to launch the A380 without LA/MSF  by pointing to the Airbus A380 business case, 
which in its view demonstrated that LA/MSF did not have any impact on the decision to launch the 
A380.2850  The Panel acknowledged that the A380 busin ess case predicted a positive net present value 
("NPV") both in the baseline scenario where ther e is no LA/MSF available, and in the baseline 
scenario where LA/MSF amounts to 33% of development costs.2851  However, the Panel noted that the 
five different sensitivity assessments contained in  the A380 business case, including a "Realistic 
Worst Case" scenario, were not tested against a base case in which Airbus did not receive LA/MSF.
2852  The Panel further explained that, although the ex post  sensitivity analysis submitted by 
the European Communities applied the Realisti c Worst Case scenario to a base case where no 
LA/MSF was provided, it did not undertake the sensitivit y analysis with respect to all parameters used 
in the original A380 business case.2853  Therefore, the Panel said it did not know whether the use of 
the same parameters contained in the business case  would have resulted in a negative NPV in the 
Realistic Worst Case scenario.2854 
1309.  The Panel noted further that a "critical elemen t of the credibility of the business case is the 
reasonableness of the demand predictions on whic h the sales and delivery projections are based."2855  
According to the Panel, because the business case also served as one of the bases for the government 
lenders to decide whether to support a progra mme, and given the "graduated levy-based and success-
dependent nature of LA/MSF repaym ents", Airbus had "an economic incentive to be optimistic" in its 
sales forecasts.2856  The Panel considered that the A380 business case reflected "consideration of a 
rather limited range of possibilities in terms of failure to achieve sales targets, particularly in view of 
the uncertainty of demand forecasts for the aircraft."2857  For the Panel, actual delays in ramping up 
production and relatively limited sales and deliveries i ndicated that the Realistic Worst Case scenario 
did not capture what could reasonably have been e nvisioned to be the worst case scenario at the time 
the business case was developed.2858  For these reasons, the Panel was "not persuaded that the A380 
                                                      
2849Panel Report, para. 7.1920.  
2850Airbus A380 business case (Panel Exhibit EC-362 (HSBI)). 
2851Panel Report, para. 7.1922.  
2852Panel Report, para. 7.1923.   
2853Panel Report, para. 7.1925 (referring to the Carballo Declaration, supra , footnote 2702). 
2854Panel Report, para. 7.1925.  
2855Panel Report, para. 7.1927.  
2856Panel Report, para. 7.1926.  
2857Panel Report, para. 7.1927. (footnote omitted) 
2858Panel Report, para. 7.1927.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 567  
 
  business case alone demonstrates that Airbus woul d have launched the A380 even in the absence of 
LA/MSF".
2859  
1310.  Furthermore, the Panel agreed with the Un ited States that a French Senate Report2860 and a 
statement made by the UK Secretary of State for Trade and Industry2861 suggested that even if Airbus 
had been confident that the A380 project would have  been viable without LA/MSF, it would not have 
been able to fund the project relying exclusively on its own resources and outside financing.  The 
Panel rejected the European Communities' argument  that the creation of EADS increased Airbus' 
financial flexibility.  For the Panel, it was not clear  how or to what degree the corporate restructuring 
of Airbus Industrie GIE, Aérosp atiale, CASA, and Deut sche Airbus affected the ability of Airbus 
France (or Airbus SAS) to raise the very large amounts of capital needed for the A380 project.2862  
Moreover, the Panel observed that the European  Communities had "submitted no evidence to support 
the contention that merely because, reportedly, Boei ng was able to finance a significant portion of the 
non-recurring costs of development of the 787 th rough risk-sharing supplier arrangements, Airbus 
would necessarily have been able to do the same with respect to the A380."2863   
1311.  Finally, the Panel considered that "but for LA/MSF provided with respect to Airbus' launches 
of earlier models of LCA", it would not "have been possible for Airbus to be in a position to launch 
the A380 in 2000".2864  The Panel opined that Airbus would not have been in a position to obtain 
market financing for the A380, had it not financed the development of its earlier models of LCA in 
significant part through LA/MSF, because "the incr ease in the level of debt Airbus would have 
accumulated over the years would have been massive".2865  The Panel further noted that "Airbus' 
technical capabilities derived in part from its experi ence in the development of its earlier model LCA 
funded in significant part by LA/MSF".2866  Thus, according to the Panel, "that Airbus could have 
                                                      
2859Panel Report, para. 7.1944. 
2860Panel Report, para. 7.1945 (referring to Panel Exhibit US-18, supra , footnote 2847).   
2861Panel Report, para. 7.1945 (referring to Panel Exhibit US-436, supra , footnote 2847).  
2862Panel Report, para. 7.1947. 
2863Panel Report, para. 7.1947.  The Panel acknowledged that Airbus used risk-sharing supplier 
arrangements, but said there was no indication that it could have increased its use of such arrangements so as to 
replace the entire amount of financing provided by LA/MSF, which was up to  33% of the development costs of 
the A380.  Furthermore, the Panel did not consider th e availability of risk-sharing supplier arrangements in 
respect of the A340-500/600 to be persuasive in this regard, because those were derivative aircraft which 
entailed much smaller development costs and a much lo wer level of risk to Airbus' overall operations.  The 
willingness of suppliers to take on some  of the risk of that much smalle r programme did not demonstrate that 
any supplier or suppliers would be prepared to do so in  respect of up to 33% of th e much greater costs of the 
A380.  Finally, the Panel noted that information in the Airbus A380 business case suggested that the risk-sharing participants' involvement in the A380 project may not have been on strictly market terms for all 
participants. 
2864Panel Report, para. 7.1948. 
2865Panel Report, para. 7.1948. (footnote omitted) 
2866Panel Report, para. 7.1948. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 568  
 
  launched the A380 as a stand-alone proposition is dependent upon Airbus having received LA/MSF to 
develop all of its prev ious models of LCA."
2867  Accordingly, the Panel concluded that "either directly 
or indirectly, LA/MSF was a necessary pre-conditi on for Airbus' launch in 2000 of the A380."2868  
(b) Analysis  
1312.  On appeal, the European Union claims that the Panel erred in its evaluation of various 
elements which supported its finding that "either directly or indirectly, LA/MSF was a necessary 
precondition for Airbus' launch in 2000 of the A380."2869  In particular, the European Union argues 
that the Panel erred:  (i) in its assessment of the A380 business case;  (ii) in its evaluation of Airbus' 
ability to fund the A380 without access to LA/MSF;  and (iii) in its analysis of Airbus' technological 
capabilities in the absence of LA/MSF.   
1313.  For each aspect of the Panel's assessment that  it challenges, the European Union makes a 
claim under Articles 5(c) and 6.3(c) of the SCM Agreement , alleging an error of application, as well as 
a claim under Article 11 of the DSU, alleging a failu re by the Panel to make  an objective assessment 
of the facts.2870  At the oral hearing, the European Unio n suggested that an appellant was entitled to 
make both claims and that it would be for the Ap pellate Body to determine which was the proper 
characterization of those claims.  
1314.  As noted earlier, the Appellate Body has stated that "an appellant is free to determine how to 
characterize its claims on appeal"2871, and it is often difficult to clearly  distinguish between issues that 
are purely legal, purely factual, or are mixed issues of law and fact.  We also recall that the characterization of a claim as one relating to the application of law to facts or as one relating to a failure to make an objective assessment of the f acts under Article 11 of the DSU has consequences for 
the standard of review that the Appellate Body will apply because of the limitations on the scope of 
appellate review.  In most cases, however, an issue will either  be one of application of the law to the 
facts or an issue of the objective assessment of facts, and not both. 
                                                     
 
2867Panel Report, para. 7.1948. 
2868Panel Report, para. 7.1948.  
2869Panel Report, para. 7.1948.  
2870European Union's appellant's submission, para. 627. 
2871Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 177 (referring to 
Appellate Body Report, Japan – Apples , para. 136).    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 569  
 
  1315.  In order to determine whether the issues rai sed by the European Union are more properly 
characterized as relating to application of law to fact s or to an objective assessment of the facts, it is 
first necessary to recall the requirements of Article 6.3(c) of the SCM Agreement , which establishes 
that "serious prejudice" in the sense of Article 5(c) "may arise" where "the effect of the subsidy" is, 
among others, "{significant} lost sales in the same  market."  In this part of its appeal, the 
European Union is not alleging that the Panel app lied an incorrect legal standard in determining 
whether the "effect of" the subsidies was "signi ficant lost sales" under Article 6.3(c) of the 
SCM Agreement  in relation to the sales of the A380 to  Emirates Airlines, Qantas, and Singapore 
Airlines.  During the oral hearing, the European Union also clarified that it did not challenge the 
Panel's interpretation of the phrase "lost sales in the same market" in Article 6.3(c).
2872 
1316.   The European Union's claim that the Panel erred in the application of Articles 5(c) and 6.3(c) 
of the SCM Agreement  is directed at three particular aspects of the Panel's analysis.  First, the 
European Union challenges the Panel's assessment of "the financial viability and credibility of Airbus' 
business case for the A380".2873  In our view, the financial viability of Airbus is essentially a factual 
matter and the Appellate Body has held that the as sessment of the weight and credibility of evidence, 
such as the A380 business case, falls in principle w ithin the discretion of panels as triers of fact.2874  
Second, the European Union asserts that "the Pane l erred in its assessment of the ability of a non-
subsidised Airbus to raise the fi nancing necessary to launch the A380".2875  We do not see that this 
raises a legal issue;  rather, the assessment of a compan y's ability to raise financing is a factual matter.  
Finally, the European Union argues that "the Panel erred in its assessment of a non-subsidised Airbus' 
technological experience to develop and produce the A380" if prior models had been launched 
without LA/MSF.2876  We see the technological abilities of a company as being an issue that is 
primarily factual in nature.  Thus, in our view, the European Union's cha llenges against these three 
aspects of the Panel's analysis are more properly ch aracterized as claims unde r Article 11 of the DSU 
because they are directed at the alleged lack of obj ectivity of the Panel's assessment of the facts.  
Consequently, we will examine them under Article 11 of the DSU.   
                                                      
2872European Union's response to questioning at the oral hearing.  
2873European Union's appellant's submission, para. 600. 
2874See Appellate Body Report, EC – Hormones , para. 132. 
2875European Union's appellant's submission, para. 600. 
2876European Union's appellant's submission, para. 600. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 570  
 
  1317.  The Appellate Body has repeatedly emphasized that Article 11 of the DSU requires a panel to 
"consider all the evidence presented to it, assess its cr edibility, determine its weight, and ensure that 
its factual findings have a proper basis in that evidence."
2877  Within these parameters, "it is generally 
within the discretion of the Panel to decide which evidence it chooses to utilize in making 
findings"2878, and panels "are not required to accord to  factual evidence of the parties the same 
meaning and weight as do the parties".2879  In this regard, the Appellate Body has stated that it will not 
"interfere lightly" with a panel's fact-finding authority2880, and has also emphasized that it "cannot 
base a finding of inconsistency under Article 11 simply on the conclusion that {it} might have 
reached a different factual finding from the one the panel reached".2881  Instead, for a claim under 
Article 11 to succeed, the Appellate Body must be sa tisfied that the panel has exceeded its authority 
as the trier of facts.2882  As an initial trier of facts, a pa nel must provide "reasoned and adequate 
explanations and coherent reasoning".2883  It has to base its findings on  a sufficient evidentiary basis 
on the record2884, may not apply a double standard of proof2885, and a panel's treatment of the evidence 
must not "lack even-handedness".2886 
1318.  We note that not every error in the appreciation of a particular piece of evidence will rise to 
the level of a failure by the Panel to comply with its duties under Article 11 of the DSU.  In order for 
us to reverse the Panel's finding in respect of the A380 on the basis of Article 11 of the DSU, we would have to be satisfied that the Panel's errors , taken together or singly, undermine the objectivity 
of the Panel's assessment of whether Airbus would have been able to launch the A380 in 2000 without 
LA/MSF.  Thus, the question before us is whethe r the Panel did commit the errors alleged by the 
European Union and, if so, whether they demonstr ate that the Panel's conclusion that LA/MSF was a 
                                                     
 
2877Appellate Body Report, Brazil – Retreaded Tyres , para. 185 (referring to Appellate Body Report, 
EC – Hormones , paras. 132 and 133).  See also Appellate Body Report, Japan – Apples , para. 221;  Appellate 
Body Report, EC – Asbestos , para. 161;  Appellate Body Report, Australia – Salmon , para. 266;  Appellate 
Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 170, 177, and 181;  Appellate Body Report, EC – 
Sardines,  para. 299;  Appellate Body Report, EC – Tube or Pipe Fittings , para. 125;  Appellate Body Report, 
Japan – Agricultural Products II , paras. 141 and 142;  Appellate Body Report, Korea – Dairy , para. 138;  
Appellate Body Report, Korea – Alcoholic Beverages , paras. 161 and 162;  Appellate Body Report, US – Oil 
Country Tubular Goods Sunset Reviews , para. 313;  Appellate Body Report, US – Gambling , para. 363;  
Appellate Body Report, EC – Selected Customs Matters , para. 258;  and Appellate Body Report, US – Carbon 
Steel , para. 142. 
2878Appellate Body Report, EC – Hormones , para. 135. 
2879Appellate Body Report, Australia – Salmon , para. 267. 
2880See, for example, Appellate Body Report, US – Wheat Gluten , para. 151;  Appellate Body Report,  
EC – Sardines , para.. 299;  and Appellate Body Report, US – Carbon Steel , para. 142. 
2881Appellate Body Report, US – Wheat Gluten , para. 151. 
2882Appellate Body Report, US – Wheat Gluten , para. 151. 
2883See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , footnote 618 to para. 293. 
2884See Appellate Body Report, US – Carbon Steel , para. 338. 
2885See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 293. 
2886See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 292.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 571  
 
  "necessary precondition"
2887 for the launch of the A380 in 2000, no longer had a sufficient evidentiary 
and objective basis.  
1319.  The first error alleged by the European Union relates to the Panel's assessment of the A380 
business case.  Before the Panel, the A380 busin ess case was produced by th e European Communities 
in support of its allegation that LA/MSF did not ha ve any impact on the decision to launch the A380 
in 2000.2888  According to the European Communities, the A380 business case demonstrated that the 
project provided "robust returns" in the absence of LA/MSF.2889 
1320.  The Panel noted that the A380 business case is dated December 2000.  As described by the 
Panel, the A380 business case includes an NPV analysis of a "contemplated A380 family of aircraft" 
comprising a core aircraft, a freighter, and extende d and stretch versions of the core aircraft.2890  As 
with the Dorman Report, the A380 business case  made certain assumptions in respect of non-
recurring costs, recurring costs, the number of deliveries and pricing.  The A380 business case 
calculated the NPV of two "baseline" scenarios, one of which assumed no provision of LA/MSF, and 
the other with LA/MSF covering 33% of developm ent costs.  The Panel observed that the A380 
business case anticipated a positiv e NPV in the absence of LA/MSF, but like the Dorman Report 
simulation, it also indicated that LA/MSF positively impacted the NPV of the project.2891   
1321.  The Panel further noted that the A380 busin ess case contained five different sensitivity 
assessments in respect of the baseline case, one of which is the Realistic Worst Case scenario, but 
emphasized that such Realistic Worst Case scenario was not tested against the baseline case in which 
Airbus would not receive LA/MSF.  According to  the Panel, this implied that Airbus never 
contemplated launching the A380 without LA/MSF.2892  The Panel then referred to an ex post facto  
sensitivity analysis contained in the "Carballo Declaration"2893, which was submitted by the 
European Communities.  The Panel expressed concerns about the analysis in the Carballo Declaration 
of the Realistic Worst Case scen ario because it failed to conduct the sensitivity assessment with 
respect to all the parameters origin ally used in the A380 business case.2894  Thus, although the 
sensitivity analysis of the Carballo Declaration still reflected a positive NPV in the absence of 
                                                      
2887Panel Report, para. 7.1948.  
2888Airbus A380 business case (Panel Exhibit EC-362 (HSBI)).  
2889Panel Report, para. 7.1921.  
2890Panel Report, para. 7.1922. 
2891Panel Report, para. 7.1922 (referring to Airbus A380 business case (Panel Exhibit EC-362 (HSBI)), 
p. 29). 
2892Panel Report, para. 7.1923.  
2893Supra , footnote 2853. 
2894Panel Report, paras. 7.1924 and 7.1925 (referring to Carballo Declaration supra , footnote 2702).   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 572  
 
  LA/MSF, the Panel could not conclude that th e project's NPV would remain positive in all 
scenarios.
2895 
1322.  Nonetheless, the Panel acknowledged th at both the A380 business case and the ex post  
sensitivity analysis contained in the Carballo Decl aration forecast that the A380 would have yielded 
positive returns in the absence of LA/MSF.2896  However, the Panel qualified this conclusion with the 
following observation, which called into question the credibility of the forecasts used in the business 
case: 
While the business case may serve as the basis for Airbus' decision 
whether the launch of a new LCA programme is a worthwhile 
investment, it also serves as at least one of the bases for the 
government lenders to decide wh ether to support a programme and 
how that support will be structured.  Because of the graduated levy-based and success-dependent nature of LA/MSF repayments, Airbus has an economic incentive to be optimistic in its forecasts  of, 
inter alia , the number of aircraft likely to be sold and the pace of 
those sales, when preparing a business case in support of a 
programme for which LA/MSF is sought.  The greater the number of sales over which principal repayments and royalties must be paid, the less likely it is that Airbus will have  to make those payments if the 
business plan estimates prove to be optimistic.
2897 (emphasis added; 
footnotes omitted) 
1323.  The Panel went on to observe that "the reas onableness of the demand predictions on which 
the sales and delivery projections are based" were a "c ritical element of the credibility of the business 
case."2898  The Panel opined that, while it was "in no positi on to judge at this time whether the sales 
estimates in the A380 business case  were, in fact, reasonable, we note that the A380 business case 
reflects consideration of a rather limited range of  possibilities in terms of failure to achieve sales 
targets, particularly in view of the uncer tainty of demand forecasts for the aircraft."2899  The Panel 
added that: 
{t}he A380 may yet succeed in reaching the sales levels predicted in 
the business case. However, the actual delays in ramping up 
production, and relatively limited sales and deliveries to date, make it 
clear that such success will, if it occurs, likely take a good deal 
longer than originally projected, thus delaying achievement of the break-even point of the programme.  The financial consequences of 
the A380 production problems and r esulting programme delays have 
been significant, with EADS reporting a consequent reduction in 
                                                     
 
2895Panel Report, para. 7.1925.  
2896Panel Report, para. 7.1943.  
2897Panel Report, para. 7.1926.  
2898Panel Report, para. 7.1927.  
2899Panel Report, para. 7.1927. (footnote omitted)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 573  
 
  Airbus' earnings before interest and taxes of {€}2.5 billion as of 
2006.  Thus, it is by no means apparent that the Realistic Worst Case Scenario actually captured what could reasonably have been envisioned to be the worst case scenario at the time the business case was developed.
2900 (footnotes omitted)  
1324.  For these reasons, although the Panel rec ognized that the A380 business case predicted 
positive returns in the absence of the LA/MSF, th e Panel was not persuaded that the A380 business 
case alone demonstrated that Airbus would have  launched the A380 in the absence of LA/MSF.2901 
1325.  On appeal, the European Union argues that the Panel erred in its assessment of the delivery 
forecasts in the Airbus A380 business case.2902   First, the European Union asserts that the Panel 
improperly relied on the ex post fact that delays occurred in the de velopment of the A380.  According 
to the European Union, Article 6.3(c) required the Panel to assess the delivery forecasts of the A380 
business case on the basis of the information availa ble at the time of the launch of the A380 in 
2000.2903  Second, in its assessment, the Panel did not address "considerable evidence" that 
demonstrated that "sophisticated and well-inform ed" private investors based their investment 
decisions on those forecasts.2904   
1326.  The United States responds that the Panel's findi ng that Airbus could not have launched the 
A380 in the absence of LA/MSF was not based on its  assessment of the credibility of the delivery 
forecasts contained in the A380 business case.  Instea d, the Panel specifically observed that the A380 
business case did not examine the viability of a wo rst case scenario in the absence of LA/MSF, and 
that the ex post  sensitivity analysis submitted by the European Union for this purpose failed to 
demonstrate that the launch would have been possible in the absence of LA/MSF.2905  T h e  
United States adds that the Appellate Body do es not need to consider this aspect of the 
European Union's appeal because, despite the Pa nel's concerns regarding the completeness and 
accuracy of the A380 business case, it assumed that "the {A380} business case ... demonstrate{s} a 
positive NPV in a no-LA/MSF and Realistic Worst Case Scenario."2906  
1327.  As we understand it, the A380 business case provide d the main financial rationale for Airbus' 
decision to launch the programme in 2000.  It sought  to evaluate the profitability of the programme 
over the A380 life-cycle, by estimating the NPV of  the cash flow generated from expected aircraft 
                                                      
2900Panel Report, para. 7.1927.  
2901Panel Report, para. 7.1944.  
2902Panel Report, para. 7.1926. (footnote omitted) 
2903European Union's appellant's submission, para. 605.  
2904European Union's appellant's submission, para. 609.  
2905United States' appellee's submission, para. 652 (referring to Panel Report, paras. 7.1922-7.1927).  
2906United States' appellee's submission, para. 653 (quoting Panel Report, para. 7.1943).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 574  
 
  sales over that period.
2907  The A380 business case rested on a number of assumptions concerning, 
inter alia , Airbus' anticipated development and production costs, the number of deliveries, and pricing 
of the aircraft.  The programme's estimated profitab ility depended, to a large extent, on the number of 
sales and deliveries projected over the life of the programme.2908  The business case also contained 
five sensitivity assessments, one of which is the Realistic Worst Case scenario, which evaluates the 
behaviour of the project's NPV in case of deviations from its major assumptions.2909   
1328.  The NPV estimates in the A380 business case were  examined in the context of the Panel's 
analysis of whether Airbus would have launched the A380 in 2000 but for LA/MSF.  This type of 
analysis necessarily requires an examination of  Airbus ' decisions at the time of the launch.  For this 
reason, the analysis must be made on the basis of  the information that was reasonably available to 
Airbus at the time it made the launch decision.  Th is would include forecasts of sales and deliveries.  
It would be inappropriate to consider events that  occurred after the launch decision was made and that 
had not been forecast, as Airbus did not have the bene fit of hindsight when it had to decide whether or 
not to launch the A380 based on the information re asonably available at the time the decision was 
made.   
1329.  Therefore, we agree with the European Union th at it was inappropriate for the Panel to have 
evaluated Airbus' decision to launch the A380 in the li ght of events that occu rred after that decision 
was made.  In particular, two statements by the Pa nel in relation to the reasonableness of the sales and 
delivery forecasts contained in the A380 business case reflect consideration of ex post  events.  First, 
the Panel dismissed the European Union's allegati on that the delivery forecasts contained in Airbus' 
business cases had been "often met, and indeed exceeded"2910 stating that "experience to date suggests 
that this may not be the case in respect of the A380."2911  The Panel clarified in a footnote that it was 
referring to the "difficulties Airbus experienced wi th the A380, resulting in substantial delays in 
production and customer concerns".2912  Second, the Panel called into  question the reasonableness of 
the sales forecast contained in the business case by stating that: 
                                                      
2907Airbus A380 business case (Panel Exhibit EC-362 (HSBI)).  
2908The A380 business case makes assumptions in relation to both the minimum number of deliveries 
necessary to reach the break-even poin t of the programme and the total number of deliveries over the product's 
life-cycle. (Airbus A380 business case  (Panel Exhibit EC-362 (HSBI)))  
2909Panel Report, para. 7.1923.  
2910Panel Report, para. 7.1926 (quoting European Communities' first written submission to the Panel 
para. 467).  
2911Panel Report, para. 7.1926 (referring to EADS press release, "EADS 2006 results dominated by 
Airbus loss" (9 March 2007) (Panel Exhibit US-463).   
2912Panel Report, footnote 5616 to para. 7.1926 (referring to Panel Exhibit US-463, supra , 
footnote 2911).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 575  
 
  {t}he A380 may yet succeed in reaching the sales levels predicted in 
the business case. However, the actual delays in ramping up production, and relatively limited sales and deliveries to date, make it clear that such success will, if it occurs, likely take a good deal 
longer than originally projected, thus delaying achievement of the 
break-even point of the programme.  The financial consequences of 
the A380 production problems and r esulting programme delays have 
been significant, with EADS reporting a consequent reduction in Airbus' earnings before interest and taxes of {€}2.5 billion as of 2006.
2913 (footnotes omitted) 
1330.  In our view, the Panel's reference to " actual  delays in ramping up production, and relatively 
limited sales and deliveries to date "2914 shows that the Panel assessed the credibility of the sales and 
delivery forecasts contained in the A380 business case on the basis of ex post  considerations.  The 
relevant question before the Pane l was not whether subsequent events undermined the credibility of 
the sales and deliveries forecasts contained in th e business case, but rather whether such forecasts 
were credible on the basis of th e information reasonably available to Airbus at the time the launch 
decision was made.  While we do not suggest that the credibility of production and delivery forecasts could not be reviewed by a Panel on the basis of  information available at the time of the launch 
decision, the above statements show th at the Panel failed to adopt such an ex ante  approach.  We 
therefore agree with the European Un ion that the Panel's reference to ex post  events was not 
permissible. 
1331.  We further agree with the European Union th at the Panel's statement that Airbus had 
"economic incentives"
2915 to overstate likely sales because th e A380 business case also served as one 
of the bases for the lending governments' decisions  to grant LA/MSF is somewhat speculative.  We 
have reservations about the logic of the Panel's reasoning, because the fact  that governments based 
their lending decisions on the business case does not fo r that reason alone undermine the credibility of 
the A380 business case.  As the Panel itself acknow ledged, the business case "may also have been 
used by Airbus to attract other investors."2916  Thus, to the extent that the business case also served as 
a basis for the investment decisions of Airbus a nd its risk-sharing suppliers, it was unreasonable for 
the Panel to assume that these actors would have acted against their best economic interests by 
investing in a project whose economic viability depe nded on parameters which they did not consider 
realistic.  
                                                      
2913Panel Report, para. 7.1927.  
2914Panel Report, para. 7.1927. (emphasis added) 
2915Panel Report, para. 7.1926. 
2916Panel Report, footnote 5611 to para. 7.1926.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 576  
 
  1332.  Despite our reservations about aspects of the Panel's reasoning, we note that the Panel did not 
disregard the A380 business case.  Indeed, the Pane l discussed and evaluated the various elements of 
the business case, but added that concerns in relation to the credibility of the forecasts contained in the 
business case "inform{ed} {its} consideration of th e European Communities' contention that the 
A380 business case demonstrates that Airbus would have gone forward with the launch even in the 
absence of LA/MSF".
2917  As pointed out by the United States,  the Panel accepted that the business 
case and the Carballo Declaration demonstr ated a positive NPV in a non-LA/MSF scenario: 
Assuming that the business case, or rather the numbers underlying 
the business case as applied in the Carballo Declaration, demonstrate 
a positive NPV in a no-LA/MSF and a Realistic Worst Case scenario, 
the relevant question for us is  whether the United States has 
demonstrated that the A380 would not have been launched in the 
absence of LA/MSF.2918 (footnote omitted) 
1333.    In the above passage, it is clear that th e Panel proceeded on the assumption that the A380 
business case and the Carballo Declaration predic ted a positive NPV in a non-LA/MSF scenario.  The 
Panel, therefore, duly took into account the rebu ttal evidence adduced by the European Communities 
in the A380 business case.  The Panel, however, attributed to the A380 business case a probative 
value that is different to that suggested by th e European Communities, in stating that "we have 
concerns about the A380 business case ... and we ar e thus not persuaded that the A380 business case 
alone  demonstrates that Airbus would have launc hed the A380 even in the absence of LA/MSF."2919 
The Panel then proceeded to revi ew other pieces of evidence.   
1334.  In addition to the reservations expressed in re lation to the demand forecasts contained in the 
A380 business case, the Panel considered that the Realistic Worst Case scenario forecast in the 
business case was not entirely credible, viewed fro m the perspective of the time when the launch 
decision was made.  Consistent with its earlier statement that "the A380 business case reflects 
consideration of a rather limited range of possibilities in terms of failure to achieve sales targets", the 
Panel stated that "{i}t is by no means apparent that the Realistic Wors t Case Scenario actually 
captured what could reasonably have been envisioned  to be the worst case scenario at the time the 
business case was developed."2920  Leaving aside its observation that the Realistic Worst Case 
scenario had not been tested against a base case in  which Airbus did not receive LA/MSF, the Panel 
also considered that the Realistic Worst Case sc enario was not "the worst with respect to all 
                                                      
2917Panel Report, para. 7.1927. 
2918Panel Report, para. 7.1943.  
2919Panel Report, para. 7.1944. (emphasis added)   
2920Panel Report, para. 7.1927. (emphasis added)  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 577  
 
  parameters considered in the sensitivity testing."
2921  Thus, the Panel expressed concern that the 
sensitivity analysis of the A380 business case did not  contemplate what could reasonably have been 
envisioned as the worst case scenario at the time the business case was developed .   
1335.  Therefore, despite the Panel's impermissibl e assessment of the A 380 business case with 
reference to ex post events and its speculation concerning economic incentives to overstate likely 
sales, we do not consider that this invalidates the Pa nel's overall analysis.  We reach this conclusion  
because the Panel did take into account the A380 business case, and proceeded on the basis that it 
predicted a positive NPV for the project in a non- LA/MSF scenario.  However, the Panel decided to 
attribute to the A380 business case a probative weight  that is different to that suggested by the 
European Communities because of othe r factors such as the parameters  considered in the sensitivity 
analysis.  In doing so, the Panel acted within the bo unds of its discretion as initial trier of facts, and 
we do not see a basis for disturbing the Panel's factual finding.  
1336.  Second, the European Union argues that the Pa nel erred in its evaluation of the evidence 
concerning Airbus' ability to finance the A380 rely ing exclusively on its own resources and outside 
financing.  Before the Panel, the United Stat es argued that even if the A380 business case was 
understood to show that the A380 project would ha ve been economically viable without LA/MSF, it 
did not follow that Airbus would have been able to fund the project from its own resources and outside financing.  In support of this argument , the United States submitted a Report produced by the 
French Senate
2922, which considered the provision of LA/MSF to Aérospatiale for the development of 
a very large LCA programme that later became  the A380 project.  The French Senate Report 
concluded that in the unlikely event that Aérospatia le could find outside funding for its share of the 
development costs of the A380, "such external fi nancing would apparently add excessively to the 
financial expenses incurred by the firms and would throw their balance sheets out of equilibrium 
because of the low level of their equity capital."2923  The United States also produced a statement 
made by the UK Secretary of State for Trade and Industry suggesting that the launch of the A380 
"would not have been possible if it had not been  for the commitment of the British government to 
launch an extremely successful programme".2924  
                                                      
2921Panel Report, para. 7.1927 (referring to Airbus A380 business case (Panel Exhibit EC-362 (HSBI)), 
pp. 34 and 36).  
2922Panel Exhibit US-18, supra , footnote 2847.  
 2923Panel Report, para. 7.1945 (quoting Panel Exhibit US-18, supra , footnote 2847, p. 72).   
2924Panel Report, para. 7.1945 (quoting Panel Exhibit US-436, supra , footnote 2847).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 578  
 
  1337.  The European Communities sought to rebut th e United States' argument concerning Airbus' 
ability to finance the A380 in the absence of LA /MSF by questioning the relevance of the French 
Senate Report.  The European Communities argued th at the Report addressed the role of Aérospatiale 
only, and had been prepared in 1996-1997 prior to the creation of EADS, which, according to the European Communities, "increased Airbus' financial flexibility."
2925 
1338.  The Panel responded to the European Co mmunities' arguments as follows:   
While the financial situation of Airbus France in 2000 would have 
clearly been different from the position of Aérospatiale in 1997 
(when the French Senate Report was released) the 
European Communities has submitte d no persuasive evidence to 
suggest that Airbus France was in a better position than Aérospatiale to fund its part of the A380 project without LA/MSF.  Although it is 
evident from the EADS offering memorandum that the corporate 
restructuring of Airbus Industrie GIE, Aérospatiale, CASA and Deutsche Airbus was intended to improve the companies' operations by rationalizing resources, eliminating duplication and consolidating overall management under a more integrated corporate structure, it is not so clear precisely how, or indeed if or to what degree, this move 
affected the ability of Airbus France (or Airbus SAS) to raise the 
very large amounts of capital needed for the A380 project.
2926   
1339.  On appeal, the European Union argues that the Panel erred in assessing the financial situation 
of Airbus France in 2000 based on a French Senate  Report concerning the financial situation of 
Aérospatiale in 1997.  The European Union adds that the Panel erroneously focused on the ability of 
Airbus France and Airbus SAS to finance the A380, and ignored the totality of the evidence allegedly 
demonstrating that Airbus SAS' parent compan ies, EADS and BAE Syst ems, had the financial 
resources necessary to fund the project in the absen ce of LA/MSF.  Such evidence consisted primarily 
of EADS' Offering Memorandum2927;  a report filed by EADS before the French securities regulator, 
Commission des opérations de bourse  ("EADS' Reference Document")2928;  and BAE Systems' 
Annual Report 1999.2929 
1340.  The United States responds that the Panel objec tively assessed and correctly rejected evidence 
concerning the availability of financing from EADS  and BAE for the development of the A380.  For 
the United States, the Panel correctly found that  EADS' Offering Memorandum did not demonstrate 
how the corporate restructuring of EADS would have  enabled the company to raise the funds that its 
                                                      
2925Panel Report, para. 7.1946.  
2926Panel Report, para. 7.1947.  
2927EADS' Offering Memorandum, supra , footnote 163.  
2928EADS' Reference Document, supra , footnote 608.  
2929BAE Systems, Annual Report 1999  (Panel Exhibit EC-28).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 579  
 
  constituent companies were unabl e to raise a few years earlier.
2930  Similarly, the United States argues 
that the European Union's reference to BAE Syst ems' 1999 annual balance sheet does not sufficiently 
establish that the company would have committe d additional funds to the A380 project.  The 
United States adds that a statement by the UK's Department of Trade and Industry specifically 
contradicts this assertion.  The statement explains th at "the fundamental rationale of launch aid is to 
address the apparent unwillingness of the capital mark ets to fund projects with such high product 
development costs, high technological and mark et risks and such long pay back periods."2931  
1341.  In our view, a careful review of the Panel's analysis does not support the European Union's 
argument that the Panel assessed "Airbus France's fi nancial condition at the time of the launch of the 
A380 in 2000, based on Aérospatiale's financial position three years prior".2932  On the contrary, the 
Panel expressly recognized that "the financial situ ation of Airbus France in 2000 would have clearly 
been different from the position of Aérospatiale  in 1997 (when the French Senate Report was 
released)".2933  However, the Panel made the additional point that the European Union had "submitted 
no persuasive evidence to suggest that Airbus Fr ance was in a better position than Aérospatiale to 
fund its part of the A380 project without LA/MSF."2934  
1342.  We are also not persuaded that the Panel failed to assess the totality of the evidence in relation 
to the question of whether Airbus SAS' parent co mpanies, EADS and BAE Systems, had the financial 
resources necessary to fund the A380 project in  the absence of LA/MSF.  Contrary to the 
European Union's submission, the Panel did addr ess EADS' Offering Memorandum in evaluating the 
European Communities' rebuttal that the creat ion of EADS "increased Airbus' financial 
flexibility."2935  Indeed, the Panel expressly referred to EADS' Offering Memorandum in its analysis, 
and recognized that it was "evident" from that piece of evidence that "the corporate restructuring of 
Airbus Industrie GIE, Aérospatiale, CASA, a nd Deutsche Airbus was intended to improve the 
companies' operations by rationalizing resources, eliminating duplication and consolidating overall 
management under a more integr ated corporate structure."2936  However, the Panel opined that EADS' 
Offering Memorandum did not conclusively estab lish the European Communities' allegations 
concerning the increased financial fl exibility of Airbus because it was "not so clear precisely how, or 
indeed if or to what degree {the corporate restructuring of the Airbus companies and the creation of 
                                                      
2930United States' appellee's submission, para. 655 (referring to Panel Report, para. 7.1947).  
2931United States' appellee's submission, para. 656 (quoting Panel Exhibit US-106, supra , 
footnote 2847).  
2932European Union's appellant's submission, para. 614.  
2933Panel Report, para. 7.1947.  
2934Panel Report, para. 7.1947.  
2935Panel Report, para. 7.1946.  
2936Panel Report, para. 7.1947.   WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 580  
 
  EADS} affected the ability of Airbus France (or Airbus SAS) to raise the very large amounts of 
capital needed for the A380 project."
2937   
1343.  The evidence on which the European Uni on bases its claim—EADS' Offering Memorandum, 
EADS' Reference Document, and the BAE Syst ems' Annual Report 1999—are documents that 
describe the general financial situation of BAE Systems and of EADS after its creation.2938  T h e  
documents do not specifically address the issue of whether these companies had sufficient financial 
resources to cover the financing gap for the A380 pr oject that would have resulted in the absence of 
LA/MSF.  Even if the documents show that EADS and BAE Systems had financial resources 
available, it does not necessarily follow that those r esources would have been directed to the A380 
project.  Both EADS and BAE Systems were larg e companies with several business units beyond 
aircraft production, all of which would have comp eted for internal financial resources.  We are 
reluctant to disturb the Panel's analysis on the basi s of general statements about the overall financial 
situation of BAE Systems and EADS.  In order for us  to interfere with the Panel's assessment of the 
facts, we would have to be satisfied that the European Communities had not only submitted 
documents describing the overall financial situ ation of these companies but also provided 
explanations as to why it was reasonable to expect that EADS and BAE Systems would have directed 
substantial additional funds to the A380 to self-finance the project in the absence of LA/MSF.2939   
1344.  The European Union further argues that the Pa nel failed to address or  adequately explain 
evidence which in its view demons trated that risk-sharing supplie r arrangements provided a viable 
alternative to finance the A380 in  the absence of LA/MSF.  Like the alleged financial flexibility 
resulting from the creation of EADS, the availability of financing from risk-sha ring suppliers was part 
of the European Communities' rebuttal of the Unite d States' argument, based on the French Senate 
Report, that Airbus could not have financed the A380 with its own resources  and outside financing, 
even if it were confident that the project was econo mically viable without LA/MSF.  In particular, the 
                                                      
2937Panel Report, para. 7.1947.  
2938See section IV.B of this Report for the evolution of EADS. 
2939The European Union's submissions on appeal do not show that the European Communities provided 
such explanations to the Panel, nor have we been able to ascertain, from our review of the Panel record, that the European Communities provided such explanations.  The only evidence that the European Union provides in 
support of its contention that capital of EADS would be directed to the A380 project is the general statement, in 
the "Use of Proceeds" section of EADS' Offering Memorandum, that "{ a} stronger financial position would 
also  enable EADS to timely adapt its development and investment programs, notably in new aircraft". 
(European Union's appellant's submission, footnote 775 to para. 616 (quoting EADS' Offering Memorandum, 
supra , footnote 163, p. 23) 
The same section of the EADS Offering Memorandum mentions that "EADS expects this strengthened 
capital structure will allow it to respond swiftly as gl obal acquisition and alliance opportunities arise in the 
consolidating aerospace and defence indus tries" and that "{a} stronger fi nancial position would also enable 
EADS to timely adapt … its manufacturing operations as market conditions dictate". (EADS' Offering 
Memorandum, supra , footnote 163, p. 23)   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 581  
 
  European Communities argued that the French Senate  Report only considered "on balance sheet debt 
financing" and did not consider "off balance sheet financing" such as risk sharing arrangements with 
suppliers.
2940  The European Communities argued that Air bus could have increased its use of risk-
sharing suppliers to secure the necessary financi ng for the A380, and sought to support this assertion 
by noting that: the A380 business pl an already included off-balance sh eet financing through suppliers; 
that Boeing has reportedly financed 60% of the non-recurring costs of the 787 through risk-sharing 
suppliers;  and that Alenia had provided risk-sha ring supplier financing in respect of the Deutsche 
Airbus share of the development of the A340-500/600.2941  
1345.  The Panel addressed these arguments by the Eur opean Communities in the following passage:  
Likewise, the European Communiti es has submitted no evidence to 
support the contention that merely because, reportedly, Boeing was able to finance a significant portion of the non-recurring costs of development of the 787 through risk-sharing supplier arrangements, Airbus would necessarily have been able to do the same with respect 
to the A380.  Airbus does use risk-sharing supplier arrangements, but 
there is no indication that it could have increased its use of such 
arrangements so as to replace the entire amount of financing provided by LA/MSF, which, we recall, was up to 33 percent of the development costs of the A380.  We do not consider the availability 
of risk-sharing supplier arrangements in respect of the A340-500/600 
to be persuasive in this regard.  Those were derivative aircraft which 
entailed much smaller development costs and a much lower level of 
risk to Airbus' overall operations.  The willingness of suppliers to take on some of the risk of that  much smaller programme does not 
demonstrate that any supplier or s uppliers would be prepared to do so 
in respect of up to 33 percent of the much greater costs of the A380.  
Moreover, as we have previously noted, information in the Airbus A380 business case suggests that the risk-sharing participants' 
involvement in the A380 project may not have been on strictly market terms for all participants.
2942 (footnote omitted) 
1346.  On appeal, the European Union argues that th e Panel "failed to adequately explain or 
address"2943 three pieces of evidence demonstrating the potential for increased use of risk-sharing 
supplier financing for the A380.  First, the European  Union refers to evidence allegedly demonstrating 
that aerospace suppliers such as Honeywell, Rock well Collins, Alenia Aeroná utica, SAAB, Ruag, and 
GKN were convinced of the A380 business case and ag reed to participate as risk-sharing suppliers.2944  
Second, it points to evidence suggesting that some of these same companies, and other risk-sharing 
                                                      
2940Panel Report, para. 7.1946.  
2941Panel Report, para. 7.1946.  
2942Panel Report, para. 7.1947.  
2943European Union's appellant's submission, para. 618.  
2944European Union's appellant's submission, para. 619 (referring to Whitelaw Report, supra , 
footnote 1881;  and Morgan Stanley, "EADS, the A380 Debate" (5 September 2006) (Panel Exhibit EC-409)).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 582  
 
  suppliers, were willing to cove r 60% of the development cost of the "technologically more 
challenging, composite-based" Boeing 787 in 2004.
2945  Third, the European Union asserts that the 
Panel ignored the fact that the consolidation of  EADS and BAE Systems showed that Airbus had 
access to forms and levels of finance similar to those of Boeing.2946 
1347.  The United States responds that the Pane l explicitly considered—and rejected—the 
European Communities' argument that risk-shari ng suppliers would have been willing to put 
additional capital into the development of the A380 b ecause they were also willing to fund part of the 
development costs of the 787 a few years later.2947  According to the United States, the fact that the 
Panel reached a different conclusion than the Euro pean Communities in this respect does not provide 
a basis for reversal of this finding. 
1348.  We are not persuaded that in its evaluation of the alleged availability of risk-sharing supplier 
financing the Panel failed to ade quately address the totality of the evidence before it.  The Panel 
examined the A380 business case and was not persuade d that this evidence sufficiently demonstrated 
that Airbus "could have increased its use of {risk-sharing supplier} arrangements so as to replace the entire amount of financing provided by LA/MSF."
2948  The Panel reasoned that this was particularly 
so because "the Airbus A380 business case suggests th at the risk-sharing participants' involvement in 
the A380 project may not have been on stri ctly market terms for all participants."2949  Nor was the 
Panel persuaded that risk-sharing suppliers' participation in the funding of the A340-500/600 was 
probative in this respect, considering the significant di stinctions in the funding needs and risk profiles 
of the A340-500/600 and the A380 projects.2950  For this reason, the Panel concluded that "{t}he 
willingness of suppliers to take on some of the ri sk of that much smaller {A340-500/600} programme 
does not demonstrate that any supplier or suppliers would be prepared to do so in respect of up to 
33 percent of the much greater costs of the A380."2951  
1349.  The Panel also addressed evidence allegedly sugg esting that Boeing financed 60% of the non-
recurring costs of its 787 through risk-sharing suppliers , but found that this evidence did not establish 
that the risk-sharing suppliers of Airbus would ha ve been necessarily willing to finance a similarly 
                                                      
2945European Union's appellant's submission, para. 619 (referring to Deutsche Bank, "Is there Life after 
Launch Aid?" (5 November 2004) (Panel Exhibit EC-7 6);  "Airbus to Spend $12 Billion on New A350, People 
Say (Update 1)", Bloomberg.com , 3 November 2006 (Panel Exhibit EC-511);  and European Communities' 
response to Panel Question 76, para. 121).   
2946European Union's appellant's submission, para. 619.  
2947United States' appellee's submission, para. 657.  
2948Panel Report, para. 7.1947.  
2949Panel Report, para. 7.1947 (referring to Airbus A380 business case (Panel Exhibit EC-362 (HSBI)), 
p. 29).  
2950Panel Report, para. 7.1947. 
2951Panel Report, para. 7.1947.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 583  
 
  large share of the development costs of the A380 in the absence of LA/MSF.  Given the significant 
distinctions between the A380 and 787 projects, and the potentially different risk profiles of Airbus 
and Boeing, we see no reason to disturb the Panel's assessment of the probative value of the evidence 
concerning Boeing's use of risk-sharing supplier funding.  
1350.  The European Union argues further that the Panel erred in finding that "because of the 
significant amount of debt that developing its pr evious models of LCA would have generated"
2952, 
Airbus would not have be en able to launch the A380 but for LA/M SF provided in respect of its earlier 
models of LCA.  The European Union's challenge in this respect is directed at the following statement 
by the Panel: 
Given the amount of funding transferred to Airbus under the 
individual LA/MSF contracts, and in the light of the formidable risks associated with the LCA business and the learning curve effects that 
are necessary to successfully participate in this sector, we have found that it would not have been possibl e for Airbus to have launched all 
of these models, as originally designed and at the times it did, 
without LA/MSF.  Even assuming this were a possibility, and that Airbus had actually been able to launch these aircraft relying on only 
market financing, the increase in the level of debt Airbus would have accumulated over the years would have been massive. (...) {B}ecause 
of the significant amount of debt that developing its previous models 
of LCA would have generated, we consider Airbus would not have 
been in a position to obtain market financing for the A380, had it not financed the development of its earlier model LCA in significant part through LA/MSF.  It follows that the view that Airbus could have launched the A380 as a stand-alone  proposition is dependent upon 
Airbus having received LA/MSF to  develop all of its previous 
models of LCA.
2953 (footnote omitted)  
1351.  According to the European Union,  this statement is in error b ecause the Panel ignored its own 
counterfactual that a non-subsidized Airbus would ha ve launched fewer aircraft than it actually did, 
which implies that a non-subsidized Airbus would have a significantly reduced debt.2954  In addition, 
the European Union maintains that the Panel erred by failing to consider evidence demonstrating that 
a non-subsidized Airbus could have launched a si ngle-aisle LCA by 1987, and a twin-aisle 200-300 
seat LCA in or around 1991.  For the European Uni on, this evidence suggests that a non-subsidized 
Airbus would have had nine years to recover portions of its investment and to build up a cash flow 
                                                      
2952Panel Report, para. 7.1948.  
2953Panel Report, para. 7.1948.  
2954European Union's appellant's submission, para. 623.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 584  
 
  stream that could have supported the developmen t of the A380 by 2000, along with risk-sharing 
suppliers and other market financing.
2955  
1352.  In our view, the Panel's conclusion that Airbus  would not have been able to launch the A380 
in 2000 relying exclusively on market financin g but for LA/MSF provided in relation to earlier 
models of LCA would hold even in the counterfact ual scenario posited by the European Union, in 
which Airbus would have been able to launch a single-aisle LCA in 1987 and a twin-aisle LCA 
in 1991.  While in this scenario Airbus' debt load would have been smaller in  absolute terms, Airbus' 
revenues would also be smaller as a result of a narro wer counterfactual product offering.  As a result, 
in the counterfactual scenario posited by the Europ ean Union, Airbus would not necessarily have been 
in a stronger financial position to launch the A380 in  2000 relying exclusively on market financing.  
Thus, even if the Panel would have accepted the co unterfactual posited by the European Union, this 
would not have invalidated its ultimate conclusi on that but for LA/MSF provided with respect to 
Airbus' earlier models of LCA, it would not have been possible for Ai rbus to launch the A380 in 2000 
relying exclusively on market financing.  
1353.  Third and finally, the European Union argues that the Panel erred in finding that Airbus could 
not have launched the A380 in the absence of LA /MSF because its "technical capabilities derived in 
part from the experience in the development of its  earlier model{s of} LCA funded in significant part 
by LA/MSF."2956  The European Union does not dispute that the launch of the A380 was in part 
facilitated by knowledge gained  from earlier product launches.2957  However, the European Union 
posits that, having accepted the counterfactual that a non-subsidized Airbus would be present in the 
market, the Panel was required to determine whethe r a non-subsidized Airbus with a more limited 
product offering could not have similarly accumula ted the required technological experience.   
1354.  The United States responds that the Panel consid ered a counterfactual in which Airbus could 
have achieved its market position and sales without th e subsidies to be "unlikely and ... contradicted 
by other record evidence."2958  The United States suggests that Airbus itself recognized the critical 
importance of the technical experience gained from each of its LCA.2959  For the United States, the 
European Union's argument is erroneously prem ised on a "wholly speculative counterfactual under 
                                                      
2955European Union's appellant's submission, para. 624.  
2956Panel Report, para. 7.1948.  
2957European Union's appellant's submission, para. 625.  
2958United States' appellee's submission, para. 660 (referring to Panel Report, paras. 7.1984 and 
7.1993).  
2959United States' appellee's submission, para. 660 (referring to UK Project Appraisal No. 1 (Panel 
Exhibit EC-98 (HSBI)), para. 1.2(f)).   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 585  
 
  which an entirely unsubsidized Airbus could have  launched fewer and different LCA at different 
times" and still have been able to launch the A380 in 2000.
2960 
1355.  In our view, the counterfactual scenario posite d by the European Union does not invalidate 
the Panel's ultimate conclusion that Airbus' techni cal capabilities were derived in large part from its 
experience in the development of earlier models of  LCA.  Given the Panel's earlier factual finding 
concerning the importance of learning curve effects in the LCA industry2961, it can only follow that a 
counterfactual Airbus with a narrower product offering would have accumulated less technical 
experience than Airbus actually did in the developmen t of its full range of LCA.  Following this logic, 
a non-subsidized Airbus that had developed fe wer LCA models would have accumulated less 
technical experience than the subsidized Airbus act ually did, which in our view supports the Panel's 
conclusion that the launch of the A380 would not have occurred in 2000 without LA/MSF.  
(c) Conclusion 
1356.  Based on all of the above, we do not find that th e Panel acted inconsistently with Article 11 of 
the DSU in finding that "either directly or i ndirectly, LA/MSF was a necessary precondition for 
Airbus' launch in 2000 of the A380."2962  Although we consider the Pane l to have fallen into error in 
speculating about an alleged "economic incentiv e" to overstate sales and in referring to ex post events 
in its assessment of the Airbus A380 business case,  we do not consider that these deficiencies 
invalidate the Panel's conclusions in relation to Airbus' ability to launch the A380 in 2000 in the 
absence of LA/MSF.  The Panel's ultimate  conclusion that LA/MSF was a "necessary 
precondition"2963 for Airbus' launch of the A380 in 2000 was based on multiple considerations, such 
as the A380 business case itself, evidence on Airbus ' ability to fund the A380 in the absence of 
LA/MSF, and the financial and technological impact  of LA/MSF provided in relation to previous 
models of Airbus LCA.  In assessing the credib ility and determining the probative value of the 
evidence concerning each of these elements, the Panel acted within the bounds of its discretion as trier 
of facts under Article 11 of the DSU, and did not act inconsistently with its duty to conduct an 
objective assessment of the facts simply by accordi ng to that evidence a lesser weight than that 
posited by the European Communities.  Thus, based on these multiple considerations, the Panel had a 
sufficiently objective basis for its ultimate fi nding that LA/MSF was a "necessary precondition" for 
                                                      
2960United States' appellee's submission, para. 660.  
2961Panel Report, paras. 7.1623, 7.1717, and 7.1726.  
2962Panel Report, para. 7.1948.  
2963Panel Report, para. 7.1948.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 586  
 
  the launch of the A380 in 2000.  Accordingly, we uphold the Panel's finding that "either directly or 
indirectly, LA/MSF was a necessary precondition for the launch of the A380 in 2000."
2964 
3. Causation for non-LA/MSF Subsidies  
1357.  Finally, we turn to the European Union's appeal of the Panel's finding that the effect of non-
LA/MSF subsidies was to cause displacement of Boeing LCA from the EC and certain third country markets within the meaning of subparagraphs (a) a nd (b), and significant lost sales within the meaning 
of subparagraph (c), of Article 6.3 of the SCM Agreement .  We begin our analysis with a summary of 
the Panel's findings in subsection (a).  We then anal yze in subsection (b) the sp ecific issues raised in 
the European Union's appeal against the Panel's analysis of causation for non-LA/MSF subsidies.  
Finally, in subsection (c), we set out our conclusions. 
(a) The Panel's findings 
1358.  Having concluded that Airbus' ability to launch, develop, and introduce into the market each 
of its LCA models was "dependent on"
2965 LA/MSF, the Panel sought to determine whether the other 
subsidies challenged by the United States had similar effects.  The United States argued that equity 
infusions, infrastructure subsidies, and R&TD subs idies had economic effects similar to those of 
LA/MSF, in that they reduced the costs and shifte d the risk of LCA development from Airbus to the 
governments (thus making a launch more likely) and alleviated the financial strain of product 
launches (thus affording pricing flexibility).  Th e United States therefore maintained that these 
measures should be considered together with  LA/MSF for purposes of the causation analysis.2966 
1359.  The European Communities contended that the na ture of non-LA/MSF subsidies, in terms of 
their structure, operation, and design, precluded an aggregate consideration of their effects.  The 
European Communities underscored that each instan ce of LA/MSF was tied to a specific LCA, and 
that each was granted at a different time.  In cont rast, the equity infusions, infrastructure subsidies, 
and R&TD grants were non-recurring measures that were provided at different times than LA/MSF, 
and were not tied to any particular model of Airbus LCA.2967  
1360.  The Panel found that differences in the structure, operation, and design of the subsidies did 
not preclude an aggregated consideration of their effects for the purposes of examining the United States' serious prejudice claims.  Recalling its earlier conclusion that LA/MSF was necessary 
                                                     
 
2964Panel Report, para. 7.1948.   
2965Panel Report, para. 7.1949.  
2966Panel Report, para. 7.1954.  
2967Panel Report, para. 7.1955.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 587  
 
  to the launch of each successive model of Airbus LC A, the Panel reasoned that the "product" effect of 
LA/MSF was "complemented and supplemented" by the other specific subsidies at issue in this 
dispute.
2968  For the Panel, LA/MSF as well as non-LA/MSF measures were all provided in 
connection with the subsidized product—Airbus LC A—and they all had the same effect on Airbus' 
ability to launch the LCA it launched at the time that it did.2969 
1361.  More specifically, the Panel reasoned that th e equity infusions ensured the "continued 
existence and financial stability" of the Airbus na tional entities, which were a "necessary element" for 
Airbus to have develope d, launched, and produced its full range of LCA.2970  To the extent that equity 
infusions by the French Government allowed Aérosp atiale to undertake investments in fixed assets, 
inventory, and advances to suppliers in connectio n with the development of new aircraft, they 
"supported the development of LCA in a manner that was as direct as LA/MSF."2971 
1362.  With respect to infrastructure measures, th e Panel reasoned that they provided "essential 
support" to the development and production of Air bus LCA, relieving Airbus of significant expenses 
in relation to the development of facilities for th e production of, most particularly, the A380, thus 
enabling Airbus to continue the development of successive models of LCA.2972  The Panel further 
observed that the infrastructure that was provide d for the establishment of the final A380 assembly 
line in Hamburg was necessary to en able Airbus to launch the A380.    
1363.  Turning to R&TD subsidies, the Panel opined th at such subsidies enabled Airbus to develop 
"features and aspects" of its LCA on a schedule that  it otherwise would not have been able to 
accomplish.2973  Although the Panel recognized that the im pact of "pre-competitive" R&TD subsidies 
on Airbus' market presence was "perhaps more attenu ated" in comparison with the other subsidies at 
issue or with R&TD that funded technology actually  used on Airbus LCA, the Panel concluded that 
R&TD subsidies, combined with the other subsidi es at issue, "complemented and supplemented" the 
impact of LA/MSF.2974 
1364.  Finally, referring to the panel report in US – Upland Cotton , the Panel found that the 
subsidies at issue all had a "sufficient nexus  {to} the subsidized pr oduct"—Airbus LCA—and a 
sufficient nexus to "the particular effects-relate d variable{s} under examination", since all of the 
                                                      
2968Panel Report, para. 7.1956.  
2969Panel Report, para. 7.1956.  
2970Panel Report, para. 7.1957.  
2971Panel Report, para. 7.1957.  
2972Panel Report, para. 7.1958.  
2973Panel Report, para. 7.1959.  
2974Panel Report, para. 7.1959.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 588  
 
  United States' serious prejudice claims depended on the presence of a given Airbus LCA on the 
market at a particular time.
2975  On this basis, the Panel consid ered it "appropriate to undertake {its} 
analysis of the effects of the subsidies on an aggregated basis in this dispute."2976 
(b) Analysis 
1365.  On appeal, the European Union claims that the Panel erred in finding that the effect of non-
LA/MSF subsidies was the displacement of Boei ng LCA from the EC and certain third country 
markets under subparagraphs (a) and (b), and si gnificant lost sales under subparagraph (c), of 
Article 6.3 of the SCM Agreement .  The European Union further claims that the Panel acted 
inconsistently with Article 11 of the DSU in faili ng to provide a sufficient evidentiary basis and a 
reasoned and adequate expl anation for this finding. 
1366.  The European Union argues that the Panel e rred in aggregating non-LA/MSF subsidies under 
its "product launch" theory of causation, despite an  absence of factual findings that each of those 
measures impacted the launch of particular models of Airbus LCA.2977  According to the 
European Union, the Panel's conclusion that  the non-LA/MSF subsidies "complemented and 
supplemented"2978 the product effect of LA/MSF does not provide a sufficient basis for establishing 
causation under Article 6.3 of the SCM Agreement , because there was no eviden ce to suggest that the 
launch of a particular Airbus LC A was contingent on the non-LA/MSF.2979  In the context of the 
United States' "product theory" of causation, the Eu ropean Union argues that the Panel did not have a 
sufficient basis to conclude that non-LA/MSF subs idies had the same effect as LA/MSF, unless it 
could be demonstrated that each of the non-LA/M SF subsidies was necessary to enable the launch of 
particular models of Airbus LCA.2980  
1367.  The United States responds that the Panel corr ectly held that non-LA/MSF subsidies also 
caused displacement and lost sales within the m eaning of Article 6.3(a), (b), and (c) of the 
SCM Agreement .  According to the United States, the Pane l's aggregated causation analysis was based 
on its finding that the nature and operation of each of the challenged subsidies enhanced Airbus' 
ability to develop and bring to the market its LC A family, consequently allowing Airbus to gain 
market share and significant sales at Boeing's expense.2981  The European Union's argument that each 
                                                      
2975Panel Report, paras. 7.1960 (quoting Panel Report, US – Upland Cotton , para. 7.1192) and 7.1961.   
2976Panel Report, para. 7.1961. 
2977European Union's appellant's submission, para. 638.  
2978European Union's appellant's submission, para. 644 (quoting Panel Report, para. 7.1956).  
2979European Union's appellant's submission, para. 643.  
2980European Union's appellant's submission, paras. 646 and 648.  
2981United States' appellee's submission, paras. 668 and 673.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 589  
 
  of the non-LA/MSF subsidies had to be "necessary" to  enable a particular product launch implies too 
high of a standard for an aggregated analysis of  causation, which would permit circumvention of the 
disciplines of Article 6.3 in the case of smaller measures that individually would not have caused 
adverse effects, but which collectively would aff ect competition in a manner inconsistent with 
Articles 5 and 6.3.
2982  Thus, the United States maintains that the Panel's decision to assess 
cumulatively the effects of subsidies that "complem ented and supplemented" each other was sufficient 
to establish causation, even if certain of these meas ures, individually, would not be of a sufficient 
magnitude to cause adverse effects.2983 
1368.  In discerning the effect of the subsidies challe nged by the United States in this dispute, the 
Panel first sought to determine separately the effect of LA/MSF, which, according to the 
United States, was the "primary" subsidy benefiting Airbus LCA.2984  The Panel came to the 
conclusion that LA/MSF was "necessary to the laun ch of each successive model of Airbus LCA, and 
that the individual and cumulative effect of tho se measures was fundamental to Airbus' ability to 
launch the particular LCA models it launched at the time that it did."2985  The Panel then turned to the 
United States' argument that the non-LA/MSF measu res, namely equity infusions, infrastructure 
measures, and R&TD subsidies, had effects similar to LA/MSF because they "shift{ed} costs of LCA 
development from Airbus to the governments, givi ng Airbus an edge, and allowing it to enter the 
LCA market with new LCA models at a pace th at would otherwise not have been possible."2986 
1369.  The Panel opined that the equity infusions "e nsured the continued existence and financial 
stability of the respective national entities engaged in the Airbus enterprise", without which "Airbus 
would not have been able to continue to develop,  launch and produce LCA in fulfilment of the goal of 
developing a full range of LCA for the market."2987  In relation to infrastructure measures, the Panel 
found that they "provided essential support to th e development and production of Airbus LCA, 
relieving Airbus of significant expenses in connec tion with the development of facilities for the 
production of, most particularly, the A380 and thus  enabling it to continue with the launch of 
successive models of LCA."2988  The Panel further found that R&TD  subsidies "enabled Airbus to 
                                                      
2982United States' appellee's submission, para. 672 (referring to European Union's appellant's 
submission, para. 646).  
2983United States' appellee's submission, para. 672.  
2984Panel Report, para. 7.1950 (referring to United States' first written submission to the Panel, 
para. 819).   
2985Panel Report, para. 7.1956.  
2986Panel Report, para. 7.1950. 
2987Panel Report, para. 7.1957. 
2988Panel Report, para. 7.1958.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 590  
 
  develop features and aspects of its LCA on a schedul e that it would otherwise have been unable to 
accomplish."
2989   
1370.  On this basis, the Panel came to the conc lusion that non-LA/MSF subsidies "complemented 
and supplemented" the "product effect" of LA/MSF a nd, therefore, "had the same effect on Airbus' 
ability to launch the LCA it launched at the time that it did."2990 
1371.  We note that the Panel made the following st atement after coming to the conclusion that 
non-LA/MSF subsidies "compl emented and supplemented"2991 the "product effect" of LA/MSF 
subsidies: 
In our view, based on the facts a nd circumstances outlined above, the 
subsidies at issue in this dispute all have a "sufficient nexus {to} the subsidized product".  Moreover, in asmuch as those subsidies enabled 
Airbus to launch successive models of LCA when it did, they also 
have a sufficient nexus {to} "the par ticular effects-related variable{s} 
under examination", since the United States claims of serious prejudice that we are examining are based, at least in part, on the presence of a given Airbus LCA available on the market at a particular time.  Therefore, we c onclude that it is appropriate to 
undertake our analysis of the effects of the subsidies on an 
aggregated basis in this dispute.
2992   
1372.  Despite its statement that "it is appropriate to  undertake our analysis of the effects of the 
subsidies on an aggregated basis in this dispute"2993, in our view, the Panel did not actually conduct an 
aggregated assessment of the effects of LA/MSF a nd non-LA/MSF subsidies.  Had it done so, the 
Panel would have sought to  determine from the outset  whether the collective effect of LA/MSF and 
non-LA/MSF subsidies was to enable the launch of particular models of Airbus LCA.   
1373.  Instead, the Panel conducted a separate analysis  of the effects of LA/MSF on Airbus' ability 
to launch and bring to the market particular mode ls of LCA, and then sought to determine whether 
non-LA/MSF subsidies had similar effects.  On the basis of a separate —and more abbreviated—
assessment of the collective effect of meas ures comprised under each group of non-LA/MSF 
subsidies, the Panel came to the conclusion that the "'product' effect of LA/MSF is ... complemented 
and supplemented by the other specific subsidi es we have found to exist in this dispute."2994   
                                                      
2989Panel Report, para. 7.1959.  
2990Panel Report, para. 7.1956.  
2991Panel Report, para. 7.1956.  
2992Panel Report, para. 7.1961.  
2993Panel Report, para. 7.1961.   
2994Panel Report, para. 7.1956.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 591  
 
  1374.  Insofar as the Panel separately assessed the effect of LA/MSF, and then came to the 
conclusion, on the basis of an individual ass essment, that each set of non-LA/MSF subsidies had 
effects similar to LA/MSF, the Panel did not aggregate the challenged subsidies with a view to 
discerning their effects under Article 6.3 of the SCM Agreement .  Thus, the Panel's statement that it 
was "appropriate to undertake {its} analysis of the e ffects of the subsidies on an aggregated basis in 
this dispute"
2995 does not accurately reflect the approach actually taken by the Panel to establish 
causation with respect to non-LA/MSF subsidies.   
1375.   This brings us to the question of whether it was appropriate for the Panel to do what it 
actually did, namely to focus its causation anal ysis on whether the non-LA/MSF subsidies at issue 
—equity infusions, infrastructure measures,  and R&TD subsidies—"complemented and 
supplemented"2996 the effects of LA/MSF.   
1376.  As noted earlier, the Appellate Body  has interpreted Article 6.3 of the SCM Agreement  as 
requiring the establishment of a "genuine and substantial relationship of cause and effect"2997 between 
the subsidies and the alleged market phenomena under th at provision, and that such relationship is not 
diluted by the effects of other factors.2998  The Appellate Body has furthe r explained that the particular 
market phenomena alleged under Article 6.3(c) must "r esult from a chain of causation that is linked to 
the impugned subsidy"2999 and the effects of other factors must not be attributed to the challenged 
subsidies.3000  We have explained earlier in this Report that the interpretative guidance provided by 
the Appellate Body under Article 6.3(c) is e qually relevant to the causation analysis under 
subparagraphs (a) and (b) of that provision.3001  We also recall the Appellate Body's view that "a panel 
has a certain degree of discretion in selecting an appropriate methodology for determining whether the 
'effect' of a subsidy is significant price suppression under Article 6.3(c)."3002  The appropriateness of a 
particular method may have to be determined on a case-specific basis, depending on a number of factors and factual circumstances such as the nature, design, and operation of the subsidies at issue, 
the alleged market phenomena, and the extent to which the subsidies are provided in relation to a 
particular product or products, among others.
3003  However, a panel's methodological discretion does 
not absolve it from having to establish a "genuine and substantial relationship of cause and effect" 
                                                      
2995Panel Report, para. 7.1961.  
2996Panel Report, para. 7.1956.  
2997Appellate Body Report, US – Upland Cotton , para. 438.  
2998Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 375.  
2999Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 372.  
3000Appellate Body Report, US – Upland Cotton , para. 437.  
3001See supra , para. 1232.  
3002Appellate Body Report, US – Upland Cotton , para. 436.  
3003See Panel Report, US – Upland Cotton , para. 7.1194;  Panel Report, Korea – Commercial Vessels , 
para. 7.560. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 592  
 
  between the impugned subsidies and the alleged market phenomena under Article 6.3, and from 
ensuring that such causal link is not d iluted by the effects of other factors.
3004   
1377.  In the particular circumstances of this dispute,  the Panel chose first to discern the effects of 
each of the LA/MSF measures, which according to the United States were the primary subsidies 
benefiting Airbus.3005  The Panel came to the conclusion th at each of the LA/MSF measures enabled 
Airbus to launch and bring to the market each of its models of LCA as and when it did, thus resulting 
in the displacement and significant lost sales of Boeing LCA under Article 6.3(a), (b), and (c) of the 
SCM Agreement .3006  In other words, a "genuine and substa ntial relationship of cause and effect" had 
been established between the LA/MSF measures a nd the displacement and lost sales of Boeing LCA 
during the reference period.  The Panel then soug ht to determine whether the non-LA/MSF subsidies 
at issue had similar effects by "shift{ing} costs of LCA development from Airbus to the governments, 
giving Airbus an edge and allowing it to enter the LCA market with new LCA models at a pace that 
would otherwise not have been possible."3007  The Panel concluded that, insofar as the three sets of 
non-LA/MSF subsidies "complemented and supplemen ted" the "product effect" of LA/MSF, these 
subsidies "had the same effect on Airbus' ability to  launch the LCA it launched at the time that it 
did."3008 
1378.  We consider that the approach used by the Panel is permissible under Article 6.3 of the 
SCM Agreement , provided that a genuine causal link between the non-LA/MSF subsidies and the 
market phenomena alleged unde r Article 6.3 is established .  Having determined that each of the 
LA/MSF measures enabled launches of particular  Airbus LCA models and therefore were a 
substantial cause of the displacement and signifi cant lost sales of Boeing LCA, the Panel sought to 
determine whether non-LA/MSF subsidies "complemen ted and supplemented" the effects of LA/MSF 
measures, even if each of the non-LA/MSF subsidi es, taken individually, would not have enabled 
launches of particular Airbus LCA models, and ther efore would not have been a substantial cause of 
the displacement and significant lost sales.  Once th e Panel determined that LA/MSF subsidies were a 
substantial cause of the observed displacement a nd lost sales, it was not necessary to establish that 
non-LA/MSF subsidies were also substantial causes of  the same phenomena.  Moreover, the fact that 
LA/MSF subsidies were the substantial cause of ad verse effects does not exclude that non-LA/MSF 
subsidies had similar effects.  Rather, it was conceivable that non-LA/MSF subsidies complemented 
                                                      
3004See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 375.  
3005Panel Report, para. 7.1950 (referring to United States' first written submission to the Panel, 
para. 819).  
3006Panel Report, para. 7.1949.  
3007Panel Report, para. 7.1950.  
3008Panel Report, para. 7.1956.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 593  
 
  or supplemented the effects of LA/MSF subsidies.   For these reasons, we do not agree with the 
European Union that Articles 5(c) and 6.3 of the SCM Agreement  preclude an affirmative finding that 
non-LA/MSF subsidies cause adverse effects where th ey "complement and supplement" the effects of 
LA/MSF subsidies that have been found to be a substantial and genuine cause of adverse effects.
3009  
Given that the Panel had determined that LA/MSF s ubsidies were a substantial cause of the alleged 
market phenomena, it was permissible and sufficient for the Panel to assess whether a genuine causal 
connection between non-LA/MSF subsidies and the sa me market phenomena existed such that these 
non-LA/MSF subsidies complemented or supplemente d the effects of LA/MSF.  Contrary to the 
European Union's submission3010, the Panel was not required, in those circumstances, to establish that 
non-LA/MSF subsidies were themsel ves a substantial cause or "necessary to enable a launch decision 
at a particular point in time."3011 
1379.  As we observed above, the Panel's approach to the analysis of causation did not absolve it 
from establishing a genuine causal link between th e different categories of non-LA/MSF subsidies 
and Airbus' ability to launch and bring to the ma rket its LCA models, thereby similarly causing the 
displacement and significant lost sales of Boeing LCA during the reference period.  The fact that 
LA/MSF measures enabled certain product launches, and therefore were a ge nuine and substantial 
cause of displacement and lost sales during the refere nce period, does not in and of itself establish that 
non-LA/MSF subsidies had similar effects.  Inst ead, the Panel had to establish that non-LA/MSF 
subsidies had a genuine causal connection with Airb us' ability to launch and bring to the market its 
models of LCA, thus contributing to th e adverse effects of LA/MSF measures.   
1380.  In the sections that follow, we examine wh ether the Panel had a sufficient basis for 
concluding that each set of the non-LA/MSF subsidies at  issue, namely equity infusions, infrastructure 
subsidies, and R&TD subsidies, "complemented a nd supplemented" the "product effect" of LA/MSF, 
in that they similarly contributed to Airbus' ability to bring to the market its models of LCA, thereby 
causing displacement of Boeing LCA from the European Union and third country markets, and 
significant lost sales, under Article 6.3(a), (b), and (c) of the SCM Agreement . 
(i) Equity infusions  
1381.  We begin with the equity infusions by the Governments of France and Germany in 
connection with the corporate restruct uring of the national companies that at that time were part of the 
Airbus consortium, namely Aérospatiale and De utsche Airbus.  The Panel found that the capital 
                                                      
3009European Union's appellant's submission, para. 645.  
3010See European Union's appellant's submission, paras. 646 and 648.  
3011European Union's appellant's submission, para. 648. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 594  
 
  contributions to Aérospatiale made by the Fren ch Government in 1987, 1988, and 1994, the capital 
contribution to Aérospatiale made by Crédit Lyonnais in 1992
3012, the French Government's 1998 
transfer of its 45.76% equity interest  in Dassault Aviation to Aérospatiale3013, and the 1989 acquisition 
by KfW of a 20% equity interest in Deutsche Airbus and the 1992 transfer of that equity interest to MBB
3014, were specific subsidies that caused serious prejudice to the United States' interests under 
Article 5(c) of the SCM Agreement .  
1382.  The Panel found that the equity infusions and share transfer measures "complemented and 
supplemented" the "product effect" of LA/MSF and, th erefore, had "the same effect on Airbus' ability 
to launch the LCA it launched at the time that it did"3015 for the following reasons:  
The equity investments and share tr ansfer measures of the French and 
German governments ensured the c ontinued existence and financial 
stability of the respective national entities engaged in the Airbus enterprise.  Those entities were a necessary element of the overall 
Airbus effort, as it is clear to us th at without their participation in the 
overall effort, Airbus would not have been able to continue to 
develop, launch and produce LCA in fulfilment of the goal of 
developing a full range of LCA for the market.  Moreover, as noted above, Aérospatiale required th e additional equity to fund 
investments in fixed assets and inve ntory, and advances to suppliers, 
in connection with the development of new aircraft.  As the 
European Communities acknowledges that Aérospatiale could not have undertaken these investme nts without the government's 
assistance through equity infusions, it seems clear to us that these equity investments directly supported the development of LCA in a manner that was as direct as LA/MSF.
3016 (footnote omitted)   
1383.  On appeal, the European Union ar gues that there are "simply no underlying factual findings to 
support the Panel's ultimate conclusion that but fo r the equity investments and share transfers, 
individual Airbus LCA would not have been launched."3017  In particular, the European Union 
maintains that the Panel failed to explain adequately how the transfer of KfW's 20% equity interest in 
Deutsche Airbus to MBB enabled a product launch.3018  The European Union argues that the Panel's 
                                                      
3012Panel Report, para. 7.1380.  
3013Panel Report, para. 7.1414.   
3014Panel Report, para. 7.1302.  
3015Panel Report, para. 7.1956.  
3016Panel Report, para. 7.1957. 
3017European Union's appellant's submission, para. 652.  
3018See European Union's appellant's submission, paras. 653 and 654.  The European Union advances 
similar arguments in relation to the tr ansfer by the French Government of its 45.76% stake in Dassault Aviation 
to Aérospatiale.  We do not address this measure further because we have  reversed above the Panel's finding 
that this measure conferred a benefit with in the meaning of Article 1.1(b) of the SCM Agreement .  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 595  
 
  failure to provide an evidentiary basis and a r easoned and adequate explanation for its causation 
finding constitutes a violation of Article 11 of the DSU.
3019  
1384.  The United States responds that the Panel was co rrect in finding that the equity infusions 
"complemented and supplemented" the "product e ffect" of LA/MSF, in that they ensured the 
continued existence and financial stability of Ai rbus national entities, thus enabling Airbus to 
continue to develop and launch a full range of LCA.3020  The United States adds that an EC State Aid 
Memorandum demonstrated that Airbus could not have undertaken investments in fixed assets and 
inventory, and advances to suppliers , in connection with the developm ent of new aircraft without the 
government's assistance through equity infusions.3021 
1385.  We recall that we have reversed the Panel's finding that the 1998 transfer by the French 
Government of its 45.76% interest in Dassault Aviati on to Aérospatiale conferred a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement  and that we were unable to complete the analysis.3022  
Accordingly, because there is no b asis to assess the adverse effects of measures that have not been 
found to constitute specific subsidies within  the meaning of Articles 1 and 2 of the SCM Agreement , 
we declare moot and of no legal effect the Panel' s causation finding, in paragraph 8.2 of the Panel 
Report, to the extent that it relates to the 1998 share transfer. 
1386.  Turning to the other equity infusions at issue, we note that they were capital investments that 
were not necessarily tied to the development of any particular model of Airbus LCA.  However, the 
equity infusions at issue were corporate restru cturing measures undertaken with the specific purpose 
                                                      
3019European Union's appellant's submission, paras. 661 to 664.  
3020United States' appellee's submission, para. 668.   The United States also referred to the 
European Union's statement:   
The United States challenged four capital contributions made by the French 
State to Aérospatiale, a French compan y wholly-owned by th e French State, 
in the years 1987, 1988, 1992 and 1994.  The purpose of the new capital was to fund expansion in LCA product development, in light of robust prospects 
for substantial future growth in the demand for LCA.  From the mid-1980s, 
among other projects and product lines, Aérospatiale began to ramp-up for the manufacture of the A320, with the first delivery due in 1988.  In 
addition, the company was contemplating a new long-haul programme that 
was eventually launched in 1987 as the A330/A340, with the first delivery in 1993.  This ambitious investment programme required additional equity 
capital as a base for further borrowing capacity; in addition to the initial 
design cost, the production of a new aircraft requires significant capital investment in specialised facilities and equipment. 
(Ibid., para. 669 (quoting European Union's appellant's submission, para. 1094, in turn referring to 
European Communities' first written submission to the Panel, paras. 1134 and 1135)) 
3021United States' appellee's submission, para. 668 (referring to Panel Report, para. 7.1957).  
3022See supra , para. 1026.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 596  
 
  of addressing the undercapitalization of both Aérospatiale
3023 and Deutsche Airbus3024, which, during 
the 1990s, threatened the investment capacity—and indeed the very existence—of both companies.  
As the Panel correctly noted, th ese equity infusions "ensured the continued existence and financial 
stability"3025 of Aérospatiale and Deutsche Airbus.  Give n the nature and structure of the Airbus 
                                                      
3023In respect of the capital contributions made between 1987 and 1994, the European Communities 
argued that, in producing the A320 (which entered commercial service in March 1988), Aérospatiale had made 
significant investments in capital, in addition to investin g in increasing levels of work-in-process inventory as 
production ramped up. (Panel Report, para. 7.1345 (ref erring to European Communities' first written submission 
to the Panel, para. 1134; European  Communities' second written submission to the Panel, para. 524;  and 
Aérospatiale, Annual Report 1990  (Panel Exhibit EC-177), p. 4))  According to the European Communities, 
"a strong order book in the late  1980s, and robust forecasts for the new A320 and for the A330/A340 
programme then under development, meant that management and the company's shareholder had ample 
evidence that the company's performan ce would improve significantly." ( Ibid., para. 7.1346 (quoting 
European Communities' first written submission to the Panel, para. 1117))  The European Communities also 
argued that the significant indebtedness of Aérospatiale during the late 1980s can be explained by reference to 
the financial demands of developing and manufacturing the A320. ( Ibid. para. 7.1349 (referring to 
European Communities' second written submission to th e Panel, para. 525))  The Panel noted that the 
European Communities had explained that Aérospatiale required additional equity capital in 1987 and 1988 in 
order to fund new investments, such as the ramp-up for manufacture of the A320 (with first delivery due in 1988) and the launch of the A330/A340 in 1987 (with first delivery due in 1993). ( Ibid., para. 7.1364 (referring 
to European Communities' first written submission to the Pa nel, paras. 1134 and 1135))  The Panel also noted 
the European Communities' reference to statements by a Crédit Lyonnais executive following the announcement of the capital investment in August 1992 to the effect that the investment was justified by the good prospects for 
the A330/A340 programme, which would start generating substantial revenue in 1994. ( Ibid., para. 7.1369 
(referring to "Crédit Lyonnais to Buy 20% Stak e in Aérospatiale from French Government", Aviation Week & 
Space Technology , 3 August 1992 (Panel Exhibit US-284)) 
3024Deutsche Airbus was the German partner in the Airbus GIE consortium, founded in 1967 to assume 
work for the development of a European wide-body aircraft.  By 1989, it had become the wholly owned subsidiary of MBB, which was itself the largest aerospa ce company in West Germany, and which, together with 
another German firm, Dornier, performed the German share of the Airbus Industrie consortium's development 
and series production work. (Panel Report, para. 7.1246)  Deutsche Airbus, however, had been undercapitalized 
by MBB and was largely dependent on financial aid from the German Government. ( Ibid.)  In the years prior to 
1989, the German Government had been encouraging MBB to obtain additional private capital for Deutsche 
Airbus, but attempts had been unsuccessful.  The Germ an Government itself had committed LA/MSF as well as 
other financial aid for sales and series production.  In addition, as the Panel noted, by 1989, "Deutsche Airbus 
also anticipated that it would require additional financing for the A320 programme, and the start-up of the A330/A340 programme". ( Ibid., para. 7.1247)  Elsewhere, the Panel al so referred to a 1988 statement by the 
German Ministry of Economics that the German Government, at that time, bore all of Deutsche Airbus' risk 
through its provision of guarantees for the costs of the A300/A310 programmes. ( Ibid., para. 7.1277 (referring to 
Handelsblatt No.  212, 3 November  1988, p. 24 "Daimler-Benz-MBB / Statement of the German Federal 
Ministry of Economics on the Restructuring of the Aviation Industry" (Panel Exhibit US-259)))  Against this 
background, the German Government undertook to restructure Deutsche Airbus and "gradually shift the risks associated with the participation in Airbus GIE to the private sector".  The restru cturing plan involved the 
industrial group, Daimler-Benz, acquiring control of MBB (and therefore Deutsche Airbus) through a newly 
created subsidiary "Dasa".  One element of the restructuring plan was a 1989 acquisition by a German development bank Kreditanstalt für Wiederaufbau (KfW) of a 20% equity interest in Deutsche Airbus, and the 
1992 transfer of that 20% equity interest to MBB (the parent company of Deutsche Airbus). (See Panel Report, 
para. 7.1248)  With respect to the transfer of the 20% eq uity interest in Deutsche Airbus back to MBB in 1992, 
the Panel noted that MBB was "inherently linked with De utsche Airbus' ability to continue to operate in LCA 
business" and that, in the absence of proof to the co ntrary by the European Communities, MBB, along with 
Deutsche Airbus, could be considered a producer of Airbus LCA for purposes of its subsidy analysis. ( Ibid., 
para. 7.1294) 
3025Panel Report, para. 7.1957.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 597  
 
  consortium, it would have been unlikely that Airbus  could have continued to develop and bring to the 
market its successive models of LCA without the participation of each of the national companies 
engaged in the Airbus enterprise.  As the Panel noted:  
The development and production of Airbus LCA was divided among 
the national companies participating in the Airbus consortium.  Thus 
... the French company, Aérospatia le, was responsible for flight 
control systems, cockpits, power plant integration, ground flight 
testing, complex structural sections, equipped subassemblies and technical publications.  The German company, DASA, produced the major fuselage sections containing hydraulic equipment, secondary 
flight control systems, wing assemblies and commercial furnishing, 
as well as equipping the wings furnished by BAE Systems.  DASA 
also carried out final assembly of A321 and A319 aircraft, as well as some cabin outfitting and customization of the cabins of the A300/A310 and the A320 family.
3026   
1387.  The above factual finding by the Panel, in our view, sufficiently demonstrates that 
Aérospatiale and Dasa were  responsible for fundamental portions of  the assembly of certain models of 
Airbus LCA, in particular the A300, A310, A319, A320, and A321.  The Panel further observed that 
the evidence suggested that "this division of labour  continued with subseque nt models of Airbus 
LCA."3027  This, in our view, supports the Panel's c onclusion that Aérospatiale and Dasa "were a 
necessary element of the overall Airbus effort", and that without their participation "Airbus would not 
have been able to continue to develop, launc h and produce LCA in fulfilment of the goal of 
developing a full range of LCA for the market."3028   
1388.  Furthermore, by the European Communities'  own admission, Aérospatiale "required 
additional equity capital in 1987 and 1988 in order to fund new investments, such as the ramp-up for 
manufacture of the A320 (with first delivery due in 1988) and the launch of the A330/A340 in 1987 
(with first delivery due in 1993)."3029  In this context, the European Communities further explained 
that:  
{i}n addition to the initial design cost, the production of a new 
aircraft requires significant capital i nvestment in specialized facilities 
and equipment.  Furthermore, as the number of planes produced increases, so does the need to fi nance an increasing investment both 
in work-in-process inventory and advances to suppliers.  From 1986 
to 1992, Aérospatiale increased its investment in net fixed assets from FF 3.6 billion to FF 5.6 billion.  In addition, its investment in 
                                                     
 
3026Panel Report, footnote 5695 to para. 7.1957 (referring to footnote 5649 to para. 7.1937).   
3027Panel Report, footnote 5695 to para. 7.1957 (referring to footnote 5649 to para. 7.1937).   
3028Panel Report, para. 7.1957.  
3029Panel Report, para. 7.1364 (referring to Europ ean Communities' first written submission to the 
Panel, paras. 1134 and 1135).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 598  
 
  inventory increased, from FF 11.4 billion in 1986 to a peak of 
FF 15.4 billion in 1990; similarly,  advances to suppliers doubled, 
from FF 2 billion in 1986 to FF 4 billion in 1992.  It is not surprising that Aérospatiale required additional equity capital to fund the new investments.  Internally generated cash flow was not sufficient, and a 
prudent debt-to-equity ratio placed limits on the amount of new debt 
that could be borne.
3030 (footnotes omitted)   
1389.  Therefore, we agree with the Panel that "Aér ospatiale required the additional equity to fund 
investments in fixed assets and inventory, and advances to suppliers, in connection with the 
development of new aircraft."3031  The European Communities acknowledged that "{i}nternally 
generated cash flow was not sufficient" and that "a  prudent debt-to-equity ratio placed limits on the 
amount of new debt that could be borne".3032  Therefore, the Panel consid ered that Aérospatiale could 
not have undertaken further investment in LCA de velopment had it not obtained the equity infusions 
by the French Government.3033  This, in our view, supports the Pa nel's conclusion that "these equity 
investments directly supported the development of LCA in a manner as direct as LA/MSF."3034   
1390.  Based on the above, we consider that the Panel had a sufficient basis to conclude that the 
French and German equity infusions into Aérospa tiale had a genuine connec tion to Airbus' ability to 
develop and bring to the market particular m odels of LCA, both by guaranteeing the continued 
existence and financial stability of Aérospatiale and Dasa, and by enhancing those companies' 
borrowing capacity in the wake of further i nvestments in the production and development of 
particular models of LA/MSF-financed Airbus LC A.  We consider that these equity infusions 
provided support to Airbus' efforts in developing and bringing to the market those models of Airbus LCA, with corresponding effects on Boeing's LCA sales. 
1391.  Accordingly, we conclude that the Panel did not err in its application of Articles 5(c) 
and 6.3(a), (b), and (c) of the SCM Agreement in finding that the equity infusions constituting specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement  "complemented and 
supplemented" the effects of LA/MSF on Airbus' abil ity to launch and bring to the market its models 
of LCA.  We further conclude, for the reasons stat ed above, that the Panel had a sufficient evidentiary 
basis and provided a sufficiently reasoned and adeq uate explanation for this finding, and therefore 
acted consistently with its duty to conduct an objective assessment of the matter under Article 11 of 
the DSU.  
                                                     
 
3030European Communities' first written submission to the Panel, para. 1135.  
3031Panel Report, para. 7.1957.  
3032European Communities' first written submission to the Panel, para. 1135). 
3033Panel Report, para. 7.1957. 
3034Panel Report, para. 7.1957.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 599  
 
  (ii) Infrastructure measures 
1392.  The Panel found that the provision of the Mühlenberger Loch industrial site, the provision of 
the extended runway at the Bremen airport, the pr ovision of the Aéroconstella tion industrial site and 
associated EIG facilities, as well as regional grants  by German authorities in Nordenham and Spanish 
authorities in Sevilla, La Rinconada, Toledo, Puerto de Santa Maria, and Puerto Real
3035, constituted 
specific subsidies that caused serious prejudice to  the United States' inte rests under Articles 5(c) 
and 6.3(a), (b), and (c) of the SCM Agreement .  
1393.  In coming to the conclusion that the in frastructure measures "complemented and 
supplemented" the "product effect" of LA/MSF inso far as they all had "the same effect on Airbus' 
ability to launch the LCA it launched at the time that it did"3036, the Panel reasoned that:  
{t}he infrastructure subsidies similarly provided essential support to 
the development and production of Ai rbus LCA, relieving Airbus of 
significant expenses in connection with the development of facilities for the production of, most particularly, the A380, and thus enabling 
it to continue with the launch of successive models of LCA.  Even 
assuming, as the European Communities contends, that the establishment of an A380 final assembly line in Hamburg [***], the establishment of that line was necess ary in order to ensure [***], 
which we consider to have been nec essary to the ability of Airbus to 
launch the A380.
3037 (footnote omitted)  
1394.  On appeal, the European Union argues that th e Panel provided no evidentiary support for its 
conclusion that, but for the infrastructure subsidies,  Airbus would not have been able to launch its 
LCA and consequently would not have caused displacement and lost sales of Boeing LCA.3038  The 
European Union maintains that the Panel failed to take into account the nature and effect of the 
infrastructure subsidies, particularly in the light of  its recognition that the Mühlenberger Loch project 
in Hamburg made it [***] to launch the A380.3039  The European Union further notes that the Panel 
ignored evidence that demonstrated that regional aid measures in Germany and Spain were designed 
to offset the additional burden of investing in less-developed regions, a nd thus could not have 
"reliev{ed} Airbus from significant expenses in conn ection with the development of facilities for the 
production of" LCA.3040  The European Union argues that the Pa nel's failure to provide an evidentiary 
                                                      
3035Panel Report, paras. 7.1235, 7.1236, 7.1244, and 8.1(b)(iv).  
3036Panel Report, para. 7.1956.  
3037Panel Report, para. 7.1958.  
3038European Union's appellant's submission, para. 655.  
3039European Union's appellant's submission, para. 656.  
3040European Union's appellant's submission, para. 658 (quoting Panel Report, para. 7.1958).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 600  
 
  basis and a reasoned and adequate explanation fo r its causation finding constitutes a violation of 
Article 11 of the DSU.
3041 
1395.  The United States responds that the Panel correc tly held that infrastructure measures were 
granted during the period when each succeeding m odel of Airbus LCA was being developed and 
brought to the market.  The United States further subm its that the Panel did not err in finding that the 
infrastructure measures "complemented and suppl emented" the "product effect" of LA/MSF by 
"relieving Airbus of significant expenses in conne ction with the development of facilities for the 
production of, most particularly, the A380, and t hus enabling it to continue with the launch of 
successive models of LCA".3042  
1396.  In section VII.B, we have rever sed the Panel's finding regarding the financial contribution and 
the benefit conferred by the provision of the Mühle nberger Loch industrial site.  However, we have 
completed the legal analysis and found that the l ease of the land at that site constituted a financial 
contribution that conferred a be nefit on Airbus within the meaning of Article 1.1(b) of the 
SCM Agreement .3043  We have also reversed the Panel's finding regarding the financial contribution 
and the benefit conferred on Airbus by the provision  of the lengthened Bremen airport runway, but 
completed the legal analysis and found that the right  to exclusive use of the extended runway at the 
Bremen airport constituted a financial contri bution that conferred a benefit on Airbus.3044  Similarly, 
we have reversed the Panel's finding regarding th e Aéroconstellation industr ial site and associated 
EIG facilities.  However, we were unable to comp lete the analysis in relation to infrastructure 
measures regarding the Aéroconstellation indu strial site and associated EIG facilities.3045  
Accordingly, because there is no b asis to assess the adverse effects of measures that have not been 
found to constitute specific subsidies within  the meaning of Articles 1 and 2 of the SCM Agreement , 
we declare moot and of no legal effect the Panel' s causation finding, in pa ragraph 8.2 of the Panel 
Report, to the extent that it relates to infr astructure measures regarding the Aéroconstellation 
industrial site and associated EIG facilities.3046   
1397.  As regards the other infrastructure measures,  we agree with the European Union that 
differences in the nature and operation of LA/MSF a nd infrastructure measures may suggest that these 
measures had distinct effects.  While infrastructur e measures were grants aimed at expanding Airbus' 
                                                      
3041European Union's appellant's submission, paras. 661-664.  
3042United States' appellee's submission, para. 668 (quoting Panel Report, para. 7.1958).  
3043See supra , para. 990.  
3044See supra , para. 992.    
3045See supra , para. 993. 
3046This applies as well to the special purpose facilities at the Mühlenberger Loch industrial site, for 
which we were also unable to  complete the analysis.    BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 601  
 
  production facilities, LA/MSF were loans aimed at c overing the development costs of specific models 
of Airbus LCA.  However, the infrastructure meas ures at issue in this dispute all have a genuine 
causal link with the creation or expansion of producti on facilities for various models of Airbus LCA.  
Therefore, we consider that these infrastructur e measures complemented or supplemented LA/MSF in 
contributing to Airbus' ability to introduce its models of LCA into the market.   
1398.  In particular, the provision of the lease of the land at the Mühlenberger Loch industrial site 
adjacent to Airbus' facilities in Hamburg to Airbus  had the specific purpose of facilitating the final 
assembly of the A380 at that site.
3047  Similarly, the right to excl usive use of the Bremen airport 
runway extension was granted to Airbus with th e specific purpose of enabling Airbus to transport 
wings from Bremen that were connected with the launch and production of the A330/A340.3048 
1399.  The situation is less clear with respect to the regional grants that were used to expand Airbus' 
or EADS' LCA-manufacturing facilities.  As the Eu ropean Union correctly notes, the Panel did not 
specifically refer to such regional grants3049 in its causation analysis, thus  making it difficult to discern 
on what basis it inferred that such regional gr ants complemented or supplemented LA/MSF and 
contributed to Airbus' ability to launch and bring to the market its models of LCA.  However, we 
understand the Panel to have used the generic refere nce to infrastructure subsidies as a shorthand way 
of referring to the entire class of infrastructure measur es that it had examined in previous parts of its 
analysis of the United States' claims.  Earlier in  its analysis, the Panel found that "each of the 
challenged regional grants" cons tituted subsidies "in connection with the production of LCA."3050  The 
Panel also made several specific findings in respect of these grants.  The Panel made a factual finding, 
for instance, that a grant by the Ge rman Land of Lower Saxony to Airbus was used "for the extension 
of Airbus Germany's existing ma nufacturing site in Nordenham."3051  The Panel further made factual 
findings that grants by the Spanish Government a nd regional government authorities benefited Airbus 
Spain's facilities in Toledo and Puerto Real, a nd EADS-CASA's facilities in Sevilla, La Rinconada, 
                                                      
3047See Panel Report, paras. 7.1075-7.1080.  
3048The United States referred to a 2001 judgment by the Bremen Administrative Court, which 
confirmed that the use of th e extended runway was limited to Airbus, and only for the transport of wings for the 
A330/A340 or future models. (Panel Report, paras. 7.1105-7.1107, and footnotes 4058 and 4081 to 
paras. 7.1118 and 7.1130 respectively)  
3049The Panel's finding that the regional grants are specific subsidies within the meaning of Articles 1 
and 2 of the SCM Agreement  was not appealed. 
3050Panel Report, para. 7.1218. 
3051Panel Report, para. 7.1206 (referring to European Communities' first written submission to the 
Panel, para. 881).  We also note that the United States as serted that grants to this facility were for the specific 
purpose of expanding its A380 com ponent production facility. (United States' first written submission to the 
Panel, para. 488 (referring to Niedersächsischer Landtag, Drucksache 14/3447, Entschliessungsantrag der SPD 
Fraktion (5 June 2002) (Panel Exhibit US-225))) WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 602  
 
  and Puerto Santa Maria.
3052  Finally, although the European Co mmunities contested that one of the 
grants—an October 2004 grant to EADS-CASA's f acilities in Sevilla—did not confer a benefit on 
LCA production, the Panel found that the grants benefited Airbus Spain's LCA-related activities.3053  
It would have been useful had the Panel elaborated  in its analysis how these infrastructure measures 
supplemented and complemented the effects of LA/MSF.  However, in our view, these factual 
findings by the Panel provide a sufficient basis for c oncluding that such regional grants were used to 
expand Airbus' manufacturing sites or EADS-CAS A's LCA-related activities, thus supporting the 
Panel's inference that such regional grants "provided essential support to the development and 
production of Airbus LCA, relieving Airbus of  significant expenses in connection with the 
development of facilities for the production" and enab ling it to continue with the launch of successive 
models of LCA.3054 
1400.  Therefore, we conclude that the Panel did not err in its application of Articles 5(c) 
and 6.3(a), (b), and (c) of the SCM Agreement in finding that the infrastructure measures constituting 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement  "complemented and 
supplemented" the "product effect" of LA/MSF by contributing to Airbus' ability to launch and bring 
to the market its models of LCA as and when it di d.  We further conclude, for the reasons stated 
above, that the Panel had a sufficient evidentiary  basis and provided a sufficiently reasoned and 
adequate explanation for this finding consistently with its duty to conduct an objective assessment of 
the matter, including an objective assessment of the facts, under Article 11 of the DSU.  
(iii) R&TD subsidies 
1401.  Finally, we examine the Panel's finding rela ting to the R&TD subsidies at issue.   
1402.  The Panel found that the following R&TD measure s constituted specific subsidies that caused 
serious prejudice to the United States' interests unde r Articles 5(c) and 6.3(a), (b), and (c) of the 
SCM Agreement :  the grants to Airbus provided under the Second, Third, Fourth, Fifth, and Sixth 
EC Framework Programmes;  the loans to Airbus  provided under the Spanish PROFIT programme;  
                                                      
3052Panel Report, paras. 7.1207 to 7.1211.  The Panel considered that the United States' challenge 
against certain grants to facilities in Sevilla or Sevilla/La Rinconada concerned grants the 
European Communities had argued were granted to a facility in Sevilla, not La Rinconada. (Panel Report, footnote 4241 to para. 7.1209, and para. 7.1211 and footnote 4246 thereto) 
3053Panel Report, paras. 7.1214 to 7.1217.  Although the European Communities asserted that this grant 
was used for non-civil aircraft-related activities, the Panel concluded that both the Tablada and San Pablo facilities in Sevilla were partly engaged in LCA-relate d activities.  The Panel considered that information 
contained in Panel Exhibit EC-139 (BCI) indicates that work at the Tablada plant is done for Airbus' A320 and 
A380 models ( ibid., footnote 4250 to para. 7.1217), and that information contained in Panel Exhibit EC-138 
(BCI) indicates that work at the San Pablo facility involves [***] ( ibid., footnote 4253 to para. 7.1217). 
3054Panel Report, para. 7.1958.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 603  
 
  the grants to Airbus provided by the French Gove rnment;  the grants to Airbus provided by the 
German Federal Government;  the grants to Ai rbus provided by certain German sub-federal 
governments;  the loans to Airbus provided under the Spanish PTA programme;  and the grants to 
Airbus provided under the UK CARAD programme.
3055  
1403.  The Panel found that R&TD subsidies "had th e same effect {as LA/MSF} on Airbus' ability 
to launch the LCA it launched at the time that it did"3056 for the following reasons:  
{T}he R&TD subsidies enabled Airbus to develop features and 
aspects of its LCA on a schedule that it would otherwise have been 
unable to accomplish.  Even in the case of those R&TD subsidies directed to pre-competitive research, the ability to fund such efforts at a time when it would likely have been unable to do so in light of 
other demands on its resources was, in our view, significant in 
ensuring the launch of successive models of Airbus LCA.  While we 
recognize that the impact of pre-competitive R&TD subsidies on Airbus' market presence was perhaps more attenuated, compared with the other subsidies at issue, or with R&TD subsidies that funded 
research and technology actually u sed on LCA that were launched, 
we believe that combined with the others, the R&TD subsidies 
complemented and supplemented the impact of LA/MSF.
3057 
1404.  On appeal, the European Union argues that th e Panel failed to establish that any of the 
"features and aspects" of its LCA that were deve loped with funding from R&TD subsidies impacted 
Airbus' product launch decisions.3058  The European Union further ch arges the Panel with establishing 
"causation through association"3059 with LA/MSF, despite its recognition that the impact of 
"pre-competitive" R&TD subsidies on Airbus ' market presence was "more attenuated".3060  T h e  
European Union further argues that the Panel's failu re to provide an evidentiary basis and a reasoned 
and adequate explanation for its causation finding constitutes a violation of Article 11 of the DSU.3061 
1405.  The United States counters that the Panel correctly found that R&TD subsidies 
"complemented and supplemented" the "product effect" of LA/MSF, because they enabled Airbus to 
"develop features and aspects of its LCA on a schedule that it would otherwise have been unable to accomplish".
3062  
                                                      
3055Panel Report, para. 7.1608.  
3056Panel Report, para. 7.1956.  
3057Panel Report, para. 7.1959.  
3058European Union's appellant's submission, para. 659.  
3059European Union's appellant's submission, para. 660.  
3060European Union's appellant's submission, para. 659 (referring to Panel Report, para. 7.1959).  
3061European Union's appellant's submission, paras. 661-664.  
3062United States' appellee's submission, para. 668 (quoting Panel Report, para. 7.1959).  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 604  
 
  1406.  As we have reversed the Panel's finding th at loans under the Spanish PROFIT programme 
were within the Panel's terms of reference under Article 6.2 of the DSU, we declare moot and of no 
legal effect the Panel's causation finding, in paragr aph 8.2 of the Panel Report, to the extent that it 
relates to loans under the Spanish PROFIT programme.   
1407.  With respect to the other R&TD subsidies, we agree with the European Union that a general 
finding that they enabled Airbus to develop "features and aspects" of its LCA on a schedule that 
otherwise it would have been unable to accomplish does not provide a sufficient basis to determine 
that R&TD subsidies "complemen ted and supplemented" the "product effect" of LA/MSF in enabling 
Airbus to launch particular models of LCA.  As the Panel seemed to have recognized in relation to 
"pre-competitive" R&TD subsidies, whose impact on Airbus' market presence it considered more 
"attenuated"
3063, R&TD subsidies will not have any impact  on Airbus' (and consequently on Boeing's) 
sales unless they provide Airbus LCA with a competitiv e advantage in relation to Boeing LCA.  Such 
competitive advantage, in our view, must be reflected either in technologies incorporated in models of 
LCA actually launched by Airbus, or in technologies that make the production process of those LCA 
more efficient.  Without specific findings that technology or production processes funded by R&TD 
subsidies contributed to Airbus' ability to launch and bring to the market particular models of LCA, 
the Panel did not have a sufficient basis to co nclude that those subs idies "complemented and 
supplemented" the "product effect" of LA/MSF. 
1408.  For these reasons, we find that the Panel erred unde r Articles 5(c) and  6.3(a), (b), and (c) of 
the SCM Agreement  when it found that the R&TD subsidi es "complemented and supplemented" the 
"product effect" of LA/MSF without establishing a genuine causal link between those R&TD 
subsidies and Airbus' ability to launch and bring to  the market its models of LCA.  In failing to 
provide a sufficient evidentiary basis for its findi ng that the effect of non-LA/MSF subsidies was the 
displacement of Boeing LCA from the EC and relevant  third country markets and significant lost sales 
under Article 6.3(a), (b), and (c) of the SCM Agreement , the Panel failed to conduct an objective 
assessment of the matter, including an objective assessment of the facts, as required by Article 11 of the DSU.  
1409.  Accordingly, we reverse  the Panel's finding that the effect of R&TD subsidies was the 
displacement of Boeing LCA from the EC and releva nt third country markets, and significant lost 
sales, within the meaning of Article 6.3(a), (b), and (c) of the SCM Agreement .  
                                                     
 
3063Panel Report, para. 7.1959.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 605  
 
  (c) Conclusions 
1410.  Based on all of the foregoing, we agree with  the Panel that the equity infusions and 
infrastructure measures at issue, except for those that have not been found to constitute specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement
 3064, "complemented and 
supplemented" the "product effect" of LA/MSF in that they positively impacted Airbus' ability to 
launch and bring to the market its models of LCA.3065  
1411.  However, we consider that the Panel erred under Articles 5(c) and 6.3(a), (b), and (c) of the 
SCM Agreement  when it found that R&TD subsidies "com plemented and supplemented" the "product 
effect" of LA/MSF without establishing a genuine ca usal link between R&TD subsidies and Airbus' 
ability to launch and bring to the market its models of LCA.3066 
1412.  Based on all of the foregoing, we uphold  the Panel's finding, in paragraph 8.2 of the Panel 
Report, that the effect of specific subsidies in th e form of LA/MSF, as well as the equity infusions and 
infrastructure measures identified above, was th e displacement of Boeing LCA from the EC and 
relevant third country markets, and significant lost sales, within the meaning of Article 6.3(a), (b), and (c), which constitutes serious prejudice to the United States' interests under Article 5(c), of the 
SCM Agreement .
3067  
1413.  However, we reverse  the Panel's finding, in paragraph 8.2 of the Panel Report, that the effect 
of R&TD subsidies was the displacement of Bo eing LCA from the EC and relevant third country 
markets, and significant lost sales, within the meani ng of Article 6.3(a), (b), and (c), which constitutes 
serious prejudice to the United States' interests under Article 5(c), of the SCM Agreement . 
                                                      
3064We have declared moot and of no legal effect the Panel's finding, in paragraph 8.2 of the Panel 
Report, to the extent that it relates to the equity infusion by the French Government of its 45.76% interest in 
Dassault Aviation into Aérospatiale, and the infrastructu re measures regarding the Aéroconstellation industrial 
site and associated EIG facilities.  
3065Panel Report, paras. 7.1956-7.1958.  
3066Panel Report, para. 8.2. 
3067The European Union did not appeal the Panel's analysis of causation in relation to the lost sales 
involving A340 sales to Iberia, South African Airways, an d Thai Airways International.   Therefore, this aspect 
of the Panel's analysis stands. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 606  
 
  X. Findings and Conclusions 
1414.  For the reasons set out in this Report, in re lation to the issues rai sed on appeal by the 
European Union, the Appellate Body: 
(a) reverses
 the Panel's finding, in paragraph 7.1 422 of the Panel Report, that the R&TD 
loans provided pursuant to the Spanish PROF IT programme were within the Panel's 
terms of reference;   
(b) upholds  the Panel's finding, in paragraph 7.158 of the Panel Report, that the French 
R&TD grants were within the Panel's terms of reference; 
(c) modifies  the Panel's interpretation of Article 5 of the SCM Agreement , but upholds  
the Panel's conclusion, in paragraph 7.65 of  the Panel Report, rejecting the European 
Communities' request to exclude all alle ged prohibited and actionable subsidies 
granted prior to 1 January 1995 from the temporal scope of the dispute; 
(d) with respect to the Panel's interpretation of  Articles 1, 4.7, 5, 6, and 7.8 of the 
SCM Agreement  and their application to transactions involving certain Airbus 
companies: 
(i) modifies  the Panel's interpretation, but upholds  the Panel's ultimate finding, 
in paragraphs 7.222 and 7.287 of the Pa nel Report, that Articles 5 and 6 of 
the SCM Agreement  do not require that a complainant demonstrate that a 
benefit "continues" or is "present" dur ing the reference period for purposes of 
an adverse effects analysis; 
(ii) reverses  the Panel's finding, in paragra phs 7.248, 7.255, and 7.288 of the 
Panel Report, that the sales transactions at issue did not "extinguish" a 
portion of past subsidies, because the Panel failed to assess whether the partial privatizations and private-to-pri vate sales transactions were at arm's-
length terms and for fair market value,  and to what extent they involved a 
transfer in ownership and control to new owners;  but finds
 that there are 
insufficient factual findings by the Pane l or undisputed facts on the Panel 
record to complete the legal anal ysis and determine whether these 
transactions "extinguished" a portion of past subsidies;  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 607  
 
  (iii) does not a priori  exclude the possibility that all or part of a subsidy may be 
"extracted" by the removal of cash or cash equivalents;  but upholds
 the 
Panel's ultimate finding, in paragraphs  7.276 and 7.288 of the Panel Report, 
that the "cash extractions" from Dasa and CASA did not remove a portion of past subsidies; 
(iv) upholds
 the Panel's ultimate finding, in para graphs 7.283, 7.284, and 7.289 of 
the Panel Report, that the "cash extractions" did not result in the "withdrawal" 
of subsidies within the meaning of Articles 4.7 and 7.8 of the SCM Agreement ; and has no basis on which to make a finding that the sales 
transactions at issue resulted in the "withdrawal" of subsidies within the 
meaning of Articles 4.7 and 7.8 of the SCM Agreement ; 
(v) declines
 to make additional findings as to wh ether the Panel failed to make an 
objective assessment of the matter and thereby acted inconsistently with Article 11 of the DSU in its treatment of the European Communities' arguments concerning the "extinction" , "extraction", and "withdrawal" of 
subsidies;  and 
(vi) upholds
 the Panel's finding, in paragra phs 7.200 and 7.286 of the Panel 
Report, that the United States was not required to demonstrate, as part of its prima facie case under Article 5 of the SCM Agreement , that subsidies 
provided to the Airbus Industrie cons ortium "passed through" to the current 
producer of Airbus LCA, Airbus SAS; 
(e) regarding the issue of whether the chal lenged LA/MSF measures conferred a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement :  
(i) finds
 that Article 4 of the 1992 Agreement is not a relevant  rule of 
international law applicable in the rela tions between the parties, within the 
meaning of Article 31(3)(c) of the Vienna Convention , that informs the 
meaning of "benefit" under Article 1.1(b) of the SCM Agreement , and that 
Article does not form "part of the facts to establish the relevant market 
benchmark"; 
(ii) finds  that the Panel's reasoning relating to its use of the project-specific risk 
premium proposed by the United States wa s internally inconsistent, and that  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 608  
 
  the Panel thereby failed to comply with its duty to make an objective 
assessment of the facts as required under Article 11 of the DSU;  and 
consequently reverses
 the Panel's findings, in para graphs 7.481 and 7.488 of 
the Panel Report, that the United St ates' proposed project-risk premium 
constituted the minimum project risk for the A300 and A310, the exterior 
upper boundary of the range of project risk for the A320, A330/A340, A330-
200, and A340-500/600, and the intern al upper boundary of the range of 
project risk for the A380; 
(iii) finds  that several aspects of the Panel's assessment of the project-specific risk 
premium proposed by the European Communities were not consistent with the requirement in Article 11 of the DS U to make an objective assessment of 
the facts;  but nevertheless upholds
 the Panel's conclusion, in paragraph 7.479 
of the Panel Report, that the European Communities' proposed 
project-specific risk premium underestimated the risk premium that a market operator would have reasonably demand ed Airbus pay for financing on the 
same or similar terms as the challenged LA/MSF; 
(iv) because the uncontested ev idence indicates that, ev en leaving aside the 
project-specific risk premium, the rates of return obtained by the member States on all but two of the challenge d LA/MSF measures are below a market 
benchmark that does not include a projec t-specific risk premium, and the rate 
of return obtained by the member States under the other two LA/MSF measures is below a market benchmark th at includes the project-specific risk 
premium proposed by the European Communities, upholds
 the Panel's 
findings, in paragraphs 7.489 and 7. 490 of the Panel Report, that the 
challenged LA/MSF measures conferred a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement ;  and 
(v) reverses  the Panel's finding, in paragraph 7. 397 of the Panel Report, that "the 
number of sales over which full repayment is expected says little, if anything, 
about the appropriateness of the rate of  return that will be achieved by the 
lender"; 
(f) upholds  the Panel's finding, in paragraph 7.1566 of the Panel Report, that the R&TD 
subsidies granted to Airbus under each of the EC Framework Programmes were 
"specific" within the meaning of Article 2.1(a) of the SCM Agreement ;  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 609  
 
  (g) modifies
 the Panel's characterization, in paragr aphs 7.1084, 7.1121, and 7.1179 of the 
Panel Report, of the financial contributio n, under Article 1.1(a)(1)(iii) of the 
SCM Agreement , provided by virtue of the infrastructure measures in Hamburg, 
Bremen, and Toulouse;  reverses  the Panel's findings, in paragraphs 7.1096, 7.1133, 
and 7.1190 of the Panel Report, that these fi nancial contributions conferred a benefit 
within the meaning of Article 1.1(b) of the SCM Agreement ;  and finds , instead, that 
the provision of the lease of the land at the Mühlenberger Loch industrial site in 
Hamburg and the provision of the right to ex clusive use of the extended runway at the 
Bremen airport conferred a benefit on Airbus  within the meaning of Article 1.1(b) of 
the SCM Agreement ;  but finds  that there are insufficient factual findings by the Panel 
or undisputed facts on the Panel record to complete the legal analysis and determine 
whether a benefit was conferred with respect  to the Aéroconstellation industrial site 
in Toulouse; 
(h) upholds  the Panel's findings, in paragraphs 7.1367, 7.1371, and 7.1375 of the Panel 
Report, that the four challenged capital i nvestments in Aérospatiale conferred a 
benefit on Aérospatiale within the meaning of Article 1.1(b) of the SCM Agreement ;  
(i) reverses  the Panel's finding, in paragraph 7.14123068 of the Panel Report, that the 
French Government's transfer of shares of Dassault Aviation to Aérospatiale conferred a benefit on Aérospatiale within  the meaning of Article 1.1(b) of the 
SCM Agreement ;  but finds
 that there are insufficient fact ual findings by the Panel or 
undisputed facts on the Panel record to co mplete the legal analysis and determine 
whether a benefit was conferred; 
(j) finds , as regards the alleged export subsidies granted under the German, Spanish, and 
UK A380 contracts, that the Panel erred in the interpretation of Article 3.1(a) and 
footnote 4 of the SCM Agreement , in paragraph 7.648 of the Panel Report, that, in 
order to find that the granting of a subsidy is in fact tied to anticipated exportation, 
a  subsidy must be granted because  of anticipated export performance;  and 
consequently reverses  the Panel's finding, in paragraph 7.689 of the Panel Report, that 
the United States had demonstrated that the German, Spanish, and UK A380 
contracts amounted to prohibited export subsidies within the meaning of Article 3.1(a) and footnote 4 of the SCM Agreement ;  finds
 that a subsidy is de facto  
export contingent within the meaning of Article 3.1(a) and footnote 4 of the 
                                                      
3068See also Panel Report, para. 7.1414. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 610  
 
  SCM Agreement  if the granting of the subsidy is geared to induce the promotion of 
future export performance by the recipient;  but finds
 there are insufficient factual 
findings by the Panel or undisputed facts on the Panel record to complete the legal 
analysis; 
(k) finds  that, in analyzing "displacement" on the basis of a single subsidized product and 
a single market for LCA determined by the complaining Member, the Panel erred in 
its interpretation and applicati on of the term "market" in Ar ticle 6.3(a) and (b) of the 
SCM Agreement , and acted inconsistently with its obligations under Article 11 of the 
DSU by concluding that it was not required  to "make an indepe ndent determination 
of the 'subsidized product', as opposed to  relying on the complaining Member's 
identification of that product";  finds  that, in the absence of an objective 
determination of the relevant product market by the Panel, its conclusion that there is 
a single subsidized product and a single lik e product cannot stand, and consequently 
reverses  the Panel's findings on displacement; 
(l) completes the analysis  on the basis of the uncontested  evidence on the Panel record 
and finds , in respect of the first step of the Panel's two-step approach to its assessment 
under Article 6.3(a) of the SCM Agreement , that there was displacement during the 
reference period 2001-2006 in the single-ai sle and twin-aisle LCA product markets in 
the European Communities; 
(m) completes the analysis  on the basis of the uncontested  evidence on the Panel record 
and finds , in respect of the first step of the Panel's two-step approach to its assessment 
under Article 6.3(b) of the SCM Agreement , that there was displacement during the 
reference period 2001-2006: 
(i) in the single-aisle LCA product market in Australia;  
(ii) in the single-aisle and twin-aisle LCA product markets in China;  and 
(iii) in the single-aisle and twin-aisle  LCA product markets in Korea; 
(n) completes the analysis and finds  that the uncontested evid ence on the Panel record 
does not establish displacement over the reference period in Brazil, Mexico, 
Singapore, and Chinese Taipei, or threat of displacement in India;  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 611  
 
  (o) upholds
 the Panel's finding, in paragraph 7.18 45 of the Panel Report, under the first 
step of its two-step approach to its  assessment under Article 6.3(c) of the 
SCM Agreement , that the sale to Emirates Airlines of A380 LCA constituted 
"significant lost sales"; 
(p) upholds  the Panel's ultimate finding under the se cond step of its two-step approach, in 
paragraph 7.2025 of the Panel Report, that the displacement and lost sales were the 
effect of the challenged LA/MSF measures, to the extent it refers to the displacement 
in the single-aisle LCA product market in  Australia and in the single-aisle and 
twin-aisle LCA product markets in the Eu ropean Communities, China, and Korea, 
and lost sales in the Air Asia, Air Berlin , Czech Airlines, easyJet, Emirates Airlines, 
Qantas, and Singapore Airlines sales campaigns; 
(q) upholds  the Panel's finding, in paragraph 7.194 8 of the Panel Report, that "either 
directly or indirectly, LA/MSF was a n ecessary precondition for Airbus' launch in 
2000 of the A380";   
(r) upholds  the Panel's finding, in paragraphs 7. 1956, 7.1957, 7.1958, and 8.2 of the 
Panel Report, that the "product effect" of the LA/MSF measures was "complemented 
and supplemented" by the equity infusions,  referred to in paragraph 1379 above, and 
infrastructure measures, referred to in pa ragraph 1388 above, except those that have 
been found not to constitute specific subsid ies within the meaning of Articles 1 and 2 
of the SCM Agreement ;  and 
(s) reverses  the Panel's finding, in paragraphs  7.1956, 7.1959, and 8.2 of the Panel 
Report, that the "product effect" of the LA/MSF was "complemented and supplemented" by the R&TD subsidies at issue. 
1415.  For the reasons set out in this Report, in relation to the issues raised by the United States in its 
other appeal, the Appellate Body: 
(a) finds
 that the alleged LA/MSF "Programme" was not within the Panel's terms of 
reference because it was not identified in the request for the establishment of a panel, 
as required by Article 6.2 of the DSU;   
(b) as a consequence of the Panel's errors in in terpreting and applying Article 3.1(a) and 
footnote 4 of the SCM Agreement , reverses  the Panel's finding, in paragraph 7.689 of 
the Panel Report, that the United States had not shown that the granting of the French WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 612  
 
  LA/MSF for the A380 and A330-200, and the French and Spanish LA/MSF for the 
A340-500/600, were contingent in fact upon anticipated exportation, within the 
meaning of Article 3.1(a) and footnote 4 of the SCM Agreement ;  but finds
 that there 
are insufficient factual findings by the Pane l or undisputed facts on the Panel record 
to complete the legal analysis. 
1416.  The Appellate Body notes that, having reversed the Panel finding, in paragraph 7.689 of the 
Panel Report, that certain A380 LA/MSF contract s amounted to prohibited export subsidies, the 
Panel's recommendation pursua nt to Article 4.7 of the SCM Agreement , in paragraph 8.6 of the Panel 
Report, consequently must be reve rsed;  however, to the extent we  have upheld the Panel's findings 
with respect to actionable subsidies that caused a dverse effects, as set out in paragraph 8.2 of the 
Panel Report, or such findings have not been  appealed, the Panel's recommendation pursuant to 
Article 7.8 of the SCM Agreement , in paragraph 8.7 of the Panel Re port, that "the Member granting 
each subsidy found to have resulted in such adverse effects, 'take appropriate steps to remove the 
adverse effects or … withdraw the subsidy'", stands. 
1417.  We realize that, after five years of panel pr oceedings and almost ten months of appellate 
review, there are a number of issues that remain unresolved in this dispute.  Some may consider that 
this is not an entirely satisfactory outcome.  Ou r mandate under Article 17 of the DSU does not permit 
us to engage in fact-finding.  However, wherever  we have found that there are sufficient factual 
findings by the Panel or undisputed facts to complete  the legal analysis, we have done so with a view 
to achieving a "prompt settlement" of the dispute in accordance with Article 3.3 of the DSU.      
1418.  The Appellate Body recommends  that the DSB request the Eu ropean Union to bring its 
measures, found in this Report, and in the Panel Repor t as modified by this Report, to be inconsistent 
with the SCM Agreement , into conformity with its oblig ations under that Agreement.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 615  
 
  ANNEX I
 
  
 
WORLD TRADE  
ORGANIZATION  WT/DS316/12/Rev.1 
17 August 2010 
 (10-4353) 
 Original:   English 
   
EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES – MEASURES 
AFFECTING TRADE IN LARGE CIVIL AIRCRAFT 
 
 
Revision to the
 
Notification of an Appeal by the European Union  
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 20(1) of the Working Procedures for Appellate Review  
 
Communication from the Appellate Body  
to the Chairman of the Dispute Settlement Body  
   The following communication, dated 12 August 2010, from the Chairman of the Appellate Body addressed to the Chairman of the Dispute Se ttlement Body, is being circulated to Members. 
 
_______________ 
 
  I am writing to advise you that, by letter of 5 August 2010, the European Union requested authorization from the Appellate Body, pursuant to Rule 23 bis of the Working Procedures for 
Appellate Review  (the " Working Procedures "), to amend its Notice of A ppeal dated 21 July 2010.  
The Division hearing the appeal provided the Un ited States and all third participants with an 
opportunity to comment in writing on the request.  No objections to the European Union's request 
were received.  On 11 August 2010, the Division au thorized the European Union to amend its Notice 
of Appeal. 
 
 The amended Notice of Appeal is attached.  
* * * * * 
 
Pursuant to Article 16.4 and Article 17.1 of the DSU  the European Union hereby notifies to 
the Dispute Settlement Body its decision to appeal  to the Appellate Body certain issues of law 
covered in the Panel Report and cer tain legal interpretations devel oped by the Panel in the dispute 
European Union – Measures Affecting Trade in Large Civil Aircraft  (WT/DS316). Pursuant to 
Rule 20(1) of the Working Procedures for Appellate Review , the European Union simultaneously files 
this Notice of Appeal with the Appellate Body Secretariat. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 616  
 
  The European Union is restricting its appeal to those errors that it believes constitute serious 
errors of law and legal interpretation that need to  be corrected.  Non-appeal of an issue does not 
signify agreement therewith.  The European Union also believes that it may not be necessary for the 
Appellate Body to decide all the issues raised in th is notice of appeal since some may become moot as 
a result of decisions on other issues. 
For the reasons to be further elaborated in  its submissions to the Appellate Body, the 
European Union appeals, and requests the Appellate Bo dy to reverse, modify or declare moot and of 
no legal effect the findings, conclusions and reco mmendations of the Panel, with respect to the 
following errors of law and legal interp retations contained in the Panel Report
1: 
I. Preliminary Issues 
A. Legal irrelevance of pre-1995 subsidies (Section VII.C.2 of the Report) 
1. The Panel erred in its interpretati on and application of Article 5 of the SCM Agreement  when 
concluding that all alleged actionable subsidies gr anted by the European Union prior to 1 January 
1995 were included in the temporal scope of these proceedings.2 
 
B. Identity of recipient, pass through, extinc tion, extraction and withdrawal of subsidy 
(Section VII E.1 of the Report) 
2. The Panel erred in its interp retation and application of the SCM Agreement , in particular 
Articles 1, 4.7, 7.8, 5 and 6.3, by failing to dis tinguish the recipients of the alleged subsidies over 
time, and by failing to properly account for sales, transfers and changes in ownership of assets and 
companies and the extinction, extraction, rem oval or withdrawal of the alleged subsidies.3 
 
3. In this respect the Panel also failed to make an objective assessment of the law and facts contrary to Article 11 of the DSU  in a number of ways. In particular, the Panel failed to offer reasoned 
and adequate explanations for its findings that the European Union "did not argue" that the 
transactions were at arm's length,
4 that certain of the transactions were in fact not at arm's length,5 that 
the SEPI and Daimler extractions did not remove the funds from use for LCA development and 
manufacture6 and that cash was not truly "withdrawn" from CASA.7  The Panel also lacked a 
sufficient evidentiary basis for these findings. The Panel's findings concerning the provision and 
removal of money to a state-owned entity by it s government shareholder are also internally 
inconsistent and incoherent.8 
 
                                                      
1Paragraph numbers provided in footnotes to the follo wing description of the errors of the Panel are 
intended to indicate the primary instance  of the errors. Of course these errors have consequences throughout the 
report and the European Union also appeals all findings and conclusions deriving from or relying on the 
appealed errors, and in particular the relevant findings  and conclusions in Sections 8.1 and 8.2 of the Panel 
Report, and also in particular all the recommendations of the Panel in Sections 8.6 and 8.7 of the Panel Report.  
2Panel Report, para. 7.65 and the findings in paras. 7. 44 to 7.64; and para. 7.325 and the findings in 
paras. 7.321 to 7.324. 
3Panel Report, para. 7.200 and the findings in paras. 7.286 to 7.289 and 7.190 to 7.199 (pass-through); 
para. 7.255 and the findings in paras. 7.286 to 7.289 and 7.214 to 7.254 (extinction); paras. 7.286 to 7.289 and 
7.266 to 7.285 (extraction and withdrawal); paras. 7.726 to 7.729 (para. 7.729, in particular). 
4Panel Report, para. 7.249. 
5Panel Report, para. 7.249 and footnote 2175. 
6Panel Report, paras. 7.275 to 7.276 and 7.283 to 7.285. 
7Panel Report, paras. 7.284 to 7.285. 
8Panel Report, paras. 7.1400 to 7.1403, 7.284 to 7.285 and 7.289.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 617  
 
  4. The Panel erred in its in terpretation and application of  Articles 4.7 and 7.8 of the 
SCM Agreement in recommending that the European Union "withdraw the subsidy" and "remove the 
adverse effects or ... withdraw the subsidy", to the extent that the European Union had already done 
so.
9 
 II. MSF Issues (Section VII E.2 of the Report) 
5. The Panel erred in failing to take account of Article 4 of the 1992 Agreement in interpreting 
and applying the notion of "benefit" under Article 1.1(b) of the SCM Agreement .
10  
 6. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement  
and under Article 11 of the DSU  in making findings regarding project-specific risk premia for various 
Airbus LCA programmes that fail to apply the Panel' s own standard and are made without a sufficient 
evidentiary basis for these findings and w ithout adequately explaining these findings.
11 
 7. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement  
and under Article 11 of the DSU  in finding short-comings of the European Union's risk-sharing 
supplier benchmark for LA/MSF without a sufficient evidentiary basis, without assessing the totality 
of the evidence, and without adequate explanation.
12 
 8. To the extent that the Panel has made findings  with respect to the relevance of the number of 
sales over which full repayment is expected to th e appropriateness of the market rate of return,
13 the 
Panel made an error under Article 1.1(b) of the SCM Agreement . 
 
III. Export Subsidy Findings (Section VII E.4 of the Report) 
9. The Panel erred in its interp retation and application of Article  3.1(a) and footnote 4 of the 
SCM Agreement , including but not limited to the terms "s ubsidies", "contingent/c ondition", "tied-to", 
"actual or anticipated" and "export performance".14 
 10. In reaching those findings the Panel also erred under Article 7.2 of the DSU  in failing to 
address the relevant provisions cited by  the parties, Article 12.7 of the DSU  in failing to set out or to 
set out adequately the basic rationale behind its  findings and recommendati ons and under Article 11 
of the DSU  in failing to make an objective assessment of  the matter before it, including an objective 
assessment of the law and the facts. 
 
IV. EIB Measures (Section VII E.5 of the Report) 
11. If the United States appeals the Panel's findings on the lack of specificity of the EIB 
measures, then the European Union appeals the Pane l's findings that such measures confer a benefit 
and requests the Appellate Body to rule that the Pa nel erred in its interpre tation and application of 
Article 1.1(b) of the SCM Agreement  and failed to make an objective assessment of the law and the 
                                                     
 
9Panel Report, paras. 8.6 and 8.7. 
10Panel Report, paras. 7.388 to 7.389. 
11Panel Report, paras. 7.469, 7.481 and 7.483 to 7.490, including Table 7, and para. 8.1(a). 
12Panel Report, paras. 7.480 and 7.481. 
13Panel Report, para. 7.397. 
14Panel Report, para. 8.1(a)(ii) and the "findings" in light of which such conclusion is reached, 
including para. 7.689 (conclusion on export subsidies), para. 7.680 (A380 Germany), para. 7.681 (A380 Spain), para. 7.683 (A380 United Kingdom), para. 7.678, and the other findings in paras. 7.612 to 7.716 of the Panel 
Report. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 618  
 
  facts as required by Article 11 of the DSU  in its findings that the challenged EIB measures confer a 
benefit.
15 
 
V. Infrastructure (Section VII E.6 of the Report) 
12. The Panel erred in its inte rpretation and application of Article 1.1(a)(1)(iii) of the 
SCM Agreement in finding that the Mühlenberger Loch m easures, the Bremen runway extension and 
the ZAC Aéroconstellation measures c onstitute financial contributions.16 
 13. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement  
in finding that the Mühlenberger Loch measure s, the Bremen runway extension and the ZAC 
Aéroconstellation measures confer a benef it on Airbus Deutschland and Airbus France.
17 
 
VI. Aérospatiale Equity Contributions (Section VII E.9 of the Report) 
14. The Panel erred in finding that a "benefit" wa s conferred by virtue of capital contributions 
within the meaning of under Article 1.1(b) of the SCM Agreement by the French State to a state-
owned company, Aérospatiale18 and in its interpretation of the term "benefit" in Article 1.1(b).19 
 15. The Panel erred in its in terpretation and application of Article 1.1(b) of the SCM Agreement 
and Article 11 of the DSU  in making findings without a sufficient evidentiary basis concerning 
reasonable market-based rates of return, and in the absence of coherent reasoning in its assessment of 
evidence concerning the performan ce of Aérospatiale's peers.
20 
 
16. The Panel erred in finding that a "benefit" within the meaning of Article 1.1(b) of the 
SCM Agreement  was conferred by virtue of the transfer by the French State to a state-owned 
company, Aérospatiale, of the French State's shar es in Dassault Aviation and erred under Article 11 of 
the DSU in finding such a "benefit", without a suffi cient evidentiary basis to support that finding.21 
 
VII. RT&D Issues (Section VII E.10 of the Report) 
17. The Panel erred in its interpretation an d application of Article 2.1(a) of the SCM Agreement  
when concluding that R&TD support granted unde r each of the Framework Programmes constituted 
specific subsidies.22 
 
18. The Panel erred in its interpretation and application of Article 6.2 of the DSU  in concluding 
that the Spanish PROFIT programme23 and French R&TD funding24 had been properly identified in 
the US panel request.  
                                                     
 
15Panel Report, para. 7.885 and the other findings in paras. 7.717 to 7.881 of the Panel Report on which 
these findings are based or "in light of" which these findings are made.  
16Panel Report, paras. 7.1084, 7.1121, 7.1179, and 8.1(b)(i) to (iii). 
17Panel Report, paras. 7.1097, 7.1134, 7.1190 and 8.1(b)(i) to (iii). 
18Panel Report, paras. 7.1367, 7.1371, 7.1375, 7.1380 and 8.1(d)(i). 
19Panel Report, paras. 7.1364, 7.1366, 7.1370, 7.1374 and 8.1(d)(i). 
20Panel Report, paras. 7.1360, 7.1367, 7.1371, 7.1375, 7.1380 and 8.1(d)(i). 
21Panel Report, paras. 7.1409, 7.1411, 7.1412, 7.1414 and 8.1(d)(ii). 
22Panel Report, paras. 7.1566 and paras. 7.1562 to 7.1565; para. 8.1(e). 
23Panel Report, paras. 7.1422 and paras. 7.1420 to 7.1421; para. 8.1(e). 
24Panel Report, paras. 7.150 and 7.148 to 7.149; para. 8.1(e).  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 619  
 
  VIII.  Adverse Effects (Section VII F of the Report) 
19. The Panel erred in its interpre tation and application of Articles 5(c), 6.3(a), 6.3(b) and 6.3(c) 
of the SCM Agreement  in finding that the effect of the subsidies constitutes serious prejudice to the 
interests of the United States, including displa cement of imports from the European Union, 
displacement of exports from certain third country ma rkets or threat thereof and significant lost sales 
in the same market.
25 
 20. In reaching those findings the Pane l also erred under Article 12.7 of the DSU  in failing to set 
out or to set out adequately the basic rationale  behind its findings and recommendations and under 
Article 11 of the DSU  in failing to make an objective assessment of the matter before it, including an 
objective assessment of the law and the facts. 
 
A. 1992 Agreement 
21. The Panel erred in its interpretation and application of Article 5(c) of the SCM Agreement  and 
Articles 12.7 and 11 of the DSU  in failing to take account of the fact that the United States had 
expressly consented to all subsidies covered by the 1992 Agreement  and could therefore not suffer 
serious prejudice as a result of such subsidies.
26 
 
B. Subsidized product 
22. The Panel erred in its interpre tation and application of Articles 5(c), 6.3(a), 6.3(b) and 6.3(c) 
of the SCM Agreement  and Articles 12.7 and 11 of the DSU  when it found that it did not need to 
independently and objectively make a dete rmination regarding the subsidized product.27 
 
C. Displacement or threat thereof 
23. The Panel erred in its interpretation and appli cation of Articles 5(c), 6.3(a) and 6.3(b) of the 
SCM Agreement  and Articles 12.7 and 11 of the DSU  when it found that there is only one, rather than 
several distinct product markets, and by finding th at it could therefore assess displacement, significant 
price suppression and price depression on the basis of a single product market, thereby exaggerating 
the extent of the displacement and price suppression and depression it found.28  
 24. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(b) of the 
SCM Agreement and Articles 12.7 and 11 of the DSU w hen it found that there was displacement in the 
markets of Mexico and Brazil, although the United States did not lose market share in those markets.
29 
 25. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(a) of the 
SCM Agreement  and Articles 12.7 and 11 of the  DSU when it found that the subsidies caused 
displacement in the EU market.
30 
 
                                                      
25Panel Report, paras. 8.2(a), (b), (c) and (d) and the "findings" in light of which such conclusions are 
reached, including the findings set out in the following para graphs of this notice of appeal and the other findings 
in paras. 7.1610 to 7.2186 of the Panel Report. 
26Panel Report, para. 8.2  and any findings that may be considered to support this conclusion. 
27Panel Report, paras. 7.1650, 7.1652, 7.1653, 7.1654,  7.1656, 7.1662 and 8.2. 
28Panel Report, paras. 7.1742, 7.1751, 7.1755, 7.1756,  7.1757, 7.1758, 7.1777, 7.1779, 7.1780, 7.1781, 
7.1782, 7.1786, 7.1788 to 89 and 7.1790 to 7.1791 and 8.2( a), 8.2(b) and 8.2(c), as well as any other paragraphs 
that rely on such finding. 
29Panel Report, paras. 7.1785, 7.1786, 7.1791, 7.1993, 7.2025 and 8.2(b). 
30Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(a). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 620  
 
  26. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(b) of the 
SCM Agreement  and Articles 12.7 and 11 of the DSU  when it found that the subsidies caused 
displacement in the third country markets of Aust ralia, Brazil, China, Chinese Taipei, Korea, Mexico 
and Singapore.
31 
 
27. The Panel erred in its inte rpretation and application of Articles 5(c) and 6.3(b) of the 
SCM Agreement  and Articles 12.7 and 11 of the DSU  when it found, that the subsidies caused a threat 
of displacement in the third country market of India.32 
 
D. Lost sales 
28. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the 
SCM Agreement  and Articles 12.7 and 11 of the DSU , when it found that the A380 Emirates Airlines 
order constituted a significant lost sale.33 
 29. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the 
SCM Agreement  and Articles 12.7 and 11 of the DSU  when it found that the subsidies caused 
significant lost sales in the easyJet, Air Berlin, Czech  Airlines, Air Asia, Singapore Airlines, Emirates 
and Qantas sales campaigns.
34 
 
E. Serious prejudice 
30. The Panel erred in its interpretation a nd application of Articles 5 and 6.3 of the 
SCM Agreement when it found that it need not make a further finding that the displacement, threat of 
displacement and lost sales it found were caused by  the subsidies each amount to serious prejudice to 
the interests of the United States.35 
 
F. Price suppression/depression 
31. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the 
SCM Agreement  and Articles 12.7 and 11 of the DSU  in finding that it need not assess price 
suppression on the basis of the individual product markets.36 
 32. The Panel erred in its inte rpretation and application of Articles 5 and 6.3(c) of the 
SCM Agreement  and Articles 12.7 and 11 of the DSU in finding that there exists price suppression and 
price depression for the 777.
37 
 
G. Causation with respect to subsidies other than MSF 
33. The Panel erred in its interpre tation and application of Articles 5 and 6.3(a), 6.3(b) and 6.3(c) 
of the SCM Agreement  and Articles 12.7 and 11 of the DSU  in failing to distinguish the effects of 
non-MSF alleged subsidy measures from MSF measures in assessing adverse effects and in failing to 
provide a reasoned and adequate  explanation as to how the following measures could cause or 
contribute to causing adverse effects:  
                                                     
 
31Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(b). 
32Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(c). 
33Panel Report, para. 7.1832, and 8.2(d). 
34Panel Report, paras. 7.1985, 7.1986, 7.1993, 7.2025 and 8.2(d). 
35Panel Report, paras. 7.1736 and 8.2.  
36Panel Report, paras. 7.1854 to 7.1855 and 7.1860 to 7.1861. 
37Panel Report, paras. 7.1854 to 7.1855 and 7.1860 to 7.1861.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 621  
 
  • the Mühlenberger Loch measures; the Bremen airport runway extension; the ZAC 
Aéroconstellation measures; the grants provi ded by Germany and Spain for construction 
of facilities in Nordenham, Germany, and Sev illa, La Rinconada, Toledo, Puerto de Santa 
Maria and Puerto Real, Spain; and the grants  provided by the governments of Andalusia 
and Castilla-La Mancha in Puerto R eal, Sevilla, and Illescas (Toledo);
38 
• the capital contributions by the French State and Crédit Lyonnais to Aérospatiale and the 
transfer by the French State of its sh ares in Dassault Aviation to Aérospatiale;39  
• the acquisition by Kreditanstalt für Wideraufbau (KfW) of a 20 percent equity interest in 
Deutsche Airbus in 1989, and the 1992 transfer by KfW of its 20 percent equity interest 
in Deutsche Airbus to Messerschmitt-Bölkow-Blohm GmbH (MBB);40 and 
• the provision of R&TD funding pursuant to: the Second, Third, Fourth, Fifth, and Sixth 
EC Framework Programmes; the French government grants between 1994-2005; the 
German Federal government grants under the LuFo I, II and III programmes; the German 
sub-Federal government grants from the Bavarian authorities under the OZB and 
Bayerisches Luftfahrtforschungsprogramm, from the Bremen authorities under the AMST programmes, and from the Hamburg author ities under the Luftfahrtforschungsprogramm; 
Spanish government loans from the PROFIT and PTA programmes; and UK government 
grants under the CARAD and ARP programmes.
41 
                                                      
38Panel Report, paras. 7.1958, 8.1(b), and 8.2. 
39Panel Report, paras. 7.1957, 8.1(d), and 8.2. 
40Panel Report, paras. 7.1957, 8.1(c), and 8.2. 
41Panel Report, paras. 7.1959, 8.1(e), and 8.2.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 623  
 
  ANNEX II
 
  
 
WORLD TRADE  
ORGANIZATION  WT/DS316/13 
20 August 2010 
 (10-4401) 
 Original:   English 
   
EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES – MEASURES 
AFFECTING TRADE IN LARGE CIVIL AIRCRAFT 
 
Notification of an Other Appeal by the United States
 
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 23(1) of the Working Procedures for Appellate Review  
   The following notification, dated 19 August 2010,  from the Delegation of the United States, is 
being circulated to Members. 
 
_______________ 
  
Pursuant to Rule 23 of the  Working Procedures for Appellate Review , the United States 
hereby notifies its decision to appeal to the Appellate  Body certain issues of law covered in the Report 
of the Panel in European Communities and Certain Member States – Measures Affecting Trade in 
Large Civil Aircraft  (WT/DS316/R) ("Panel Report") and certain  legal interpretations developed by 
the Panel.  1. The United States seeks review by the Appellate Body of the Panel's legal conclusion that the 
United States failed to establish that the French A380, French A340-500/600, Spanish A340-500/600, 
and French A330-200 launch aid constituted prohibited export s ubsidies within the meaning 
of Article 3.1(a) and footnote 4 of the Agreement on Subsidies and Countervailing Measures  
("SCM Agreement ").
1  These conclusions are in error and ar e based on erroneous findings on issues of 
law and legal interpretations, incl uding an erroneous interpretation a nd application of Article 3.1(a) 
and footnote 4 of the SCM Agreement .2  To the extent that the Panel's recommendation, pursuant to 
Article 4.7 of the SCM Agreement , that the subsidies found to be prohibited be withdrawn within 
90 days, does not include the French A380, French A340-500/600, Spanish A340-500/600, and French A330-200 launch aid, the United States also  requests that the Appellate Body review that 
recommendation.
3  
 
2. The United States seeks review by the Appellate Body of the Panel's legal conclusion that the 
United States failed to demonstrate th e existence of the Launch Aid Program.4  This conclusion is in 
                                                      
1See, e.g. , Panel Report, paras. 7.689 and 8.3(a)(ii). 
2See, e.g. , Panel Report, paras. 7.675-7.688. 
3See Panel Report, para. 8.6. 
4See, e.g. , Panel Report, paras. 7.579-7.580, 8.3(a)(iv). WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 624  
 
  error and is based on erroneous findings on issues of law and legal interpretations, including the 
failure to examine properly whether the Launch Aid Program is a "measure" subject to challenge in 
WTO dispute settlement proceedings.
5 
  
 
                                                     
 
5See, e.g. , Panel Report, paras. 7.518-7.520, 7.531-7.532, 7.575, 7.580.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 625  
 
  ANNEX III
 
 
Procedural Ruling and Additional Proce dures to Protect Sensitive Information  
  
10 August 2010 
European Communities and Certain Member States – Measures Affecting  
Trade in Large Civil Aircraft 
AB-2010-1 
 
Procedural Ruling
 
1. On Wednesday, 21 July 2010, the Appellate B ody Division hearing this appeal received a 
joint request from the European Union and the Unite d States to adopt additional procedures to protect 
certain information that they consider to be sens itive.  This includes information received as a result 
of the information-gathering process under Annex V of the Agreement on Subsidies and 
Countervailing Measures , during the Panel proceedings, and, to the extent relevant, during the 
Appellate Body proceedings.  The participants classi fy this information in two categories according to 
its sensitivity.  The first category is described as " business confidential information" or "BCI".  The 
second category is referred to as "highly sensitive business information" or "HSBI" and includes the 
information that the participants consider to be mo st sensitive.  The participants argue that disclosure 
of this information could be "severely prejudicial" to the originators of the information, that is, to the 
large civil aircraft manufacturers that are at the heart of this dispute, and possibly to the 
manufacturers' customers and suppliers.   2. On Thursday, 22 July 2010, the Division invited the third participants to comment in writing 
on the participants' request.  In par ticular, we asked the third particip ants to provide their views on the 
permissibility of additional protection for BCI and HSBI under the Understanding on Rules and 
Procedures Governing the Settlement of Disputes  (the "DSU") and the Working Procedures for 
Appellate Review  (the " Working Procedures "), and, if they so wished, on the specific arrangements 
proposed in the request, including access by the third participants to the confidential version of the 
Panel Report and to the written submis sions to be filed by the participan ts and third participants in this 
appeal, as well as the arrangements proposed by th e European Union and the United States relating to 
the organization of the substantive oral hearing.  Th e Division declined the participants' request that it 
ask the Panel to delay the transmittal to the Appella te Body of any information classified as BCI or 
HSBI on the Panel record.    3. Pending a final decision on the participants' re quest for the protection of BCI and HSBI, the 
Division decided to provide additional protection to  all BCI and HSBI on the Panel record transmitted 
to the Appellate Body in this dispute on the terms set out below.  
(a) Only Appellate Body Members, and Appellate Body Secretariat staff assigned to 
work on this appeal, may have access to the BCI and HSBI contained on the Panel record pending a final decision on the par ticipants' request.  Appellate Body Members 
and Appellate Body Secretariat staff shall not disclose BCI or HSBI, or allow either 
to be disclosed, to any person other than those identified in the preceding sentence. 
(b) BCI shall be stored in locked cabinets when  not in use.  When in use by Appellate 
Body Members and Appellate Body Secretariat staff assigned to work on this appeal, all necessary precautions will be taken to protect the confidentiality of the BCI.  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 626  
 
  (c) All HSBI shall be stored in a combinati on safe in a designated secure location in the 
offices of the Appellate Body Secretariat.  Appellate Body Members and Appellate Body Secretariat staff assigned to work on this appeal may view HSBI only in the designated secure location in the offices of  the Appellate Body Secretariat.  HSBI 
shall not be removed from this location.  
(d) Pending a decision on the participants' request for the protection of BCI/HSBI in 
these proceedings, neither BCI nor HSBI shall be transmitted electronically, whether by e-mail, facsimile, or otherwise. 
4. On Wednesday, 28 July 2010, we received wr itten comments from Australia, Brazil, Canada, 
and Japan.  These third participants expressed their ge neral support for the request of the participants.  
Australia, Canada, and Japan argued that the adoption of additional procedures for the protection of 
confidential information is not inconsistent with the DSU or the Working Procedures .  Brazil also 
considered additional protection of BCI and HS BI to be permissible under the DSU and the Working 
Procedures  provided that the rights of third participants are not unduly diminished as a result of such 
procedures.  Australia, Brazil, Canada, and Japan  each suggested certain modifications to the 
procedures proposed by the participants in order to ensure that the right of third participants to 
participate meaningfully in these appellate proceedings  is fully protected.  The other third participants 
in this dispute, China and Korea, did not submit written comments.   
 5. An oral hearing with the participants and all of the third participants was held on Tuesday, 
3 August 2010, to explore the issues raised by the re quest of the participants and the comments of the 
third participants. 
 6. We consider it necessary that a ruling is made by us on the request of the participants without 
delay.  Accordingly, we make the following ruling with concise reasons having carefully considered 
the arguments made by the participants in suppor t of their request, the comments received from the 
third participants, and the submissi ons and replies to our questions at the oral hearing.  These reasons 
may be further elaborated in the Appe llate Body report in this appeal.  
 7. The first question that we must consider is wh ether we have the authority to adopt special 
arrangements to provide additional pr otection for certain information in  this case that the participants 
deem to be particularly sensitive.  The participan ts have referred both to the authority that derives 
from our inherent jurisdiction and to Rule 16(1) of the Working Procedures .  The analysis of this 
question should begin with the DSU, which pr ovides the primary rules governing WTO dispute 
settlement, and in particular with Article 17.1 of the DSU, which provides for the establishment of the 
Appellate Body and confers jurisdiction upon it.  Articl e 17.1 of the DSU states, in relevant part, that 
"{t}he Appellate Body shall hear appeals from panel cases".
1  A necessary incident of this authority is 
the power to determine procedures for the conduct of  appeals.  These procedures must, amongst other 
things, guarantee that the participants and third participants can properly exercise their rights under 
the DSU under conditions of fairness and impartiality.   The Appellate Body's authority to draw up 
procedures for the conduct of appeals is specifically reflected in Article 17.9 of the DSU, pursuant to 
which the Appellate Body adopted its Working Procedures .  Rule 16(1) of the Working Procedures  
gives a Division hearing an appeal the authority to adopt an "appropriate procedure" in the "interests 
of fairness and orderly procedure" where a proce dural question arises that is not covered by the 
Working Procedures , provided that it is not inconsistent with  the DSU, the other covered agreements, 
and the Working Procedures  themselves. 
 
                                                      
1This jurisdiction to hear appeals is further elab orated in Articles 17.6 and 17.13 of the DSU.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 627  
 
  8. Turning to the specific question before us, we  note that the DSU provides for a regime of 
confidentiality for appellate proceedi ngs and for submissions of the par ticipants and third participants.  
Article 17.10 of the DSU states that "{t}he proceedings  of the Appellate Body shall be confidential."  
Article 18.2 of the DSU provides that "{w}ritten submi ssions to ... the Appellate Body shall be treated 
as confidential".
2  Also paragraph VII:1 of the Rules of Conduct for the Understanding on Rules and 
Procedures Governing the Settlement of Disputes  (the " Rules of Conduct ")3 addresses the protection 
of confidentiality.  The confidentiality requirements set out in these provisions are stated at a high 
level of generality that may need to be particular ized in situations in which the nature of the 
information provided requires more detailed arrangements to protect ad equately the confidentiality of 
that information.  The adoption of such arrangement s falls within the authority of the Appellate Body 
to hear the appeal and to regulate its procedures in a manner that ensures that the proceedings are 
conducted with fairness and in an orderly manner.  In particular, a regime to protect confidential 
information may be necessary to allow a participan t to ventilate its case without undue risk of 
detrimental disclosure.  To the extent that the arrangements elaborate on the confidentiality requirements of the DSU, the adoption of such arra ngements in an "appropriate procedure" needs to 
conform to the requirement in Rule 16(1) of the Working Procedures , that any additional "appropriate 
procedure" not be inconsistent with the DSU, the other covered agreements, and the Working 
Procedures  themselves.  
 9. The next step in our analysis is to consider the proper analytical framework within which to 
determine whether any particular arrangements ar e required in this case.  In our view, the 
determination of whether particular arrangements are appropriate in a given case essentially involves 
a balancing exercise:  the risks associated with the disclosure of the information sought to be 
protected must be weighed against the degree to which the particular arrangements affect the rights and duties established in the DSU, th e other covered agreements, or the Working Procedures .  
Furthermore, a relationship of proportionality must exist between the risks associated with disclosure 
and the measures adopted.  The measures should go no further than required to guard against a 
determined risk of harm (actual or potential) that could result from disclosure.  10. As noted earlier, the DSU and the Rules of Conduct , which are part of the Working 
Procedures , establish a general confidentiality regime that covers appellate proceed ings.  Participants 
requesting particularized arrangements have the bu rden of justifying that such arrangements are 
necessary  in a given case adequately to protect certain information, taking into account the rights and 
duties recognized in the DSU, the other covered agreements, and the Working Procedures .  The 
participants agreed, at the oral hearing, that the burden of justifying the need for particularized 
protective arrangements falls on them.  This burde n of justification will increase the more the 
proposed arrangements affect the exercise by the Appellate Body of its adjudicative duties, the 
exercise by the participants of their rights to due process and to have the dispute adjudicated, the 
exercise by the third participants of their particip atory rights, and the rights and systemic interests of 
the WTO membership at large.    
                                                     
 
2Article 18.2 of the DSU further provides that "{n}othing in this Understanding shall preclude a party 
to a dispute from disclosing statements of its own positions to the public."  Referring to Articles 17.10 and 18.2 
of the DSU, the Appellate Body has previously held that  it may authorize participants to forego confidentiality 
protection for their submissions at the oral hearing.  (See paragraph 4 of the Procedural Ruling of 10 July 2008 
issued in Canada – Continued Suspension and United States – Continued Suspension .  
3The Rules of Conduct , as adopted by the DSB on 3 December 1996 (WT/DSB/RC/1), are incorporated 
into the Working Procedures for Appellate Review  (WT/AB/WP/5), as Annex II thereto. (See WT/DSB/RC/2, 
WT/AB/WP/W/2)  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 628  
 
  11. In setting out our analytical framework, we iden tify the rights and duties that are implicated 
where additional protection is under consideration.  First, there is the overarching authority of the 
Appellate Body pursuant to Article 17 of the DS U to ensure proper adjudication of the dispute.  
Secondly, there are the rights of the participants to  ventilate their case, have their dispute adjudicated, 
and to enjoy due process throughout the proceedings .  Thirdly, there are the rights of the third 
participants who, in accordance with Article 17.4 of  the DSU, "may make written submissions to, and 
be given an opportunity to be heard by, th e Appellate Body."  As reflected in the Working 
Procedures , in particular, in Rules 18, 24, and 27, the Appellate Body has fostered the active 
participation of third participants in the appellate process.  At the same time, the Appellate Body has 
observed that the third participants are not the main parties to the dispute.
4  Theirs is a systemic 
interest in the correct legal interpretation of the pr ovisions of the covered agreements that may be at 
issue in an appeal.  Finally, there are the rights and interests of the WTO membership at large.   
 12. As to the rights and interest of the WTO membership at large, Article 3.2 of the DSU 
provides that the WTO dispute settlement system "ser ves to preserve the rights and obligations of 
Members under the covered agreements, and to clarif y the existing provisions of those agreements".  
To preserve the rights and obligations of Members, the WTO dispute settlement system must also be 
available to adjudicate disputes that involve sensi tive information.  In certain instances, WTO 
Members may not be in a position to provide sen sitive information to panels unless adequate 
arrangements are in place to protect the inform ation.  The absence of such arrangements could 
compromise a WTO Member's ability to pursue and defend its rights and interests in WTO dispute 
settlement and could have an impact on a panel's ability to make a complete and objective assessment 
of the matter.  To continue to enjoy the confid ence of Members, the WTO dispute settlement system 
must provide appropriate safeguards to ensure that  sensitive information will be adequately protected 
if it is submitted in the context of a dispute.    
13. As set out above, Article 3.2 of the DSU also provides that the WTO dispute settlement 
system serves to clarify the existing provisions of the covered agreements.  WTO Members therefore have the right to receive an Appellate Body report that clarifies the existing provisions of the covered 
agreements in accordance with Article 3.2 of th e DSU.  The Appellate Body would not assist the 
membership if its report failed to set out reasoni ng and findings with sufficient detail to enable 
Members to appreciate fully its content before they adopt the report and make it legally binding.  As 
the Appellate Body has explained, "WTO Member s attach significance to reasoning provided in 
previous panel and Appellate Body reports".
5  The legal interpretations embodied in adopted panel 
and Appellate Body reports clarify the exis ting WTO provisions and become part of the acquis of 
WTO law.6  A report that provides a full exposition of  the Appellate Body's reasoning is also 
important for the proper implementation of the recommendations and rulings of the WTO Dispute 
Settlement Body (the "DSB").  As Article 21.1 of the DSU states, "{p}rompt compliance with 
recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes 
to the benefit of all Members."  The Appellate Body has said that panels should make efforts to ensure 
that the public version of their reports, which are circulated to all WTO Members, are "understandable".
7  The same applies to Appellate Body reports.   
 
14. Having determined that we have the authorit y to adopt particular procedures to protect 
confidential information, the limitations under th e DSU, the other covered agreements, and the 
Working Procedures , and the proper analytical framework , we turn now to assess the specific 
arrangements that have been proposed by the participants in this case.   
                                                      
4See paragraph 9 of the Procedural Ruling issued in Canada – Continued Suspension and United States 
– Continued Suspension , supra , footnote 2. 
5Appellate Body Report, US – Stainless Steel (Mexico) , para. 160. 
6Ibid. 
7Appellate Body Report, Japan – DRAMs (Korea) , para. 279.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 629  
 
   
15. We recognize that the content of some of th e information submitted by  the participants is 
claimed to be such that disclosure could be signi ficantly prejudicial to the commercial interests of 
Airbus and Boeing.  Having said that, we are concer ned that there did not appear to have been a 
meaningful effort during the Panel process to set out objective criteria as to the attributes of the 
information that may require additional protection so as to guide the determination of whether the 
particular information that was submitted deserved additional protection and th e particular degree of 
such protection.  Such objective criteria could in clude, for example:  whether the information is 
proprietary;  whether it is in the public domain or  protected;  whether it has a high commercial value 
for the originator of the information, its competitors , customers, or suppliers;  the degree of potential 
harm in the event of disclosure;  the probability of such disclosure;  the age of the information and the 
duration of the industry's business cycle;  and the st ructure of the market.  As noted above, the DSU 
and the Rules of Conduct  already provide for confidentiality, and any additional protection must be 
justified.  It is not for the parties to determine whet her additional protection is called for.  It is for the 
panel, and now the Appellate Body, to do so.  Indeed , it is for the adjudicator to decide whether the 
information concerned calls for add itional protection.  Likewise, it is for the adjudicator to decide 
whether and to what extent specific arrangements are necessary, while safeguarding the various rights 
and duties that are implicated in any d ecision to adopt additional protection.   
 16. While we express concern with regard to the manner in which the parties designated and the 
Panel treated the sensitive information, we note th at neither participant has appealed the Panel's 
decisions on the protection of this information.  Ther e are also issues of practicality to consider.  At 
this stage of the dispute, given the decisions on th is matter adopted by the Panel and applied by the 
participants to date, it would be difficult for us to  review all of the information on record that was 
given additional protectio n by the Panel.  We will therefore proceed on the basis of how the 
information was treated before the Panel.  We do not exclude, however, revisiting whether a particular 
piece of information meets the objective criteria jus tifying additional protection, or the particular 
degree thereof, should a dispute on the classification of  that information arise before us, or should we 
consider that we need to refer to that information in our report if this is necessary to give a sufficient 
exposition of our reasoning and findings.  17. In their proposed procedures, the participan ts have suggested cert ain limitations on how 
Appellate Body Members access information that  has been classified as requiring additional 
protection.  In our view, any additional arrange ments to protect sensitive information, beyond the 
general confidentiality protection provided in the DSU and the Rules of Conduct , cannot interfere with 
the adjudicative duties of the Appellate Body and the collegiality among its Members.  Members of 
the Appellate Body must have access to the entir ety of the Panel Report, the submissions, and the 
record of the dispute.  Access to information must  be practical and unimpeded, and it must recognize 
that Appellate Body Members carry out their duties in Geneva as well as at their places of domicile.  
Appellate Body Members also must be able to ex change information between themselves and to refer 
to sensitive information in their internal deliberati ons.  The additional procedures that we adopt below 
ensure that all Appellate Body Members have access to  the entirety of the appellate record while they 
are in Geneva.  The additional procedures further provide that Members of the Division shall have 
access to all but the most sensitive information from their places of residence outside of Geneva.  
Members of the Appellate Body who are not on the Division shall have access to selected information that they require to discharge their duties of collegiality under Rule 4 of the Working Procedures  and 
to participate meaningfully in any exchanges of views.  For their part, Appellate Body Secretariat staff 
will consult sensitive information only on the premises  of the Appellate Body Secretariat and the most 
sensitive information only in the designated secure loca tion.  We recall, in this regard, that Appellate 
Body Members and Appellate Body Secretariat staff are subject to the Rules of Conduct .  
Paragraph VII:1 of the Rules of Conduct  provides that "{e}ach covered person shall at all times 
maintain the confidentiality of dispute settlement deliberations and proceedings together with any 
information identified by a party as confidential."  If participants were to have  any concerns regarding WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 630  
 
  the protection of confidentiality by Appellate Body  Members and Appellate Body Secretariat staff, 
they may raise them under the Rules of Conduct  and the Appellate Body will decide.
8  We do not 
consider that more is required.  18. The arrangements proposed by the participants provide for the possibilit y that representatives 
of the participants and certain outside legal adviso rs have access to the most sensitive information on 
the premises of the Appellate Body Secretariat.  In our view, this raises impor tant legal and practical 
concerns.  The adoption of such an  arrangement could mean that representatives of the participants or 
their outside legal advisors would be present on th e premises of the Appellate Body Secretariat while 
Appellate Body Members are engaged in deliberati ons concerning this case.  It would require the 
implementation of additional security arrangement s while representatives are present and would 
exclude simultaneous access to the information by  Appellate Body Members and Appellate Body 
Secretariat staff.  Each particip ant has access to all of the sensitiv e information submitted by the other 
participant at other secure locations.  The participan ts' representatives and outside legal advisors thus 
have alternative means of viewing this information.  Therefore, we see no need to permit viewing of 
the most sensitive information at the Appellate Body  Secretariat's premises by representatives of the 
participants and their outside legal advisors.  To do so would unwarrantably trespass upon the privacy 
with which the Appellate Body and its Secretariat do their work.  19. There are also certain arrangements that the pa rticipants have jointly imposed on themselves 
and that do not appear to affect the Appellate Body's  ability to adjudicate the dispute, the rights of the 
third participants, or the rights and interests of th e WTO membership at large.  This includes, for 
example, the arrangements mentioned earlier allowi ng each participant to have access to the most 
sensitive information provided by the other particip ant.  Such arrangements, in principle, are not 
exempt from our scrutiny to verify that they do not  impair our adjudicative function and the rights and 
interests of third participants and other Members.  Nevertheless, at this stage of the proceedings, we 
are disinclined to make an exhaustive review of these arrangements given that on their face they do 
not seem to have adverse implications for the rights or  interests of others that we identified earlier.  
Furthermore, none of the third participants has raised  concerns in relation to this aspect of the matter. 
 20. Some of the other arrangements proposed by th e participants impinge, i.e., encroach, upon the 
rights of the third participants that are guaranteed  under Article 17.4 of the DSU and Rules 18, 24, and 
27 of the Working Procedures .  For instance, the participants' pr oposal provides for access to sensitive 
information for a very limited number of representativ es of the third participants.  In fact, the number 
of approved persons proposed is smalle r than it was before the Panel.  Several of the third participants 
have expressed concern over the limited number of their representatives that would be allowed access 
to sensitive information.  We share their concerns and thus have allowed in the additional procedures 
for a higher number of third pa rticipant approved persons.   
 21. The third participants have also expressed con cern over the participants' proposal that third 
participants access the sensitive in formation in a designated reading room located at the WTO.  We 
would have preferred that mechanisms be explor ed further that would ha ve permitted providing the 
third participants with copies of the Panel Report containing sensitive information and of non-
redacted versions of the submissions to keep at their Geneva Missions and to share these with their 
capital-based officials working on this appeal, wh ile safeguarding the participants' interest in 
minimizing the risks of disclosure.  Another option would have been to provide access to the sensitive 
information at the diplomatic Missions of the particip ants in Geneva and/or in  the capitals of the third 
participants.  However, it would have been quite ch allenging, for all of those involved, to design and 
implement any such regime without delay and ther e is a need to proceed expeditiously with the 
appellate process.    
                                                     
 
8See paragraph VIII:16 of the Rules of Conduct .  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 631  
 
  22. Thus, the additional procedures that we adopt belo w provide for third participants to view the 
Panel Report version containing sensitive inform ation and the non-redacted versions of the 
submissions in a designated reading room locat ed at the WTO.  Approved persons of third 
participants shall also be allowed to have access, in  the reading room, to an individually watermarked, 
colour copy of the redacted version of the Pa nel Report as circulated to Members and to an 
individually watermarked, colour copy of each of the redacted submissions filed in the appellate 
proceedings, and shall be allowed to use them to take handwritten notes.  They may take these copies 
with them, but may only share them with other a pproved persons.  These copi es of the Panel Report 
and the submissions, as well as any handwritten notes taken by the approved person in the designated 
reading room, must be returned to the Appellate Body  Secretariat after the final oral hearing in this 
appeal.  The content of any handwritten notes shall not be incorporated into any other copy of the 
Panel Report or of the submissions.  We consider that this regime offe rs the participants substantially 
the same level of protection of their sensitive info rmation as the regime provided in their proposal, but 
is less burdensome on the third participants.    
23. The participants have further proposed that third participants be excluded from having access 
to the information that is treated as most sensitive, that is, the information that the participants have 
labelled as "HSBI".  We recall that, under Ar ticle 17.4 of the DSU and Rule 24 of the Working 
Procedures , third participants may make written submissi ons to, and be given an opportunity to be 
heard by, the Appellate Body.  Rule 18(2) of the Working Procedures  further provides that, "{e}xcept 
as otherwise provided in these Rules, every document f iled by ... a participant ... or a third participant 
shall be served on each of the ... third participants in the appeal".  At the same time, the Appellate 
Body has recognized that the rights of third part icipants are more limited than those of the 
participants, and that the third participants' interests lie mainly in the correct legal interpretation of the 
provisions of the WTO agreements.
9  We also note that participati on as a third participant is elective 
and that, in the present case, none of the third part icipants have expressed specific concerns in their 
written comments or at the special oral hearing about not having access to the most sensitive 
information.  On the contrary, several third participants did voice support, in principle, for the limitation on access to the most sensitive information.    24. The arrangements proposed by the participants may also impinge on the rights of the WTO 
membership at large.  As discussed above, WTO Me mbers have a right to obtain an Appellate Body 
report that gives a sufficient exposition of our reasoning and findings in a manner that is 
understandable.  Adopted Appellate Body reports clarify the provisions  of the covered agreements, in 
accordance with Article 3.2 of the DSU, and become part of the acquis  of WTO law.
10  Moreover, the 
DSB will be responsible for the surveillance of  the implementation of its recommendations and 
rulings should this be necessary.  The participan ts have requested an opportunity to ask for the 
removal of sensitive information that may, inadverten tly or not, be included in our report.  We are 
open to this request.  We will make every effort to  draft our report without including information that 
the participants consider to be sensitive by limiting ourselves to making statements or drawing 
conclusions that are based on the sensitive information.  Yet, whether this is possible will only 
become clear once we have drafted our report.  The additional procedures that we adopt below 
provide that, if we were to consider it necessary to  include sensitive information in the reasoning in 
our report, the participants shall be given an opportu nity to comment.  In coming to a decision on the 
need to include sensitive information to ensure that the report rendered is  understandable, we will 
strike an appropriate balance between the rights of  the WTO membership at large to obtain a report 
that gives a sufficient exposition of our reasoning and findings, on the one hand, and the legitimate 
concerns of participants to protect sensitive in formation, on the other.  The more prejudicial 
disclosure is proven to be, the more we would be  inclined to accept that the information is not 
disclosed. 
                                                      
9See supra , footnote 4. 
10See supra , para. 13. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 632  
 
   
25. The European Union has requested that we explic itly provide that the participants shall have 
the option of withdrawing information that they consider most sensitive instead of seeing it included in the Appellate Body report (should the Appella te Body decide it must be included).  The 
European Union explains that, since a party usuall y provides evidence that it considers supportive of 
its case, it should be allowed to withdraw this ev idence.  The Appellate Body could then draw an 
inference that is adverse to the party withdrawing the evidence.  While it is conceivable that a party 
may choose not to rely on certain evidence on record, we  believe that the issues raised by this request 
are more complex than the European Union consid ers them to be and may have consequences not 
only for the party that seeks withdr awal.  Evidence on record may be probative of the case of a party 
other than the party that seeks withdrawal.  Moreover,  the Appellate Body may have to decide claims 
under Article 11 of the DSU on the basis of the entire reco rd before the panel.  Further, in situations in 
which the Appellate Body is considering whether to  complete the legal analysis, adverse inferences 
may not necessarily be of assistance.  The European  Union's request raises a number of complex 
questions that are difficult to resolve in the abstra ct and at this preliminary stage of the appellate 
proceedings.  We prefer to explore these questi ons at the appropriate time after hearing the 
participants' views on specific issues, and only if the extreme situation on which they are premised 
arises.   26. Finally, we recognize that, in Brazil – Aircraft  and Canada – Aircraft , the Appellate Body did 
not consider it necessary, in the circumstances of those appeals, to adopt additional procedures to 
protect information deemed sensitive by the participants.
11  In doing so, however, the Appellate Body 
did not suggest that the DSU, the other covered agreements, or the Working Procedures precluded the 
adoption of procedures providing addi tional protection;  rather, the A ppellate Body did not consider 
that such additional protection was necessary in th e particular circumstances of those appeals. 
 
27. In deciding to adopt additional procedures in th is appeal, we make our determination in the 
light of the particular circumstances of this dispute, as the Appellate Body did in the Brazil – Aircraft 
and Canada – Aircraft disputes.  While the Brazil – Aircraft and Canada – Aircraft  disputes only 
involved claims that certain measures were export subsidies, this dispute involves not only export subsidy claims, but also numerous claims that cer tain measures are specific subsidies that have 
various forms of adverse effects.  This means that  the evidentiary record in this dispute is more 
extensive and includes more detailed information th at is company-specific, such as data concerning 
productivity, cost efficiencies and inefficiencies, pr ices for specific aircraft currently in production 
and marketed, recurring and non-recurring cost stru ctures per unit, price calculations and pricing 
practices—in particular sales campaigns and more  generally, arrangements with developers and 
manufacturers of outsourced components, privileged advice by investment advisors on pricing and 
other terms of financial instruments, as well as other information pertaining to customers and 
suppliers that allegedly is not in the public domain.   Furthermore, the particular market structure 
within which these companies operate does not allow fo r the aggregation of data in a way that would 
expose specific companies to a more limited risk of  disclosure vis-à-vis potential competitors.  Given 
its nature, disclosure of the sensitive information on  the record of this dispute may pose particular 
risks and give rise to potential harm that justifies more detailed procedures for its protection.  We are 
also mindful that more than ten years have elapsed  since the Appellate Body made its rulings in the 
Brazil – Aircraft and Canada – Aircraft  disputes, and since then several WTO panels have provided 
for additional protection of sensitive information.
12   
                                                      
11Ruling of 11 June 1999 (quoted in relevant part in Appellate Body Report, Brazil – Aircraft , 
para. 119 and Appellate Body Report, Canada – Aircraft , para. 141). 
12Procedures governing the treatment of sensitive information were adopted by the panels in, for 
example, the Brazil – Aircraft and Canada – Aircraft  disputes, and by subsequent panels in Canada – Wheat 
Exports and Grain Imports ;  EC – Salmon (Norway) ;  EC – Approval and Marketing of Biotech Products ;  
Egypt – Steel Rebar ;  Korea – Commercial Vessels ;  Mexico – Steel Pi pes and Tubes ;  and US – Wheat Gluten .  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 633  
 
   
28. For the reasons set out above, we have d ecided to provide additional confidentiality 
protection on the terms set out below.  Accordingl y, we adopt the following additional procedures for 
the purposes of this appeal:  
Additional Procedures to Protect Sensitive Information
 
General  
 
(i) These additional procedures shall apply to information that was treated as business 
confidential information ("BCI") or as highly sensitive business information ("HSBI") in the 
Panel proceedings and that is contained in docum ents or electronic media that are part of the 
Panel record.  The additional procedures apply to written and oral submissions made in the 
appellate proceedings only to the extent that th ey incorporate information that was treated as 
BCI or HSBI in the Panel proceedings.  
(ii) To the extent that information on the record is submitted to the Appellate Body in a form that 
differs from the way in which it was presented to the Panel, and there is a disagreement 
between the participants on the proper treatment of this information, the Appellate Body shall 
decide after hearing their views.
13   
 
(iii) Each participant may at any time request that information that it has submitted and that was 
previously treated as BCI or HSBI no longer be treated as such.   
(iv) The participants and third participants shall f ile their written submissions with the Appellate 
Body Secretariat in accordance with the Working Schedule drawn up by the Division for this 
appeal.  Where a written submission contains BCI or HSBI, a redacted version of the submission (that is, a version w ithout BCI and HSBI) shall be filed simultaneously with the 
Appellate Body Secretariat.  The redacted vers ion shall be sufficient to permit a reasonable 
understanding of its substance.  The Division may take appropriate  action to ensure that this 
obligation is satisfied.  The participants and thir d participants shall also provide the Appellate 
Body Secretariat with an electronic version of all submissions, including the redacted versions.  The transmittal of participants' submissions to each other and to the third 
participants, and the transmittal of third participan ts' submissions to the participants and to the 
other third participants, are further regulated below. 
 
Appellate Body Members and Appellate Body Secretariat Staff 
(v) Only Appellate Body Members, and staff of th e Appellate Body Secretariat who have been 
assigned by the Appellate Body to work on this appeal, may have access to the BCI and HSBI 
on the Panel record and in the written and oral submissions made in these appellate 
proceedings.  Appellate Body Members and assigned Appellate Body Secretariat staff shall not disclose BCI or HSBI, or allow either to be disclosed, to any person other than those 
identified in the preceding sentence or to appr oved persons of the pa rticipants and third 
participants in the context of the oral h earings.  Appellate Body Members and assigned 
Appellate Body Secretariat staff are covered by the Rules of Conduct .  As provided for in the 
Rules of Conduct , evidence of breach of these Rules may be submitted to the Appellate Body, 
which will take appropriate action. 
                                                     
 
13See Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina) , para. 13. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 634  
 
  (vi) BCI shall be stored in locked  cabinets when not in use.  Except as provided in paragraphs 
(vii) and (x) below, BCI shall not be removed from the premises of the Appellate Body Secretariat.    
(vii) Appellate Body Members who are serving on the Division hearing this appeal may maintain a 
copy of all relevant documents containing BCI at their places of residence outside Geneva.  
Appellate Body Members who are not serving on the Division may maintain at their places of residence outside Geneva a copy of the BCI ve rsion of the Panel Report, a copy of the BCI 
version of the written submissions made in thes e appellate proceedings, a BCI version of the 
transcripts of any oral hearings, any inte rnal documents containing BCI, and, where 
necessary, selected BCI exhibits from the Pa nel record.  The documents and materials 
containing BCI kept by Appellate Body Members at their places of residence outside of Geneva shall be stored in locked cabinets when not in use.  Documents and materials 
containing BCI shall only be sent to Appellate B ody Members by secure e-mail or courier.   
 
(viii) Participants shall provide printed copies of th eir submissions and other documents containing 
BCI that are intended for use by Appellate  Body Members or assigned Appellate Body 
Secretariat staff on coloured paper and indivi dually watermarked with "Appellate Body" and 
numbered consecutively ("Appellate Body No. 1", "Appellate Body No. 2", etc.).   
 
(ix) All HSBI shall be stored in a combination safe in a designated secure location on the premises 
of the Appellate Body Secretariat.  Any com puter in that room shall be a stand-alone 
computer, that is, not connected to a netw ork.  Appellate Body Members and assigned 
Appellate Body Secretariat staff may view HSBI only in the designated secure location referred to above.  HSBI shall not be remove d from this location, except as provided in 
paragraph (x) or in the form of handwritten notes that may be used only on the Appellate 
Body Secretariat's premises and shall be destroyed once no longer in use. 
 
(x) Subject to appropriate precautions, BCI and HSBI may be taken outside of the premises of the 
Appellate Body Secretariat, in hard copy and electronic form, for purposes of any oral hearings that may be held in connection with this appeal.   
(xi) Except as provided in paragraph (xii), all docum ents and electronic files containing BCI and 
HSBI shall be destroyed or deleted when the Ap pellate Body report in this dispute has been 
adopted by the DSB.  
(xii) The Appellate Body shall retain one hard copy  and one electronic version of all documents 
containing BCI and HSBI as part of the appella te record.  Documents and electronic media 
containing BCI shall be kept in sealed boxes within locked cabinets on the Appellate Body 
Secretariat's premises.  Documents and electronic media containing HSBI shall be placed in a sealed container that will be kept in a comb ination safe on the premises referred to above.  
 
Appellate Body Report 
(xiii) The Division will make every effort to draft an Appellate Body report that does not disclose 
BCI or HSBI by limiting itself to making statements or drawing conclusions that are based on BCI and HSBI.  A copy of the Appellate Body report intended for circulation to WTO Members will be provided in advance to the par ticipants, at a date to be specified by the 
Division.  Participants will be provided with an  opportunity to request the removal of any BCI 
or HSBI that is inadvertently included in the report.  The Division will also indicate to the 
participants if it has found it necessary to incl ude in the Appellate Body report information 
that was treated by the Panel as BCI or HS BI and will provide participants with an 
opportunity to comment.  Comments on the inclusion of information previously treated as  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 635  
 
  BCI or HSBI and requests for removal of BCI or HSBI inadvertently included in the report 
shall be filed with the Appellate Body Secretar iat within a time period to be specified by the 
Division.  No other comments or submissions shall be accepted. In coming to a decision on 
the need to include BCI or HSBI to ensure that  a report is rendered that  is understandable, the 
Division will strike an appropriate balance between the rights of the WTO membership at 
large to obtain a report that gives a sufficient exposition of its reasoning and findings, on the 
one hand, and the legitimate concerns of the par ticipants to protect sensitive information, on 
the other.  
Participants 
(xiv) The participants shall provide a list of persons  that are "BCI-Approved Persons" and that are 
"HSBI-Approved Persons".  These lis ts shall be provided to the Appellate Body Secretariat by 
12 August 2010 and shall be served on the other pa rticipant and the third participants.  Any 
objections to the designation of an outsid e advisor as a BCI-Approved Person or HSBI-
Approved Person must be filed with the Appella te Body Secretariat and served on the other 
participant by 13 August 2010.  The Division will only reject a request for designation of an 
outside advisor as a BCI-Approved Person or an HSBI-Approved Person upon a showing of 
compelling reasons, having regard to, inter alia , the relevant principles reflected in the Rules 
of Conduct  and the illustrative list in Annex 2 ther eto.  BCI-Approved Persons and HSBI-
Approved Persons shall not disclose BCI or HSBI, or allow either to be disclosed, except to the Appellate Body, assigned Appellate Body Secretariat staff, other BCI-Approved Persons 
and HSBI-Approved Persons, and Thir d Participant BCI-Approved Persons. 
 
(xv) Any participant referring in its written submissions  to any BCI or HSBI shall clearly identify 
the information as such in those submissions .  Submissions containing BCI shall be 
transmitted only to BCI-Approved Persons.  If th e submissions contain HSBI, the HSBI shall 
be included in an Appendix.  In that case, th e version of the submission that includes the 
HSBI Appendix shall be transmitted only to HSBI-Approved Persons.  The HSBI Appendix 
shall not be transmitted via e-mail.  Each par ticipant shall simultaneously provide a redacted 
version of its submissions to the other participan t, which shall have two days to object to the 
inclusion of any BCI.  If there are objections, the Division shall resolve the matter, and transmit the correctly redacted version to the other participant and the third participants, 
unless the participant making the submission ag rees to remove the information that was 
subject to the objection.  If there are no objections, the redacted version shall be transmitted the following day to the third participants.   
Third Participants 
(xvi) Third participants may designate up to six individuals as "Third Participant BCI-Approved 
Persons".  For this purpose, each third partic ipant shall provide a list of Third Participant 
BCI-Approved Persons to the Appellate Body S ecretariat by 12 August 2010.  A copy of the 
list of Third Participant BCI-A pproved Persons shall be serve d on each participant and on 
each other third participant.  The participants  may object to the designation of an outside 
advisor as a Third Participant BCI-Approved Pers on.  Objections must be filed with the 
Appellate Body Secretariat by 13 August 2010.  The Division will only reject the designation 
of an outside advisor as a Third Partic ipant BCI-Approved Person upon a showing of 
compelling reasons, having regard to, inter alia , the relevant principles in the Rules of 
Conduct  and the illustrative list in Annex 2 thereto.  Third Participants BCI-Approved 
Persons shall not disclose BCI, or allow it to be disclosed, except to the Appellate Body, 
assigned Appellate Body Secretariat staff, BCI-A pproved Persons, and othe r Third Participant 
BCI-Approved Persons. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 636  
 
  (xvii)  The BCI version of all participants' submissions shall be transmitted to the third participants 
by providing a copy to the Appellate Body Secr etariat for placement in the designated reading 
room located on the premises of the WTO.  Th ird Participant BCI-Appr oved Persons shall be 
allowed to view in the designated reading room  the BCI version of the Panel Report and the 
BCI version of the submissions filed in these appellate proceedings.  Third Participant BCI-
Approved Persons shall not bring into that room any electronic recording or transmitting 
devices, nor shall they remove copies of the BCI version of the Panel Report or the BCI 
version of the submissions from that room.  Each  third participant shall be provided with one 
copy of the Panel Report as circulated to WT O Members and of the redacted version of the 
submissions for use in the reading room.  Th ird Participant BCI-Approved Persons may take 
handwritten notes on the provided copies of the ci rculated Panel Report and redacted version 
of the submissions and they may take these copies with them.  These documents shall be printed on coloured watermarked paper; shall bear the names of the Third Participant BCI-
Approved Persons;  state that "This document is not to be copied";  and the cover page of 
each of the documents shall state that any ha ndwritten BCI added to the document shall only 
be discussed or shared with other Third Par ticipant BCI-Approved Persons.  The content of 
any handwritten notes shall not be incorporated , electronically or in handwritten form, into 
any other copy of the Panel Report or of th e submissions.  These documents and any other 
handwritten notes taken by the Third Participan t BCI-Approved Persons in the reading room 
shall be locked in a secure container wh en not in use.  These documents and those 
handwritten notes must be returned to the Appe llate Body Secretariat after the final oral 
hearing held in this appeal.  
 
(xviii)  Each Third Participant BCI-Approved Person vi ewing the BCI version of the Panel Report 
and submissions in the designated reading room shall complete and sign a log.  The Appellate 
Body Secretariat shall keep such log as part of the record of the appeal.   
 
(xix) If a third participant wishes to refer in its th ird participant's submission to any BCI, it shall 
clearly identify such information, and the subm ission shall be transmitted to the participants, 
and to the other third participants by providing a copy to the Appellate Body Secretariat for placement in the designated reading room referre d to in paragraph (xvii) above.  The third 
participant shall also simultaneously provide the participants with a redacted version of their 
submissions.  The participants sh all have two days to object to the inclusion of any BCI in the 
redacted version of the third participant's su bmission.  If there are objections, the Division 
shall resolve the matter, and transmit the correctly  redacted version to the participants and the 
other third participants, unless the third par ticipant making the submission agrees to remove 
the information that was subject to the objecti on.  If there are no objections, the redacted 
submission shall be transmitted the following da y to the participants and the other third 
participants.   
Oral Hearing 
(xx) Appropriate procedures shall be adopted to  protect BCI and HSBI from unauthorized 
disclosure at any oral hearing held in this appeal.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 637  
 
  ANNEX IV
 
 
Procedural Ruling and Additional Procedures on the Conduct of the Oral Hearings  
  
27 October 2010 
 
European Communities and Certain Member States – Measures Affecting 
Trade in Large Civil Aircraft 
 
AB-2010-1 
 
Procedural Ruling
 
 
Introduction  
1. On 21 July 2010, the Appellate Body Division hearing the above appeal received a joint 
request from the European Union and the United St ates to adopt additional procedures to protect 
certain sensitive information submitted in this disput e.  In their joint letter, the European Union and 
the United States also requested that  the oral hearings in this appe al be opened to public observation 
to the extent that this is possible given the existence of sensitive information.   
 2. After receiving comments from the third participants and holding a special oral hearing on 
this subject, the Division issued a Procedural  Ruling on 10 August 2010 adopting additional 
procedures to protect sensitive information on the r ecord of this appeal.  Paragraph 28(xx) of the 
Procedural Ruling on 10 August 2010 states that appr opriate procedures shall be adopted to protect 
sensitive information from unauthorized disclosure du ring any oral hearings held in this appeal. 
 3. On 24 September 2010, the Division invited the European Union and the United States to 
clarify the extent to which they request the oral  hearings in this appeal to be open to public 
observation, and to propose specific modalities in this  respect.  The third participants were also 
invited to comment, if they so wished, on the Eu ropean Union's and the United States' request for 
public observation and on the specific modalities proposed.
1   
 4. We received a joint letter from the European  Union and the United States on 5 October 2010 
with their clarifications and proposals concerning moda lities for the oral hearings.  In their joint letter, 
the participants suggested that the Division adopt a further Procedural Ruling pursuant to Rule 16(1) 
of the applicable Working Procedures for Appellate Review  (the " Working Procedures ")
2 to regulate 
the conduct of the oral hearings in the light of th e request for public observation and the existence of 
sensitive information.  According to the participan ts, this "will involve striking a balance between the 
systemic interest in protecting sensitive information and the systemic interest in transparency similar 
to that struck in the Procedural Ruling dated 10 August 2010."3  In particular, the participants 
indicated that, with respect to the protection of  business confidential information ("BCI"), "each of 
them is precluded from disclosi ng information designated BCI by  the other to non-BCI approved 
persons" and that "{t}hird participants are pr ecluded from disclosing BCI to non-BCI approved 
persons."  As regards the protection of highl y sensitive business information ("HSBI"), the 
participants proposed two options.  Under the firs t option, "if, during the hearing, one of the 
                                                      
1At the request of the participants, the deadline for the submission of their clar ifications and proposals 
concerning the oral hearings was extended by four days.  The deadline for the third participants to file comments 
was also extended by four days. 
2WT/AB/WP/5, 4 January 2005.  
3Joint letter from the European Union and the United States, dated 5 October 2010. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 638  
 
  participants or a Member of the Division wishes  to refer to HSBI, the hearing is temporarily 
suspended and third participants, as well as member s of the participants' delegations who are not 
HSBI approved, are asked to temporarily leave the room".  Under the second option, the hearings would be divided into two parts.  The first part of the oral hearings "would deal with all matters to the 
greatest extent possible, and without uttering HSBI."  The second part of the oral hearings would be 
devoted to discussing HSBI.  The participants acknowle dge that "{n}either of these options is ideal in 
all respects" and add that, "on balance", they  would prefer the second option as it would limit 
unnecessary disruption during the oral hearings.  5. As regards observation of the oral hearings by the public, the participants have some common 
views and some differences of opinion as to the exte nt to which the oral hearings should be open to 
observation.  Both participants are of the view th at sensitive information should not be disclosed to 
the public.  The participants submit that, "in principle, it would be desirable that as much of the hearing as possible should be open to the public", but "recognize that in light of the volume of BCI in this dispute, and its centrality to many of the issu es, it may not be feasible to separate the Appellate 
Body questions and participant answers into p ublic and BCI sessions".  While the United States 
indicates that it "remains open to any suggestions th at the Appellate Body may have to advance the 
systemic interest in transparency in a manner consis tent with the systemic interest in protecting BCI", 
the European Union "does not agree to open any pa rt of the question and answer session of the 
hearing to the public."  The participants propose to  deliver opening statements that do not contain BCI 
or HSBI.  They further propose that the third par ticipants would also agree to exclude any BCI from 
their opening statements.  Furthermore, the par ticipants propose that the opening statements be 
videotaped, reviewed if necessary by the participan ts for confirmation that neither BCI nor HSBI has 
been uttered (with any disagreements to be settled by  the Appellate Body), an d then be shown to the 
public in a separate room soon thereafter.  The partic ipants also propose that such an approach could 
be used for the closing statements, or at least that part of them that does not refer to BCI or HSBI.  
The participants attached to their joint letter dr aft additional procedures for the conduct of the oral 
hearings.   6. Comments on the request of the participants we re submitted by Australia, Brazil, Canada, and 
Japan.  Australia reiterates its support for the transp arency of WTO dispute settlement proceedings as 
a means of enhancing the credibility of the dispute se ttlement system.  Australia indicated that it "has 
no objection to making a statement or answering questi ons in an open hearing as a third participant".
4  
In addition, Australia suggests that the question and answer part of the oral hearings could be divided 
in a way that would facilitate transparency.  Au stralia notes that delayed transmission of the 
proceedings to the public could ensure that sens itive information is not disclosed inadvertently.  
Canada too reiterates its support for increased transp arency in the WTO dispute settlement process as 
a means to reinforce the legitimacy of this proce ss.  With respect to the protection of sensitive 
information during the oral hearings, Canada requ ests that any procedures adopted by the Appellate 
Body for the conduct of the oral hearings provide  that a single copy of the BCI version of the 
submissions filed in the appellate proceedings a nd a single copy of the BCI version of the Panel 
Report be made available to the third participants  during any BCI sessions of the oral hearings.  For 
its part, Brazil recalls that Article 17.10 of the DSU provides that the "proceedings of the Appellate 
Body shall be confidential", and reiterates its view  that these "proceedings" include the oral hearing 
and thus the DSU does not allow for public observati on.  Brazil agrees with Canada's proposal that 
third participants be allowed to vi ew the BCI version of the submissions filed in this appeal and the 
BCI version of the Panel Report during any BCI sessions of the oral hearings.  Finally, Japan supports 
the participants' request to allow public observation of  the oral hearings.  Japan indicates its readiness 
to make its opening and closing statements, and to answer questions, in a public session.  No 
comments in writing were received from China and Korea.  
                                                     
 
4Australia's comments dated 8 October 2010.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 639  
 
  7. Two issues are before us in relation to the c onduct of the oral hearings in this appeal.
5  First, 
we need to consider the implications for the conduct of the oral hearings of our Procedural Ruling of 
10 August 2010 concerning the protection of sensitive information.  Second, we must decide whether 
to authorize public observation of the oral hearings.  In deciding this second is sue, we must keep in 
mind any arrangements that we adopt to protect sensitive information during the oral hearings. 
 
8. In our Procedural Ruling of 10 August 2010, we  noted that the confidentiality requirements 
set out in Articles 17.10 and 18.2 of the DSU, and in paragraph VII:1 of the Rules of Conduct for the 
Understanding on Rules and Procedures Governing the Settlement of Disputes6, are stated at a level 
of generality that may need to be particularized in  situations in which the nature of the information 
provided requires more detailed arrangements to pr otect adequately the confidentiality of that 
information.  We further observed that the adoption of such arrangements falls within the authority of 
the Appellate Body to hear the a ppeal and to regulate its procedures in a manner that ensures that the 
proceedings are conducted with fairness and in an or derly manner.  In addition, we stated that the 
determination of whether particular arrangements are appropriate in a given case essentially involves 
a balancing exercise:  the risks associated with the disclosure of the information sought to be 
protected must be weighed against the degree to which the particular arrangements affect the rights and duties established in the DSU, th e other covered agreements, or the Working Procedures .  
Participants requesting particularized arrangeme nts have the burden of justifying that such 
arrangements are necessary in a given case to protect  adequately certain information, taking into 
account the rights and duties recognized in the DSU, the other covered agreements, and the Working 
Procedures . 
 9. Our Procedural Ruling of 10 August 2010 also  identified the rights and duties that are 
implicated where additional protection is under consider ation.  First, there is the overarching authority 
of the Appellate Body pursuant to Article 17 of the DSU to ensure proper adjudication of the dispute.  
Second, there are the rights of the participants to present their case, have their dispute adjudicated, and 
to enjoy due process throughout the proceedings.  Third,  there are the rights of the third participants 
who, in accordance with Article 17.4 of the DSU, "m ay make written submissions to, and be given an 
opportunity to be heard by, the Appellate Body."  Fina lly, we referred to the rights and interests of the 
WTO membership at large.    
10. We believe that the considerations that we set  out in our Procedural Ruling of 10 August 2010 
also apply to our decision concerning the conduct of the oral hearings in this appeal.   
Protection of Sensitive Informa tion during the Oral Hearings
 
11. Given the amount of information that was treated as BCI or HSBI during the Panel 
proceedings in this appeal, it is difficult to con ceive of how the oral hearings in these appellate 
proceedings can be conducted without referring to su ch information.  Even if the participants and 
third participants abstain from referring to BCI or HSBI in their opening and closing statements, it 
will be necessary to address BCI and HSBI in our questions and in the responses to these questions.  
Thus, in carrying out our adjudicative function, it w ill be necessary to conduct the oral hearings in a 
manner that allows us to explore issues that invol ve sensitive information, wh ile ensuring that this 
sensitive information is not improperly disclosed.  
                                                     
 
5We recall that we anticipate holding two oral hearings in this appeal as was indicated in our letter to 
the participants and third participants of 2 September 2010.  
6The Rules of Conduct , as adopted by the DSB on 3 December 1996 (WT/DSB/RC/1), were directly 
incorporated into the Working Procedures for Appellate Review  (WT/AB/WP/5), as Annex II thereto. (See 
WT/DSB/RC/2, WT/AB/WP/W/2)  WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 640  
 
  12. Oral hearings in appellate proceedings are c onducted in the presence of the participants and 
third participants in accordance with the Working Procedures .  It has not been our practice to interfere 
with the composition of the delegations of the partic ipants and third participants attending the oral 
hearings.  On the contrary, the Appellate Body has said that it could "find nothing in the  Marrakesh 
Agreement Establishing the World Trade Organization  ..., the DSU  or the Working Procedures , nor in 
customary international law or the prevailing prac tice of international tribunals, which prevents a 
WTO Member from determining the composition of its delegation in Appella te Body proceedings".
7  
Nevertheless, some limits may be required in this appeal to protect sensitive information. 
 13. The participants have indicated that they do not intend to refer to BCI or HSBI in their 
opening statements.  None of the third participants h as indicated that it intends to refer to BCI in its 
opening statement.  Given that it is unlikely that sen sitive information will be uttered in this segment 
of the oral hearings, we see no reason why all memb ers of delegations of the participants and third 
participants could not attend this segment of the or al hearings.  The participants have tentatively 
suggested that they will not refer to sensitive info rmation in their closing statements, but are less 
definitive in this respect.  To the extent that it is confirmed by the participants—and also the third 
participants indicate—that no sensitive information w ill be referred to in the closing statements, all 
members of the participants' and third participants' de legations may attend this final stage of the oral 
hearings.    14. We noted earlier that it will be necessary to address BCI and HSBI in our questions at the oral 
hearings.  Pursuant to paragraph 28(xiv) of our Procedural Ruling of 10 August 2010, the participants 
have provided a list of persons who are authorized to have access to BCI and a list with a more limited number of persons who are authorized to have access to HSBI.
8  These limitations on the 
participants' representatives who would be author ized to discuss BCI and HSBI during the oral 
hearings are incidental to the participants' request  for additional protection for sensitive information.  
Therefore, only members of the participants' delega tions who have been authorized to have access to 
BCI are invited to attend the sessions of the oral  hearings in which BCI will be discussed, and only 
members of their delegations who are authorized to have access to HSBI are invited to attend 
segments of the oral hearings where HSBI will be discussed.    15. Under paragraph 28(xvi) of the Procedural Ruli ng of 10 August 2010, the third participants 
have been allowed to designate up to six indivi duals as "Third Participant BCI-Approved Persons".  
This provides for a higher number of designated indi viduals compared to what was proposed by the 
participants.  We note that none of the third partic ipants has indicated that the number of individuals 
who could be designated as Third Participant BCI-Approved Persons w as inadequate for them to be 
represented properly at the oral hearings.  In view of the need to provide ad ditional protection to BCI, 
only Third Participant BCI-Approved Persons are inv ited to attend segments of the oral hearings 
where BCI may be discussed, including the question and answer sessions.  For the reasons stated 
above, we do not consider that this  will unduly impinge upon the rights of  the third participants in this 
case.  
                                                     
 
7Ruling of 15 July 1997, quoted in Appellate Body Report, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas , WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591, 
para. 10. 
8In a letter dated 27 October 2010, the Division authorized certain changes to the European Union's list 
of BCI- and HSBI-Approved Persons, and a change to Canada's list of Third Participant BCI-Approved Persons.   BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 641  
 
  16. Canada has requested that third participants ha ve access to the BCI version of the submissions 
filed in this appeal and the BCI version of the Pa nel Report during any segments of the oral hearings 
in which BCI is discussed.  Brazil has indicated it s support for Canada's request.  Pursuant to our 
Procedural Ruling of 10 August 2010, Third Participant BCI-Appr oved Persons have had access to 
the BCI version of the submissions filed in this a ppeal and the BCI version of the Panel Report in a 
designated reading room.  We agree that access to th ese documents at the oral hearings will facilitate 
the participation of the third participants during th e discussions involving BCI.  At the same time, we 
do not consider that giving Third Participant BCI-A pproved Persons' access to these documents at the 
oral hearings will bring an increased risk of unautho rized disclosure.  Hence, we will provide the third 
participants the BCI version of the submissions file d in this appeal and the BCI version of the Panel 
Report in the hearing room during the BCI sessions.  Third participants will be provided with a single 
copy of these documents, individua lly watermarked.  Access to these documents will be limited to 
Third Participant BCI-Approved Persons.  17. Third participants do not have access to HSBI  under our Procedural Ruling of 10 August 
2010.
9  We also observe that, in the present case, none of the third participants had expressed specific 
concerns in their written comments or at the speci al oral hearing about not having access to the most 
sensitive information.  On the contrary, several thir d participants expressed support, in principle, for 
the limitation on access to the most sensitive informa tion.  None of the third participants has 
expressed a different view concerning access to HSBI during the oral hearings.  In the light of the above, only HSBI-Approved Persons of the participan ts are invited to attend segments of the oral 
hearings in which HSBI will be discussed. 
 18. The participants have proposed two options fo r addressing HSBI during the oral hearings.  
The first involves interrupting the oral hearing each  time reference will be made to HSBI, the second 
option involves having dedicated sessions to discu ss HSBI.  We think it is important that any 
additional procedures to protect sensitive inform ation should interfere as little as possible with the 
regular conduct of the oral hearings and allow th e Division to organize its questions logically by 
topics.  Therefore, to the extent possible, we pref er to focus on HSBI in dedicated sessions in order to 
avoid interrupting the regular flow of the oral heari ngs.  It may be, however, that the full exploration 
of an issue will not allow for deferral of the discussi on of HSBI.  If such circumstances arise, we do 
not exclude the possibility of interrupting the oral  hearings to discuss the HSBI with the persons 
approved to have access to it.  
 
                                                     
 
9We recognized at the time that, under Article 17.4 of the DSU and Rule 24 of the Working 
Procedures , third participants may make written submissions to, and be given an opportunity to be heard by, the 
Appellate Body.  Rule 18(2) of the Working Procedures  furthermore provides that, "{e}xcept as otherwise 
provided in these Rules, every document filed by ... a par ticipant ... or a third participant shall be served on each 
of the ... third participants in the ap peal".  However, we noted that the rights of third participants are more 
limited than those of the participants, and that the thir d participants' interests lie mainly in the correct legal 
interpretation of the provisions of the WTO agreements.  See paragraph 9 of the Pr ocedural Rulin g issued in 
United States – Continued Suspension of Obligations in the EC – Hormones Dispute  and Canada – Continued 
Suspension of Obligations in the EC – Hormones Dispute , attached as Annex IV to the Appellate Body Reports, 
WT/DS320AB/R and WT/DS321/AB/R, respectively. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 642  
 
  Request for Public Observation of the Oral Hearings
 
19. Turning to the participants' request to authorize observation of the oral hearings by the public, 
we recall that requests to allow public observation of the oral hearing have been made, and have been 
authorized, in six appellate proceedings.10  In its rulings, the Appellate Body has held that it has the 
power to authorize such requests by the partic ipants, provided that this does not affect the 
confidentiality in the relationship between the third pa rticipants and the Appellate Body, or impair the 
integrity of the appellate process. 
 
20. The Appellate Body has also noted that public observation in previous cases operated 
smoothly, and that the rights of third participants w ho did not wish to have their oral statements made 
subject to public observation were fully protected.  
21. Particular issues arise in this appeal in relati on to the public observation of the oral hearings 
because of the need to provide additional prot ection to certain sensitive information.  More 
specifically, neither participant wishes to see a ny BCI or HSBI disclosed to the public.  The 
participants have proposed that the public be allo wed to observe the opening statements and, to the 
extent that they do not include any sensitive inform ation, the closing statements.  The European Union 
has asserted that it "does not agree to open any part  of the question and answer session of the hearing 
to the public."  For its part, the United States has in dicated that it "remains open to any suggestions 
that the Appellate Body may have to advance the systemic interest in transparency in a manner 
consistent with the systemic interest in protecting BCI."  22. We note that the European Union's and the Unite d States' request for authorization of public 
observation of the oral hearings is a joint request only with respect to the opening statements and, 
with a caveat, the closing statements.  Althou gh we have some reserv ations about an overly 
segmented approach to public observation because it risks providing an incomplete picture of the 
Appellate Body hearings, we also recall that the need to protect sensitive information in this case 
raises particular concerns with respect to the obser vation of the oral hearings by the public.  In the 
light of the above, we authorize the public observa tion of only the opening statements.  We will 
authorize public observation of the closing statemen ts of participants upon indication from them that 
they will not include any references to sensitive information in them.  23. Some of the third participants have stated that they do not intend to refer to sensitive 
information in their opening statements and they have no objection to allowing public observation of 
these statements.  Accordingly, we authorize the ob servation by the public of the opening statements 
of those third participants who have not indicated any objection to doing so.  We will also authorize 
public observation of the closing statements of a th ird participant provided that the third participant 
indicates that it will not include any reference to sensitive information in such statements.  The 
confidentiality of closing statements by third particip ants who do not wish to make their statements 
public will be preserved. 
                                                     
 
10These proceedings are:  United States – Continued Suspension of Obligations in the EC – Hormones 
Dispute  (WT/DS320AB/R) and Canada – Continued Suspension of Obligations in the EC – Hormones Dispute 
(WT/DS321/AB/R);  European Communities – Regime for the Importation, Sale and Distribution of Bananas – 
Second Recourse to Article 21.5 of the DSU by Ecuador (WT/DS27/AB/RW2/ECU) and European 
Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the 
DSU by the United States  (WT/DS27/AB/RW/USA);  United States – Continued Existence and Application of 
Zeroing Methodology (WT/DS350/AB/R);  United States – Laws, Regulations and Methodology for Calculating 
Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU by the European Communities  
(WT/DS294/AB/RW);  United States – Measures Relating to Zeroing and Sunset Reviews – Recourse to 
Article 21.5 of the DSU by Japan  (WT/DS322/AB/RW);  and Australia – Measures Affecting the Importation of 
Apples from New Zealand  {WT/DS367/AB/R}.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 643  
 
   
24. In previous appeals in which we have authorized  public observation of the oral hearing, this 
has been done by simultaneous transmission to the public in a separate room via closed-circuit 
television broadcast.  In this appeal, the participan ts have proposed that public observation take place 
by making a videotape of the relevant segments of the oral hearings and showing it to the public soon 
thereafter, after the participants have had an oppor tunity to check for any inadvertent utterance of 
sensitive information.  We agree with the particip ants that deferred transmission to the public by 
videotape would minimize the risk of inadvertent di sclosure of sensitive information and we will give 
the participants an opportunity to review the vide otape for this purpose before it is shown to the 
public.  In case of disagreement between the particip ants regarding the sensitive nature of certain 
information referred to during the opening or closing statements, that information will not be subject 
to public observation.  25. For the reasons set out above, we have d ecided to provide additional confidentiality 
protection for certain sensitive information during the oral hearings to be held in this appeal on the 
terms set out below.  We also authorize the public observation of certain segments of the oral hearings 
as further indicated below.  Accordingly, we adopt the following additional procedures for the 
purposes of this appeal:  
Additional Procedures on the Conduct of the Oral Hearings
 
 
Protection of Sensitive Information During the Oral Hearings  
 (i) These additional procedures shall apply to the oral he arings to be held in this appeal and, in 
particular, to any information that is referred to in the oral hearings that was treated as 
business confidential information ("BCI") or  as highly sensitive business information 
("HSBI") in the Panel proceedings and that is contained in documents or electronic media that 
are part of the Panel record.  These add itional procedures complement the additional 
procedures for the protection of sensitive info rmation that we adopted as part of our 
Procedural Ruling of 10 August 2010. 
(ii) To the extent that information on the record is presented at the oral hearings in a form that 
differs from the way in which it was presented to the Panel, and there is a disagreement 
between the participants on the proper treatment  of the degree of confidentiality of this 
information, the Appellate Body shall decide  the matter after hearing the views of the 
participants.
11   
 
(iii) Appellate Body Members, Secretariat staff assi gned by the Appellate Body to work on this 
appeal, and interpreters and court reporters retained for this appeal, may be present 
throughout the oral hearings, including segments dedicated to the discussion of BCI and HSBI.  
(iv) In addition to the persons indicated in subpara graph (iii) above, BCI shall be disclosed during 
the oral hearings only to BCI-Approved Persons  of the participants and Third Participant 
BCI-Approved Persons.
12 
 
                                                      
11See Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain 
Agricultural Products , WT/DS207/AB/R, adopted 23 October 2002, DSR 2002:VIII, 3045, para. 13. 
12BCI-Approved Persons and Third Participant BCI-Approved Persons are those persons designated as 
such under paragraphs 28(xiv) and 28(xvi) of our Procedural Ruling of 10 August 2010. WT/DS316/AB/R BCI deleted, as indicated [***] 
Page 644  
 
  (v) In addition to the persons indicated in subpara graph (iii) above, HSBI shall be disclosed 
during the oral hearings only to HSBI-Approved Persons of the participants.
13 
 (vi) The oral hearing session dedicated to the opening  statements of the participants and third 
participants shall be open to all members of  the delegations of participants and third 
participants.  The participants and third par ticipants shall abstain from referring to BCI or 
HSBI in their opening statements.   
(vii) In order to protect BCI from unauthorized disclosure, only BCI-Approved Persons of the 
participants and Third Participant BCI-Approve d Persons are invited to attend the question 
and answer sessions.   
 
(viii) Segments of the oral hearing may be reserve d for questioning on issues that may require 
making reference to HSBI.  In order to protect HSBI from unauthorized disclosure, only HSBI-Approved Persons of the participan ts are invited to attend these sessions. 
 
(ix) To the extent that any participant or third pa rticipant indicates that it will make reference to 
BCI in its closing statement, only BCI-Approve d Persons of the participants and Third 
Participant BCI-Approved Persons will be i nvited to attend the closing sessions.   
 
(x) If necessary, the Division hearing this appeal may interrupt a BCI session and hold a session 
dedicated to HSBI. 
 
(xi) During the sessions of the oral hearings that address BCI, each third participant shall be 
provided with a copy of the BCI version of  the Panel Report and a BCI version of the 
submissions filed in this appeal, which have  been printed and individually watermarked 
pursuant to paragraph 28(xvii) of our Proce dural Ruling of 10 August 2010.  Only Third 
Participant BCI-Approved Persons shall be a llowed to consult these documents.  The 
documents shall not be removed from the hearing room and shall be returned to the Appellate 
Body Secretariat at the end of each session addressing BCI.   
(xii) The version of the transcript of the oral heari ngs containing BCI and HSBI shall become part 
of the appellate record and shall be kept in  accordance with the add itional procedures for the 
protection of sensitive information set out in s ubparagraphs 28(vi), (vii), and (ix)-(xii) of our 
Procedural Ruling of 10 August 2010.    
Public Observation of the Oral Hearings
 
 
(xiii) The first session of the oral hearings, whic h will consist of the opening statements by 
participants and third participants, shall be open to public observation.  The final session of 
the oral hearings, which will be reserved for closing statements, shall be open to public 
observation to the extent that the participants a nd third participants indicate that such closing 
statements will not refer to any sensitive information on record.  
 
(xiv) The sessions open to public observation shall be  videotaped.  The participants shall be 
allowed to review the videotapes to verify  that BCI or HSBI has not been included 
inadvertently or otherwise.  Staff of the Appella te Body Secretariat shall be present while the 
participants review the videotape.  If the vide otape contains BCI or HSBI, a redacted version 
of the videotape shall be produced in which the BCI or HSBI has been deleted.  In case of 
disagreement between the participants regardi ng the sensitive nature of certain information 
                                                      
13HSBI-Approved Persons are those persons designated as such under paragraph 28(xiv) of our 
Procedural Ruling of 10 August 2010.  BCI deleted, as indicated [***] WT/DS316/AB/R 
  Page 645  
 
  referred to during the opening or closing statements, the relevant segment(s) will not be 
subject to public observation.  
(xv) The opening and closing statements of thir d participants wishing to maintain the 
confidentiality of their submissions will not be  subject to public observation.  Any third 
participant who has not already done so may request that its oral statements remain 
confidential and not be subject to public observati on.  Such requests must be received by the 
Appellate Body Secretariat no later than 5 p.m. Geneva time on Monday, 8 November 2010
.  
 
(xvi) Notice of the oral hearings will be provided to  the general public through the WTO website.  
Members of the general public wishing to obser ve the oral hearings will be required to 
register in advance with the WTO Secretariat.   Once the review process referred to in 
subparagraph (xiv) above has been completed, th e redacted version of the videotape shall be 
screened to WTO delegates and members of the public who have registered to observe the 
oral hearings.  The time and location of th e videotape screening shall be announced in due 
course.  WTO Delegates are invited to indicate to the Appellate Body Secretariat, no later 
than 5 p.m. Geneva time on Monday, 8 November 2010 , whether they wish to have a reserved 
seat in the room where the videotape will be screened.  
   
_________