WORLD TRADE  
ORGANIZATION   
WT/DS353/AB/R 
12 March 2012 
 (12-1313) 
 Original:   English 
  
 
     
 
    
 
  
UNITED STATES – MEASURES AFFECTING TRADE  
IN LARGE CIVIL AIRCRAFT  
(SECOND COMPLAINT) 
 
 
 
AB-2011-3 
 
   
 
Report of the Appellate Body 
 
  
 
 
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  I. Introduction ............................................................................................................... .................. 1 
A. The European Communities' Claims before the Panel  .................................................. 6 
B. The Panel's Findings  ..................................................................................................... 8 
C. Appellate Proceedings  ................................................................................................. 15 
II. Arguments of the Participants and the Third Participants ........................................................ 20 
A. Claims of Error by the European Union – Appellant  .................................................. 20 
1. Annex V to the SCM Agreement  ..................................................................... 20 
2. Financial Contribution – Scope  of Article 1.1(a)(1) of the 
SCM Agreement  .............................................................................................. 24 
3. Specificity – Allocation of Patent Rights ........................................................ 28 
4. Adverse Effects ............................................................................................... 31 
(a) Collective assessment of the aeronautics R&D subsidies and 
the B&O tax rate reductions  and their effects .................................... 31 
(b) Collective assessment of the tied tax subsidies and the 
remaining subsidies and their effects ................................................. 35 
5. Article 11 of the DSU ..................................................................................... 37 
B. Arguments of the United States – Appellee  .................................................................. 38 
1. Annex V to the SCM Agreement  ..................................................................... 38 
2. Financial Contribution – Scope  of Article 1.1(a)(1) of the 
SCM Agreement  .............................................................................................. 44 
3. Specificity – Allocation of Patent Rights ........................................................ 48 
4. Adverse Effects ............................................................................................... 51 
(a) Collective assessment of the aeronautics R&D subsidies and 
the B&O tax rate reductions  and their effects .................................... 51 
(b) Collective assessment of the tied tax subsidies and the 
remaining subsidies and their effects ................................................. 55 
5. Article 11 of the DSU ..................................................................................... 57 
C. Claims of Error by the United States – Other Appellant  ............................................. 59 
1. NASA Procurement Contracts and USDOD Assistance Instruments ............ 59 
(a) Financial contribution – Application of the "purchase of 
services" test ...................................................................................... 59 
(b) Benefit................................................................................................ 66 
2. Washington State B&O Tax Rate Reduction .................................................. 71 
(a) Financial contribution – Revenue foregone ....................................... 71 
(b) Specificity – Article 2.1(a) of the SCM Agreement  ........................... 75 
3. City of Wichita Industrial Reve nue Bonds (IRBs) – Specificity .................... 77 
4. Adverse Effects ............................................................................................... 80 
(a) Technology effects of the ae ronautics R&D subsidies ...................... 80 
(b) Price effects of the tied tax subsidies ................................................. 94 
D. Arguments of the European Union – Appellee  .......................................................... 103 
1. NASA Procurement Contracts and USDOD Assistance Instruments .......... 103 
(a) Financial contribution – Application of the "purchase of 
services" test .................................................................................... 103 
(b) Benefit.............................................................................................. 110 WT/DS353/AB/R BCI deleted, as indicated [***] 
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  2. Washington State B&O Tax Rate Reduction ................................................ 117 
(a) Financial contribution – Revenue foregone ..................................... 117 
(b) Specificity – Article 2.1(a) of the SCM Agreement  ......................... 119 
3. City of Wichita Industrial Reve nue Bonds (IRBs) – Specificity .................. 121 
4. Adverse Effects ............................................................................................. 124 
(a) Technology effects of the ae ronautics R&D subsidies .................... 124 
(b) Price effects of the tied tax subsidies ............................................... 133 
E. Arguments of the Third Participants  .......................................................................... 145 
1. Australia ........................................................................................................ 145 
(a) Financial c ontribution ...................................................................... 145 
(b) Specificity ........................................................................................ 149 
(c) Adverse effects ................................................................................ 150 
2. Brazil ............................................................................................................. 153 
(a) Annex V to the SCM Agreement  ...................................................... 153 
(b) Financial contribution ...................................................................... 154 
(c) Specificity ........................................................................................ 155 
(d) Adverse effects ................................................................................ 155 
3. Canada .......................................................................................................... 158 
(a) Annex V to the SCM Agreement  ...................................................... 158 
(b) Financial contribution ...................................................................... 158 (c) Specificity ........................................................................................ 159 
(d) Adverse effects ................................................................................ 160 
4. China ............................................................................................................. 162 
(a) Annex V to the SCM Agreement  ...................................................... 162 
(b) Specificity ........................................................................................ 163 (c) Adverse effects ................................................................................ 164 
5. Japan ............................................................................................................. 164 
(a) Specificity ........................................................................................ 164 (b) Adverse effects ................................................................................ 165 
6. Korea ............................................................................................................. 170 
(a) Annex V to the SCM Agreement  ...................................................... 170 
(b) Specificity ........................................................................................ 171 
(c) Adverse effects ................................................................................ 171 
III. Issues Raised in This Appeal ............................................................................................. ..... 172 
IV. The Measure s at Issue ..................................................................................................... ........ 177 
A. Introduction  ............................................................................................................... 177 
B. US Federal Government Measures  ............................................................................ 177 
1. Aeronautics R&D Measures ......................................................................... 178 
(a) NASA .............................................................................................. 178 (b) USDOD............................................................................................ 180 
2. Allocation of Patent Rights ........................................................................... 182 3. FSC/ETI and Successor Legislation ............................................................. 185 
(a) Provisions of the US Internal Revenue Code relating to FSCs ....... 186  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (b) FSC Repeal and Extraterritorial Income Exclusion Act of 2000 ..... 187 
(c) American Jobs Crea tion Act of 2004 ............................................... 187 
(d) Tax Increase Prevention and Reconciliation Act of 2005................ 188 
C. State and Local Measures  .......................................................................................... 189 
1. State of Washington ...................................................................................... 189 
(a) Measures under H ouse Bill 2294 ..................................................... 189 
(b) City of Everett local B&O tax rate reduction .................................. 192 
(c) Project Olympus Master Site Agreement ........................................ 193 
2. Wichita (Kansas) Industr ial Revenue Bonds ................................................ 194 
3. State of Illinois .............................................................................................. 196 
V. Procedures under Annex V to the SCM Agreement  ................................................................ 198 
A. Introduction  ............................................................................................................... 198 
B. The Panel's Preliminary Ruling  ................................................................................. 198 
C. Overview of the Claims and Arguments on Appeal  ................................................... 201 
D. Evaluation of the European Union's Claim of Error on Appeal  ................................ 204 
1. The European Union's Request for Reversal of the Panel's Findings in 
Paragraph 7.22 of th e Panel Report .............................................................. 204 
2. The European Union's Request for Completion of the Analysis .................. 208 
(a) Interpretation of relevant provisions of the SCM Agreement 
and the DSU ..................................................................................... 208 
(b) The European Union's remaining requests for completion of 
the analysis ....................................................................................... 221 
(c) The European Union's additional requests ....................................... 227 
E. Conclusion  ................................................................................................................. 228 
VI. NASA Procurement Contracts and USDOD Assistance Instruments ..................................... 229 
A. Financial Contribution  .............................................................................................. 229 
1. Introduction ................................................................................................... 229 
2. The Panel's Findings ..................................................................................... 230 
(a) The Panel's interpretation of Article 1.1(a)(1)(i) of the 
SCM Agreement  ............................................................................... 231 
(b) The Panel's assessment of the NASA measures .............................. 234 (c) The Panel's assessment of the USDOD measures ........................... 238 
3. The Panel's General Approach ...................................................................... 242 
4. What is the Proper Characterization of the NASA/USDOD Measures at 
Issue? ............................................................................................................ 246 
(a) NASA procurement contracts .......................................................... 246 (b) USDOD assistance instruments ....................................................... 250 
(c) The Panel's description of the transactions in its analysis of 
serious prejudice .............................................................................. 252 
(d) Summary of the main characteristics of the measures ..................... 253 
5. The Types of Financial Contributions Covered by Article 1.1(a)(1) of 
the SCM Agreement  ...................................................................................... 254 WT/DS353/AB/R BCI deleted, as indicated [***] 
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  6. Do the NASA and USDOD Measure s Raised on Appeal Constitute  
Financial Contributions within the M eaning of Article 1.1(a)(1) of the 
SCM Agreement ? .......................................................................................... 258 
B. Benefit  ........................................................................................................................ 260 
1. The Panel's Findings ..................................................................................... 260 
(a) NASA .............................................................................................. 260 
(b) USDOD............................................................................................ 261 
2. Did the Panel Err in De termining Benefit? ................................................... 263 
C. Scope of the Panel's Benefit Findings as regards the NASA Measures  ..................... 278 
1. The Panel's Findings ..................................................................................... 279 
2. Is the United States' Claim Properly w ithin the Scope of This Appeal? ....... 283 
3. Did the Panel Err under Article 1.1(b) of the SCM Agreement ? ................... 286 
D. Article 11 of the DSU – Amount of USDOD R&D Funding Potentially 
Relevant to LCA  ......................................................................................................... 290 
1. The Panel's Findings ..................................................................................... 291 
2. Did the Panel Make an Objec tive Assessment of the Matter under 
Article 11 of the DSU in Making the Challenged Statement? ...................... 293 
VII. NASA/USDOD Allocation of Pa tent Rights – Specificity ..................................................... 300 
A. Introduction  ............................................................................................................... 300 
B. The Panel's Findings  ................................................................................................. 303 
C. The Panel's Arguendo Approach  ............................................................................... 306 
D. Did the Panel Err in the Interpretation of Article 2.1(a) of the 
SCM Agreement?  ....................................................................................................... 308 
E. Did the Panel Err in the Application of Article 2.1(a) of the 
SCM Agreement?  ....................................................................................................... 313 
F. Did the Panel Err by Failing to Address the European Communities' 
Allegation of De Facto Specificity under Article 2.1(c)?  ........................................... 327 
VIII. Washington State Business and Occ upation (B&O) Tax Rate  Reduction .............................. 331 
A. Financial Contribution – Revenue Foregone  ............................................................ 331 
1. The Panel's Findings ..................................................................................... 331 2. When Does a Government Fore go Revenue Otherwise Due? ...................... 334 
3. Assessment of the Panel's Analysis  under Article 1.1(a)(1)(ii) of the 
SCM Agreement  ............................................................................................ 338 
B. Specificity  ................................................................................................................... 344 
1. The Panel's Findings ..................................................................................... 345 2. Assessment of the Panel's Analysis under Article 2.1(a) of the 
SCM Agreement  ............................................................................................ 347 
IX. City of Wichita Industrial Reve nue Bonds (IRBs) – Specificity ............................................ 355 
A. Background  ................................................................................................................ 355 
B. The Panel's Findings  ................................................................................................. 355 
C. Assessment of the Panel's Analysis under Article 2.1(c) of the 
SCM Agreement  ......................................................................................................... 359 
X. Adverse Effects ............................................................................................................ ........... 367 
A. Introduction  ............................................................................................................... 367  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  1. Background Information ............................................................................... 371 
(a) Relevant markets, the refe rence period, and the temporal 
assessment of relevant market phenomena ...................................... 371 
(b) Key aspects of the LCA industry ..................................................... 374 
2. The Panel's Approach to Causation .............................................................. 378 
3. The Panel's Analysis of "Technolog y Effects" and "Price Effects" .............. 382 
(a) The Panel's analysis of the "technology effects" of the 
aeronautics R&D subsidies .............................................................. 382 
(b) The Panel's analysis of the "price effects" of the subsidies ............. 384 
4. Order of Analysis of the Issues on Appeal Relating to the Panel's 
Serious Prejudice Findings ........................................................................... 385 
B. Technology Effects  ..................................................................................................... 385 
1. Introduction ................................................................................................... 385 2. Background Information regarding the Boeing 787 ..................................... 387 3. The Panel's Analysis of the Effects of the Aeronautics R&D Subsidies 
on Boeing ...................................................................................................... 389 
4. The United States' Appeal............................................................................. 394 5. Specific Grounds of Appeal Raised by the United States ............................. 398 
(a) Whether the Panel erred by "extrapolating findings" with 
respect to three NASA composites programmes to all of the R&D programmes ............................................................................ 398 
(b) Whether the Panel erred by not finding that the NASA 
research was too far removed from the commercial technologies used on the 787 ........................................................... 405 
(c) Whether the Panel erred in its appreciation of the role of 
Boeing and its suppliers in the development of the 
technologies used on the 787 ........................................................... 409 
(d) Whether the Panel erred in its appreciation of the relevance of 
NASA's public dissemination of the results of the NASA R&D ..... 417 
(e) Whether the Panel erred in its assessment of the magnitude of 
the NASA aeronautics R&D subsidies ............................................ 420 
(f) Conclusion ....................................................................................... 422 
6. The Panel's Counterfactual Analysis ............................................................ 423 
(a) Introduction ...................................................................................... 423 (b) The Panel's counterfactual analysis:  the first stage ......................... 428 (c) The Panel's counterfactual analysis:  the second stage .................... 432 
7. The Panel's Analysis of the Effects of the Aeronautics R&D Subsidies 
on Airbus ...................................................................................................... 434 
8. The United States' Appeal relating to the Second Stage of the Panel's 
Analysis of the Technology Effects of the Aeronautics R&D Subsidies...... 438 
(a) Significant lo st sales ........................................................................ 439 
(b) Threat of displacement and impedance............................................ 445 (c) Significant price suppression ........................................................... 454 
(d) Conclusion ....................................................................................... 468 
C. Article 11 of the DSU  ................................................................................................. 469 WT/DS353/AB/R BCI deleted, as indicated [***] 
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  D. Price Effects  ............................................................................................................... 478 
1. Background on the 100-200 Seat a nd 300-400 Seat LCA Markets .............. 479 
(a) 100-200 seat LCA market ................................................................ 480 (b) 300-400 seat LCA market ................................................................ 481 
2. The European Communities' Price Ef fects Claim before the Panel.............. 481 
3. The Panel's Analysis and Findings ............................................................... 485 
4. Assessment of the Panel's Causation Analysis under Articles 5(c) 
and 6.3(b) and (c) of the SCM Agreement  .................................................... 492 
(a) Whether the Panel conducted a proper causation analysis .............. 492 
(b) Whether the Panel conducted a proper analysis of significant 
price suppression, significant lost sales, and displacement and 
impedance ........................................................................................ 507 
(c) Overall assessment of the Panel's analysis of the price effects 
of the tied tax subsidies .................................................................... 518 
(d) Completion of the analysis .............................................................. 519 
5. Conclusion .................................................................................................... 533 
E. Collective Assessment of the Subsidies and Their Effects  .......................................... 533 
1. Introduction ................................................................................................... 533 2. Assessment of the European Union's Claims of Error on Appeal ................ 536 
(a) Introduction ...................................................................................... 536 (b) Different approaches to collective assessment ................................ 537 
(c) The approach taken by the Panel to a collective assessment of 
the effects of the subs idies at issue .................................................. 543 
(d) Whether the Panel erred in d eclining to assess collectively the 
effects of the aeronautics R&D subsidies and the effects of the B&O tax rate reductions .................................................................. 546 
(e) Whether the Panel erred in d eclining to assess collectively the 
effects of the tied tax subsidies and the effects of the remaining subsidies ........................................................................................... 555 
3. Conclusion .................................................................................................... 568 
XI. Findings and Conclusions .................................................................................................. ..... 569 
 
ANNEX I Notification of an A ppeal by the European Union 
ANNEX II Notification of an Other Appeal by the United States ANNEX III Procedural Ruling and Additional Pr ocedures to Protect Sensitive Information 
ANNEX IV Procedural Ruling and Additional Procedures on the Conduct of the Oral Hearing ANNEX V HSBI Annex  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  CASES CITED IN THIS REPORT 
 
Short Title Full case title and citation 
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) Panel Report, Brazil – Export Financing Programme for Aircraft – Recourse 
by Canada to Article 21.5 of the DSU , WT/DS46/RW, adopted 4 August 
2000, as modified by Appellate Body Report WT/DS46/AB/RW, DSR 2000:IX, 4093 
Brazil – Aircraft 
(Article 21.5 – Canada II) Panel Report, Brazil – Export Financing Programme for Aircraft – Second 
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/RW/2, adopted  
23 August 2001, DSR 2001:X, 5481 
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 – 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 
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 D ecember 2001, DSR 2001:XIII, 6829 
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 – 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 – 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 
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 WT/DS353/AB/R BCI deleted, as indicated [***] 
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  Short Title Full case title and citation 
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 Appellate Body Report, European Communities – Anti-Dumping Duties on 
Imports of Cotton-Type Bed Linen from India , WT/DS141/AB/R, adopted  
12 March 2001, DSR 2001:V, 2049 
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 – 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 – Countervailing Measures on DRAM Chips Panel Report, European Communities – Countervailing Measures on 
Dynamic Random Access Memory Chips from Korea , WT/DS299/R, adopted 
3 August 2005, DSR 2005:XVIII, 8671 
EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping 
Measures on Certain Iron or Steel Fasteners from China , WT/DS397/AB/R, 
adopted 28 July 2011 
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 – 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 Appellate Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R, adopted 
1 June 2011 
EC and certain member States – Large Civil Aircraft Panel Report, European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , WT/DS316/R, adopted 1 June 2011, 
as modified by Appellate Body Report, WT/DS316/AB/R 
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 
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R, adopted 16 January 1998, 
DSR 1998:I, 9  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Short Title Full case title and citation 
India – Quantitative 
Restrictions Appellate Body Report, India – Quantitative Restrictions on Imports of 
Agricultural, Textile and Industrial Products , WT/DS90/AB/R, adopted  
22 September 1999, DSR 1999:IV, 1763 
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 
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 
Norway – Trondheim Toll Ring  GATT Panel Report, Panel on Norwegian Procurement of Toll Collection 
Equipment for the City of Trondheim , GPR.DS2/R, adopted 13 May 1992, 
BISD 40S/319 
Thailand – Cigarettes 
(Philippines) Appellate Body Report, Thailand – Customs and Fiscal Measures on 
Cigarettes from the Philippines , WT/DS371/AB/R, adopted 15 July 2011 
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/DS353/AB/R BCI deleted, as indicated [***] 
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  Short Title Full case title and citation 
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 Zeroing Appellate Body Report, United States – Continued Existence and Application 
of Zeroing Methodology , WT/DS350/AB/R, adopted 19 February 2009 
US – Continued Zeroing Panel Report, United States – Continued Existence and Application of 
Zeroing Methodology , WT/DS350/R, adopted 19 February 2009, as modified 
as Appellate Body Report WT/DS350/AB/R 
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 – 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 Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 
1619 
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/R, adopted 20 March 2000, as modified by 
Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, 1675 
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Article 21.5 of the DSU by the 
European Communities , WT/DS108/AB/RW, adopted 29 January 2002, DSR 
2002:I, 55 
US – FSC 
(Article 21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Article 21.5 of the DSU by the 
European Communities , WT/DS108/RW, adopted 29 January 2002, as 
modified by Appellate Body Report WT/DS108/AB/RW, DSR 2002:I, 119 
US – FSC 
(Article 21.5 – EC II) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Second Recourse to Article 21.5 of the DSU by the 
European Communities , WT/DS108/AB/RW2, adopted 14 March 2006, DSR 
2006:XI, 4721 
US – FSC 
(Article 21.5 – EC II) Panel Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Second Recourse to Article 21.5 of the DSU by the 
European Communities , WT/DS108/RW2, adopted 14 March 2006, as 
upheld by Appellate Body Report WT/DS108/AB/RW2, DSR 2006:XI, 4761 
US – FSC 
(Article 22.6 – US) Decision by th e Arbitrator, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Arbitration by the United States under 
Article 22.6 of the DSU and Article 4.11 of the SCM Agreement , 
WT/DS108/ARB, 30 August 2002, DSR 2002:VI, 2517 
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)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page xi  
 
  Short Title Full case title and citation 
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 – Large Civil Aircraft  United States – Measures Affecting Trade in Large Civil Aircraft , WT/DS317 
US – Large Civil Aircraft  
(2nd complaint) Panel Report, United States – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/R, circulated to WTO Members  
31 March 2011  
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 – 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 – Section 211 Appropriations Act Appellate Body Report, United States – Section 211 Omnibus Appropriations 
Act of 1998 , WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, 589 
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 – 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 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 – Sonar Mapping  GATT Panel Report, United States – Procurement of a Sonar Mapping 
System , GPR.DS1/R, 23 April 1992, unadopted
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 
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 WT/DS353/AB/R BCI deleted, as indicated [***] 
Page xii HSBI omitted, as indicated [[HSBI]]  
 
  Short Title Full case title and citation 
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 – 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 
  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page xiii  
 
  ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation Description 
1983 Presidential 
Memorandum Memorandum to the Heads of Execu tive Departments and Agencies: 
Government Patent Policy, Pub lic Papers 248, 18 February 1983 
(Panel Exhibit EC-560) 
1987 Executive Order Executive Order 1259 1, Facilitating Access to Science and 
Technology, 10 April 1987 (Panel Exhibit EC-561) 
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 
ACT programme NASA Advanced Composites Technology Program 
Additional Procedures Additional Procedures to Protect Sensitive Information adopted by the 
Appellate Body Division in its Pr ocedural Ruling dated 15 April 2011 
(contained in Annex III to this Report) 
AJCA American Jobs Creation Act of 2004, Public Law No. 108-357,   
118 Stat. 1418 (Panel Exhibit EC-626) 
Anti-Dumping Agreement Agreement on Implementati on of Article VI of the General Agreement 
on Tariffs and Trade 1994 
AS programme NASA Aviation Safety Program 
AST programme NASA Advanced Subsonic Technology Program 
ATCAS Advanced Composite Technology Fuselage Program 
ATP USDOC Advanced Technology Program  
B&O business and occupation 
B&P bid and proposal 
Bayh-Dole Act  Patent and Trademark Law Amendments Act of 1980, codified at 
United States Code , Title 35, chapter 18, sections 200-212  
(Patent Rights in Inventions Made with Federal Assistance)  (Panel Exhibit EC-558)  
BCA Boeing Commercial Airplanes  
BCI business confidential information   
Board NASA Inventions and Contributions Board 
Cabral model Economic model developed by Luis M.B. Cabral, Professor of 
Economics at New York University's Stern School of Business, in the Cabral Report   
Cabral Report Professor L.M.B. Cabral, "Impact of Development Subsidies Granted 
to Boeing" (New York University and CEPR, March 2007)  (Panel Exhibit EC-4) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page xiv HSBI omitted, as indicated [[HSBI]]  
 
  Abbreviation Description 
CHRA Corporate Headquarters Relocation Act of 2001, Illinois Public 
Act 92-0207 (Panel Exhibit EC-216) 
DSB Dispute Settlement Body 
DUS&T programme  USDOD Dual Use Science and Technology Program  
EDGE Economic Development for a Growing Economy 
ETI extraterritorial income 
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of 2000,  
Public Law No. 106-519, 114 Stat. 2423 (Panel Exhibit EC-625) 
FAR Federal Acquisition Regulation 
FIP foreground intellectual property 
FPDS Federal Procurement Data Base 
FPDS-NG Federal Procurement Data Base – Next Generation 
FSC Foreign Sales Corporation 
House Bill 2294 Washington State House Bill 2294, 58th Legislature, 2nd Special 
Session (Washington, 2003) (Panel Exhibit EC-54) 
HPCC programme NASA High Performance Computing and Communications Program 
HSBI highly sensitive business information  
HSR programme NASA High-Speed Research Program 
IDS Integrated Defense Systems 
ILFC International Lease Finance Corporation  
IR&D independent research and development 
IRBs industrial revenue bonds 
ITAR  International Traffic in Arms Regulations  
ITR International Trade Resources 
JAL Japan Airlines 
KDFA bonds Kansas Development Finance Authority B onds 
LA/MSF launch aid/member State financing 
LCA large civil aircraft 
LCF Boeing 747 large cargo freighter 
LERD Limited Exclusive Rights Data 
ManTech programme  USDOD Manufacturing Technology Program  
MSA Project Olympus Master Site Development and Location Agreement 
between the Boeing Company and the State of Washington , County of 
Snohomish, City of Everett and Ce rtain Other Governmental Units 
and Authorities of or in the State of Washington, 19 December 2003 (Panel Exhibit EC-58)   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page xv  
 
  Abbreviation Description 
NASA United States National Aeronautics and Space Administration 
OTAs  other transaction agreements  
Panel Report Panel Report, United States – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/R 
Peisen Study Peisen et al., Case Studies: Time Required to Mature Aeronautic 
Technologies to Operational Readiness  (SAIC and GRA, Inc., 
November 1999) (Panel Exhibit EC-795) 
QAT programme NASA Quiet Aircraft Technology Program 
R&D research and development 
R&T Base programme NASA Research and Technology Base Program 
R&TD research and technological development 
RDT&E research, development, test, and evaluation 
RTM resin transfer moulding  
SALE Singapore Aircraft Leasing Enterprise 
SCM Agreement Agreement on Subsidies and Countervailing Measures  
Space Act National Aeronautics and Space Act of 1958, Public Law No. 85-568, 
as amended (Panel Exhibit EC-286) 
Space Act Agreements agreements between NA SA and Boeing undertaken pursuant to 
NASA's authority under the Space Act 
Spirit Spirit AeroSystems  
Subsidies Committee Committee on Subsidies and Countervailing Measures  
TIPRA Tax Increase Prevention and Reconciliation Act of 2005,  
Public Law No. 109-222, 120 Stat. 345 (Panel Exhibit EC-627)  
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 26S/56, entered into force 1 January 1980  
TRL  technology readiness level  
USDOC United States Department of Commerce 
USDOD United States Department of Defense 
USDOL United States Department of Labor 
Vienna Convention Vienna Convention on the Law of Treaties , done at Vienna, 23 May 
1969, 1155 UNTS 331;  8 International Legal Materials 679  
VS programme NASA Vehicle Systems Program 
Working Procedures Working Procedures for Appellate Review , WT/AB/WP/6, 16 August 
2010 
WTO World Trade Organization 
WTO Agreement Marra kesh Agreement Establishing the World Trade Organization  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 1  
 
  W
ORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
United States – Measures Affecting Trade in 
Large Civil Aircraft (Second Complaint)  
 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-2011-3 
  Present:  
 Bautista, Presiding Member 
 Unterhalter, Member  Zhang, 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, United States – Measures Affecting Trade in Large 
Civil Aircraft (Second Complaint)
2 (the "Panel Report").  The Pa nel was established on 17 February 
2006 to consider a complaint by the European Communities regarding a number of US measures 
                                                      
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/DS353/R, 31 March 2011. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 2 HSBI omitted, as indicated [[HSBI]]  
 
  affecting trade in large civil aircraft ("LCA").
3  The European Communities claimed that the 
United States has provided subsidies to US produ cers of LCA, namely, The Boeing Company and the 
McDonnell Douglas Corporation (prior to its merger with Boeing4), and that such subsidies are 
prohibited and/or actionable under the Agreement on Subsidies and Countervailing Measures  
(the " SCM Agreement ").   
2. The European Communities' claims before the Pa nel related to measures from three US States 
and municipalities therein, as well as to a number of  US Federal Government measures, all allegedly 
providing subsidies to Boeing, as follows5:   
(a) State and local measures: 
(i) State of Washington and municipalities therein:  the provision of tax 
incentives by the State of Washington through five measures under 
House Bill 22946 ("House Bill 2294");  the provision of tax reductions from 
the City of Everett's business and occupation ("B&O") tax pursuant to 
                                                      
3Panel Report, paras. 1.1-1.3.  The Panel took note of the European Communities' definition of "large 
civil aircraft" (LCA) as follows: 
In accordance with the 1992 Agreement between the European Communities 
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, large civil aircraft ("LCA") included all aircraft as 
defined in Article 1 of the GATT Agreement on Trade in Civil Aircraft, 
except engines as defined in Article 1. 1(b) thereof, that are designed for 
passenger or cargo transportation and have 100 or more passenger seats or its 
equivalent in cargo configuration. Boeing produces or markets the following 
families of LCA: 717, 737, 747, 757, 767, 777, and 787. 
(Panel Report, footnote 20 to para. 2.1 (quoting Request for the Establishment of a Panel by the 
European Communities, originally circulated as WT/DS317/5 (as amended by WT/DS353/2, WT/DS317/Add.1 
and corrected by WT/DS353/2/Corr.1, WT/DS317/5/Add.1/Corr.1), footnote 4)) 
4The Panel explained that, prior to 1997, two firms produced LCA in the United States:  The Boeing 
Company and McDonnell Douglas Corporation.  McDonnell Douglas merged with Boeing in 1997.  Following the merger, Boeing became the sole US  producer of LCA.  Boeing is di vided into several different business 
segments and units:  Boeing Commercial Airplanes ("BCA") is the segment that produces LCA and parts;  
Boeing's Integrated Defense System s ("IDS") segment focuses on defence, intelligence, communications, and 
space;  Boeing's Phantom Wo rks unit conducts research and development ("R&D") for both the BCA and IDS 
segments of the company;  and Boeing Capital Corporation ("BCC") provides asset-backed lending and leasing 
to support other Boeing business units by arranging, structuring, and providing financing to assist in the sale and delivery of Boeing LCA products.  The Panel noted that, unless otherwise indi cated, the references in its Report 
to "Boeing" included McDonnell Douglas. (See Panel Report, paras. 2.1 and 7.1 and footnote 1004 thereto, and 
footnote 1042 to para. 7.33)  We follow the same approach in this Report. 
5A detailed description of the measures at issue relevant to these appellate proceedings is contained in 
Part IV of this Report. 
6Washington State House Bill 2294, 58th Legislature, 2nd Special Session (Washington, 2003) " An Act 
related to retaining and attracting the aerospace industry to Washington state " (Panel Exhibit EC-54).  These 
five measures are:  (i) a business and occupation (" B&O") tax rate reduction;  (ii) B&O tax credits for 
preproduction development, computer software and hardware, and property taxes;  (iii) sales and use tax exemptions for computers, construction, and equipment;  (iv) leasehold excise tax exemptions;  and (v) property 
tax exemptions. (Panel Report, paras. 7.41 and 7.42)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Ordinance No. 2759-04
7;  and the provision of various incentives, including 
training facilities and infrastructure im provements, in connection with the 
production of Boeing's 787 under the Project Olympus Master Site 
Development and Location Agreement be tween the Boeing Company and the 
State of Washington  (the "MSA")8;  
(ii) State of Kansas and municipalities therein:  the provision by the City of 
Wichita of property and sales tax abatements through the issuance of 
industrial revenue bonds ("IRBs")9;  and the issuance by the State of Kansas 
of Kansas Development Finance Authority Bonds ("KDFA bonds") to fund the development and production of a portion of the fuselage for Boeing's 787 in Wichita, along with payments by the State of Kansas of the interest on 
such bonds
10;  and 
(iii) State of Illinois and municipalities therein:  the provision by Cook County 
and the City of Chicago of four sep arate incentives in consideration for 
Boeing's decision to relocate its corporate headquarters from Seattle, 
Washington State to Chicago in 200111;  and 
                                                      
7City of Everett Ordinance No. 2759-04 (2004) (Panel Exhibit EC-61);  Panel Report, 
paras. 7.306-7.309. 
8Project Olympus Master Site Development and Lo cation Agreement between the Boeing Company and 
the State of Washington , County of Snohomish, City of Everett and Certain Other Governmental Units and 
Authorities of or in the State of Washington , 19 December 2003 (Panel Exhibit EC-58).  The 
European Communities argued that the following eight measures referred to in the MSA constitute specific 
subsidies: (i) specific road improvements for the benefit of Boeing's LCA production facilities in Everett;  (ii) 
the waiver of landing fees for Boeing's 747 large cargo freighters ("LCFs") at Paine Field to lower the costs of 
transporting 787 components to Everett;  (iii) improvement s to rail-barge transfer capabilities and expansion of 
the South Terminal facility to facilita te the transportation of 787 components to Everett;  (iv) the freezing of 
rates for water, sanitary sewer, solid waste, and pr ocess wastewater services utilized by Boeing's LCA 
production facilities in Everett;  (v) the provision of co ordinators to Boeing to help start up Project Olympus;  
(vi) the creation of a workforce development programme and the provision of an "Employment Resource 
Center" to train Boeing's employees who will work on the assembly of the 787;  (vii) the extension to 747 LCFs 
of tax and other incentives provided to the 787;  and (viii) the assumption of litigation costs that Boeing incurs in relation to the MSA. (Panel Report, para. 7.357;  see also para. 4.37) 
9Panel Report, paras. 7.648-7.664. 
10Panel Report, paras. 4.47 and 7.822-7.826. 
11Panel Report, paras. 7.893-7.902.  The four incentives granted by Cook County and the City of 
Chicago are:  (i) the reimbursement of  up to 50% of the relocation expenses incurred by an "eligible business";  
(ii) the granting of 15-year Economic Development for a Growing Economy ("EDGE") tax credits to an 
"eligible business", instead of the normal 10-year tax cr edit available under the EDGE  Tax Credit Act;  (iii) the 
abatement or refund of a portion of property taxes of an "eligible business" for up to 20 years;  and (iv) the 
payment of $1 million by the City of Chicago to retire the lease of the previous tenant of Boeing's new headquarters building.  The first three incentives ar e derived from the Corporat e Headquarters Relocation Act  of 
2001 (Illinois Public Act 92-0207 (Panel Exhibit EC-216)) (the "CHRA"). (Panel Report, paras. 7.893-7.902) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 4 HSBI omitted, as indicated [[HSBI]]  
 
  (b) Federal measures: 
(i) US National Aeronautics and Space Administration ("NASA"):  payments to 
Boeing and the provision of access to NASA facilities, equipment, and 
employees pursuant to contracts and agreements entered into under eight aeronautics research and development ("R&D") programmes
12; 
(ii) US Department of Defense ("USDOD" ):  payments to Boeing and the 
provision of access to USDOD facilities for aeronautics R&D relating to 
"dual use" technologies, pursuant to contracts and agreements entered into under 23 research, development, test, and evaluation ("RDT&E") programmes
13; 
(iii) NASA/USDOD:  the allocation of intellectual property rights to Boeing 
under contracts and agreements entered into with NASA and the USDOD14;  
and payments by NASA and the USDOD for independent research and development ("IR&D") expenditur es and bid and proposal ("B&P") 
reimbursements, notably relating to basic research, applied research, 
development, and systems and other concept formulation studies
15; 
(iv) US Department of Commerce ("USDOC "):  payments to Boeing and the 
provision of access to USDOC facilities, equipment, and employees to 
perform aeronautics R&D under eigh t Advanced Technology Program 
("ATP") projects, falling into three general categories16; 
(v) US Department of Labor ("USDOL"):  a payment of $1.5 million, made to 
Edmonds Community College under the Hi gh Growth Job Training Initiative, 
                                                      
12Panel Report, paras. 7.942-7.947.  The eight NASA R&D programmes that funded the R&D contracts  
and agreements are:  (i) the Advanced Composites Technology Program ("ACT programme");  (ii) the High-
Speed Research Program ("HSR prog ramme");  (iii)  the Advanced S ubsonic Technology Program ("AST 
programme");  (iv) the High Performance Computing and Communications  Program ("HPCC programme");  (v) the Aviation Safety Program ("AS programme");  (vi) the Quiet Aircraft Technology Program ("QAT 
programme");  (vii) the Vehicle Systems Program ("VS programme");  and (viii) the Research and Technology 
Base Program ("R&T Base programme"). ( Ibid., para. 7.944) 
13Panel Report, paras. 7.1113-7.1123.  The 23 USDOD RDT&E programmes identified by the 
European Communities in its panel request are set out in paragraph 7.1113 of the Panel Report. 
14Panel Report, paras. 7.1260-7.1265. 
15Panel Report, paras. 7.1315-7.1318. 
16Panel Report, paras. 7.1213-7.1223.  The three categ ories into which the eight ATP projects fall are: 
(i) improving the manufacturing of lightweight composite and metal structures and materials;  (ii) improving electronics components;  and (iii) improving manufact uring efficiency and supply chain logistics. ( Ibid., 
para. 7.1222)  The eight USDOC projects are listed in paragraph 7.1213 of the Panel Report.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  for the training of aerospace industry workers for the development and 
production of Boeing's 787
17;  and 
(vi) Foreign Sales Corporation ("FSC") / extraterritorial income ("ETI") and 
successor legislation:  the provision of  federal tax exemptions to Boeing 
under the original provisions of the US  Internal Revenue Code relating to 
foreign sales corporations and successor legislative acts, including 
grandfathering clauses and transitional rules.18 
3. According to the European Co mmunities, all of the above measures provided Boeing's LCA 
division with subsidies amounting to $19.1 billion over the period 1989-2006.19   
                                                      
17Panel Report, paras. 7.1355 and 7.1357. 
18Panel Report, paras. 7.1378-7.1385.  The FSC/ETI subsidies were provided pursuant to the following 
four pieces of US legislation:   
(i) Sections 921-927 of the US Internal Revenue Code enabled certain corporations in certain locations 
outside the customs territory of the United States (FSCs) to obtain a tax exemption on a portion of their "foreign trade income" (in essence, the gross receipts of an FSC attributable to  the lease or sale outside of the 
United States of "export property" produced within the Un ited States).  In addition, dividends from exempt and 
non-exempt income to the sh areholder generally qualified for a full dividends-received deduction.  This measure 
also allowed US parent companies of FSCs to defer the payment of taxes on certain "foreign trade income" that 
would normally be subject to immediate taxation and to avoid payi ng taxes on dividends received from their 
FSCs related to "foreign trade income". (Panel Report, para. 7.1379)    (ii) The FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (Public Law No. 106-519, 114 
Stat. 2423 (Panel Exhibit EC-625)) (the "ETI Act") was enacted on 15 November 2000 in response to the 
findings made by the panel and Appellate Body in the original US – FSC  dispute, and repealed the provisions in 
the US Internal Revenue Code relating to the taxation of  FSCs, subject to certain grandfathering clauses and 
transitional rules.  The ETI Act also introduced an exclusion from income taxation of ETI (gross income of a 
taxpayer attributable to "foreign tradin g gross receipts", that is, gross receipt s by certain qualifying transactions 
involving the sale or lease of "qualifying foreign trade pr operty" not for use in the Un ited States). (Panel Report, 
paras. 7.1380-7.1383)  
 (iii) The American Jobs Creation Act of 2004 (Pub lic Law No. 108-357, 118 Stat. 1418 (Panel Exhibit 
EC-626)) (the "AJCA") was enacted on 22 October 2004 in response to the findings made by the panel and the 
Appellate Body in the US – FSC (Article 21.5 – EC)  compliance dispute.  Section 101 of the AJCA repealed the 
exclusion of ETI but included a "transitional rule for 2005 and 2006" allowing US taxpayers to claim 80% of 
ETI tax benefits with respect to certain transactions in 20 05 and to claim 60% of ETI tax benefits with respect to 
certain transactions in 2006.  The AJCA also indefinitely  grandfathered the ETI Act scheme in respect of certain 
transactions, and left undisturbed the FSC benefits pursuan t to certain transactions th at had been grandfathered 
under the ETI Act. (Panel Report, para. 7.1384) 
 (iv) The Tax Increase Prevention and Reconciliati on Act of 2005 (Public Law No. 109-222, 120 Stat. 
345 (Panel Exhibit EC-627)) (the "TIPRA") was enacted on 17 May 2006 in response to the findings made by 
the panel and the Appellate Body in the US – FSC (Article 21.5 – EC II)  second compliance dispute.  
Section 513(a) of the TIPRA repealed section 5(c)(1)(B) of the ETI Act that  allowed for the continuation of FSC 
benefits in respect of transactions occurring pursuant to a binding contract in effect on 30 September 2000.  
Section 513(b) of the TIPRA repealed the provisions in section 101(f) of the AJCA that allowed for the 
continuation of ETI tax benefits in respect of transactions occurring pursuant to a binding contract in effect on 17 September 2003.  Section 513(c) of the TIPRA provides that "{t}he amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of this Act". (Panel Report, para. 7.1385) 
19Panel Report, paras. 7.1605 and 7.1606.  The European Communities further estimated that Boeing 
would receive approximately $4.6 b illion in subsidies pursuant to thes e measures between 2007 and 2024. 
(Ibid., para. 7.1606 and footnote 3371 thereto) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  A. The European Communities' Claims before the Panel 
4. The European Communities requested the Pa nel to find that the United States acted 
inconsistently with its obligations under the SCM Agreement .  First, the European Communities 
submitted that the State of Washington's House Bill 2294 tax incentives and the FSC and ETI federal 
taxation schemes constitute prohibited subsidies, within the meaning of Article 3.1(a) and in violation 
of Article 3.2 of the SCM Agreement .
20 
5. Second, the European Communities argued that , through various measures provided by the 
US Federal Government and the States of Wash ington, Kansas, and Illi nois, and municipalities 
therein, the United States provided actionable s ubsidies to Boeing's LCA division, which caused 
serious prejudice to the interests of the European Communities, within the meaning of Articles 5(c) 
and 6.3 of the SCM Agreement .21  In particular, the European Communities requested the Panel to find 
that serious prejudice was caused by means of: 
(a) significant price suppression, within the meaning of Article 6.3(c) of the 
SCM Agreement , with respect to orders of Airbus' A330, Original A350, 
A350XWB-800, A320, and A340 families of LCA,  or, in the alternative, threat of 
significant price suppression with respect to deliveries of Airbus' A330, A350XWB-800, A320, and A340 families of LCA
22; 
(b) significant lost sales, within the meaning of Article 6.3(c) of the SCM Agreement , 
with respect to orders of Airbus' A330, Original A350, A320, and A340 families of 
LCA, or, in the alternative, threat of signifi cant lost sales with respect to deliveries of 
Airbus' A330, A320, and A340 families of LCA23; 
(c) displacement and impedance, within the meaning of Article 6.3(a) of the 
SCM Agreement , with respect to orders of Air bus' A330 and Original A350 families 
of LCA, or, in the alternative, threat of displacement or impedance with respect to 
deliveries of Airbus' A330 and A350XWB-800 families of LCA24; 
                                                      
20Panel Report, para. 3.1(a) (referring to European  Communities' first written submission to the Panel, 
para. 24).  
21Panel Report, para. 3.1(b).  
22Panel Report, para. 3.1(b)(i) (referring to Euro pean Communities' first written submission to the 
Panel, paras. 1387, 1455, and 1654).  
23Panel Report, para. 3.1(b)(ii) (referring to Euro pean Communities' first written submission to the 
Panel, paras. 1446 and 1654).  
24Panel Report, para. 3.1(b)(iii) (referring to Euro pean Communities' first written submission to the 
Panel, paras. 1455 and 1654).   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 7  
 
  (d) displacement and impedance, within th e meaning of Article 6.3(b) of the 
SCM Agreement , with respect to orders of Airbus' A330, Original A350, A320, and 
A340 families of LCA, or, in the alternativ e, threat of displacement or impedance 
with respect to deliveries of Airbus' A330, A350XWB-800, A320, and A340 families 
of LCA
25;  and 
(e) threat of significant price suppression with respect to future orders of Airbus' A330, 
A350XWB-800, A320, and A350XWB -900/1000 families of LCA.26 
6. Third, the European Communities contended that  the United States acted inconsistently with 
its obligations regarding support to the LCA industry, as set forth in the 1992 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 27 (the 
"1992 Agreement"), and that the United States' brea ch of that Agreement constitutes serious prejudice 
to the European Communities' interests, w ithin the meaning of Article 5(c) of the SCM Agreement .28 
7. On 24 November 2006, the European Communitie s filed a request for preliminary rulings 
concerning the information-gathering pr ocedure contained in Annex V to the SCM Agreement .  The 
European Communities submitted two alternative requests.   First, it requested the Panel to rule that 
the Annex V procedure had been initiated and that, consequently, the United States had an obligation 
to respond to certain questions put to it by the European Communities in a communication dated 
25 May 2006.  In the alternative, the European Co mmunities asked the Panel to exercise its discretion 
under Article 13 of the Understanding on Rules and Procedures Governing the Settlement of Disputes  
(the "DSU") to put some or all of these questions to the United States.29 
                                                      
25Panel Report, para. 3.1(b)(iv) (referring to Euro pean Communities' first written submission to the 
Panel, paras. 1455, 1640, and 1654).  
26Panel Report, para. 3.1(b)(v) (referring to Euro pean Communities' first written submission to the 
Panel, para. 1654).   
27Done at Brussels on 17 July 1992, Official Journal of the European Union , L Series, No. 301 
(17 October 1992) 32. 
28Panel Report, para. 3.1(c) (referring to European  Communities' first written submission to the Panel, 
para. 1055).  
29Panel Report, para. 7.19.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 8 HSBI omitted, as indicated [[HSBI]]  
 
  B. The Panel's Findings 
8. During the course of the Panel proceedings, th e Panel adopted additio nal procedures for the 
protection of business confidentia l information ("BCI") and highl y sensitive business information 
("HSBI"), and issued a number of rulings relating to these procedures and other issues.
30  On 30 July 
2007, the Panel issued a Preliminary Ruling declining the requests that had been made by the European Communities relating to the information- gathering procedure set out in Annex V to the 
SCM Agreement .
31  The Panel considered that initiation of an Annex V procedure requires some form 
of action on the part of the Dispute Settlement Body ("DSB").32  Having examined the minutes of the 
various DSB meetings where the European Commun ities' request to initiate such a procedure was 
considered, the Panel found it "clear" that "the DSB never took any action to initiate an Annex V 
procedure", or designate a DSB repr esentative, as required by Annex V.33  Accordingly, the Panel 
denied the European Communities' request to rule th at an Annex V procedure had been initiated, as 
well as various additional requests that were dependent upon that request.34  The Panel also declined 
the European Communities' alternative request, explai ning that it did not, in the circumstances of this 
dispute, consider it necessary or appropriate to ex ercise its discretion under Article 13 of the DSU to 
seek information from the United States before having reviewed the parties' first written 
submissions.35   
                                                      
30BCI and HSBI procedures were adopted by the Panel on 19 February 2007, at the request of, and 
following consultations with, the partie s.  The procedures were modified several times over the course of the 
proceedings and the Panel issued a number of rulings in connection with them.  The final version of these 
procedures is attached to the Panel Report as Annex D. (Panel Report, para. 1. 11)  On 21 December 2006, 
Brazil requested the Panel to grant it certain enhanced  third party rights, and on 22 December 2006, Canada 
requested the Panel to grant it any enhanced third party ri ghts granted to Brazil.  Both parties to the dispute 
submitted comments and opposed the requests.  On 23 February 2007, the Panel informed the parties and third 
parties that it had decided not to gran t enhanced third party rights to any th ird party in the proceedings. (Panel 
Report, paras. 1.14,  7.14, and 7.15) 
31Panel Report, paras.  7.19-7.24. 
32Panel Report, para. 7.21. 
33Panel Report, para. 7.20. 
34Panel Report, para. 7.22.  In this regard, the Pane l rejected requests that it:  (i) "rule that the 
United States {was} under an obligation to cooperate and answer the questions that had been put to it in the 
European Communities' letter to the Facilitator dated 23 Ma y 2006";  (ii) "rule that Mr. Mateo Diego-Fernández 
was effectively designated as a facilitato r in that procedure, and in the event that the Panel {did} not make this 
ruling, nevertheless to provide the relief set forth in the preceding and following points";  and (iii) "adopt such 
working procedures that would allow the completion of the Annex V procedure in due time before the deadline 
for the filing of the European Communities' first written submission". ( Ibid. (quoting Request for preliminary 
rulings by the European Communities, 24 November 2006 ("European Communities' request for preliminary rulings"), para. 58))  
35Panel Report, para. 7.23.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  9. The Panel Report was circulated to Members of the World Trade Organization (the "WTO") 
on 31 March 2011.  In its Report, the Panel found the following state and local measures  to constitute 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement
36: 
(a) State of Washington and municipalities therein:  (i) the Washington State B&O tax 
rate reduction provided for in House B ill 2294;  (ii) the B&O tax credits for 
preproduction development, computer soft ware and hardware, and property taxes 
provided for in House Bill 2294;  (iii) the sales and use tax exemptions for computer 
hardware, peripherals, and softwa re provided for in House Bill 229437;  (iv) the City 
of Everett B&O tax rate reduction38;  and (v) the workforce development programme 
and the Employment Resource Center provided under the MSA39; 
(b) State of Kansas and municipalities therein:  the state and local property and sales tax 
abatements granted to Boeing through the issuance of IRBs40;  and 
(c) State of Illinois and municipalities therein:  (i) the reimbursement of a portion of 
Boeing's relocation expenses provided for in  the Corporate Headquarters Relocation 
Act of 200141 (the "CHRA");  (ii) the 15-year Economic Development for a Growing 
Economy ("EDGE") tax credits provided for in the CHRA;  (iii) the abatement or 
refund of a portion of Boeing's property tax es provided for in the CHRA;  and (iv) the 
payment to retire the lease of the previ ous tenant of Boeing's new headquarters 
building.42 
10. The Panel was not satisfied, however, that the European Communities had established that the 
following state measures constitute specific subsidies within the meaning of the SCM Agreement :  
(i) the Washington State sales tax exemptions for construction services and equipment, the leasehold 
                                                      
36Panel Report, para. 7.1431(a)(i)-(iv), (b)(i), and (c)(i)-(iv), respectively. 
37The Panel estimated the amounts of the subsidy provided to Boeing's LCA division through the three 
House Bill 2294 tax incentives that it found to be specific subsidies to be:  (i) $13.8 million (B&O tax rate reduction);  (ii) $42.4 million (B&O tax credits) (o f which, tax credit for preproduction development 
($21.3 million), computer software and hardware ($20  million), and property taxes ($1.1 million));  and 
(iii) $8.3 million (sales and use tax exemption for comput er hardware, peripherals and software). (Panel Report, 
paras. 7.254, 7.257, 7.258, 7.300, and 7.302) 
38The Panel estimated the amount of the subsidy provided to Boeing's LCA division by means of the 
City of Everett B&O tax rate reduction through 2006 to be $2.2 million. (Panel Report, para. 7.354)  
39The Panel estimated the amount of subsidies provided to Boeing's LCA division by means of the 
workforce development programme and the Employment Resource Center over the period 1989-2006 to be 
$11 million. (Panel Report, para. 7.644)  
40The Panel estimated the amount of the subsidy provid ed to Boeing through the issuance of IRBs to be 
$475.8 million. (Panel Report, para. 7.819)  
41Illinois Public Act 92-0207 (Panel Exhibit EC-216). 
42The Panel estimated the amount of the subsidy provided through the four incentives at issue to be 
$11 million over the period 2002-2006. (Panel Report, para. 7.939)  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 10 HSBI omitted, as indicated [[HSBI]]  
 
  tax exemption, and the property tax exem ption granted pursuant to House Bill 2294
43;  (ii) the 
measures—other than the workforce developm ent programme and the Employment Resource 
Center—granted pursuant to the MSA44;  or (iii) the State of Kansas' issuance of KDFA bonds.45 
11. The Panel also found the following US Federal Government measures  to constitute specific 
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement : 
(a) NASA:  (i) the payments made to Boeing pursuant to procurement contracts entered 
into under the eight aeronautics R&D progr ammes at issue;  and (ii) the access to 
NASA facilities, equipment, and empl oyees provided to Boeing pursuant to 
procurement contracts and agreements unde r the National Aeronautics and Space Act 
of 195846 (the "Space Act") entered into under the eight aeronautics R&D 
programmes at issue ("Space Act Agreements")47;   
(b) USDOD:  (i) the payments made to Boei ng pursuant to assistance instruments entered 
into under the 23 RDT&E programmes at issue;  and (ii) the access to USDOD 
facilities provided to Boeing pursuant to assi stance instruments entered into under the 
23 RDT&E programmes at issue48;  and  
                                                      
43Panel Report, paras. 7.303 and 7.1432(a)(i)-(iii).  
44The measures found not to be speci fic subsidies are:  (i) the I-5 and SR 527 expansion projects, the 
construction of a rail-barge transfer f acility, and the expansion of the South Terminal by the Port of Everett;  
(ii) Snohomish County's waiver of 747 LCF landing fees at Paine Field;  (iii) the alleged commitment made by 
the City of Everett and Snohomish Co unty to freeze utility rates charged to  Boeing;  (iv) the provision of 
coordinators to Boeing pursuant to the MSA;  (v) tax an d other incentives related to the 747 LCFs;  and (vi) the 
assumption by Washington State of costs to Boeing for MSA-related legal proceedings. (Panel Report, paras. 7.645 and 7.1432(a)(iv)-(ix)) 
45Panel Report, paras. 7.890 and 7.1432(b)(i).  
46Public Law No. 85-568, as amended (Panel Exhibit EC-286). 
47Panel Report, paras. 7.1041, 7.1049, and 7.1431(d)(i)-(ii).  The Panel estimated the amount of the 
subsidy provided to Boeing's LCA division in the form of payments under R&D contracts to be $1.05 billion 
over the period 1989-2006, and the amount of the subsidy provided to Boeing's LCA division in the form of access to NASA facilities, equipment and employees un der NASA R&D contracts and agreements to be 
$1.55 billion over this same period.  Thus, the Panel es timated the total amount of the subsidy provided through 
the eight NASA aeronautics R&D programmes over the 1989-2006 period to be $2.6 billion. ( Ibid., 
paras. 7.1109 and 7.1110) 
48Panel Report, paras. 7.1188, 7.1198, and 7.1431(e)(i)-(ii).  The Panel found that it was unable to 
provide an estimate of the amount of the subsidy under the 23 USDOD RDT&E programmes over the period 1991-2006 because it was "unclear". The European Communities had estimated that, out of the $45 billion in 
RDT&E funding that Boeing received fr om the USDOD over the period 1 991-2005, approximately $4.3 billion 
related to "dual use" R&D.  For its part, the United States estimated the total amount of any USDOD subsidy to Boeing for "dual use" R&D to be significantly less than $308 million over the period 1991-2006. ( Ibid., 
paras. 7.1203, 7.1204, 7.1209, and 7.1210)   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (c) FSC/ETI and successor legislation:  the tax exemptions and tax exclusions provided 
to Boeing under FSC/ETI legislation, in cluding the transition and grandfathering 
provisions of the FSC Repeal and Extraterritorial Income Exclusion Act of 200049 
(the "ETI Act") and the American Jobs Creation Act of 200450 (the "AJCA").51   
12. The Panel was not persuaded that the Europ ean Communities had demonstrated that the 
following federal measures constitute  specific subsidies:  (i) the USDOD's payments to Boeing 
pursuant to procurement contracts under the 23 aeronautics RDT&E programmes at issue52;  (ii) the 
USDOD's grant of access to government facilitie s pursuant to procurement contracts under the 
23 aeronautics RDT&E programmes at issue53;  (iii) the USDOC's payments to joint 
ventures/consortia in which Boeing participated through the ATP54;  (iv) the allocation of intellectual 
property rights under NASA/USDOD R&D procurement contracts and agreements55;  (v) the 
reimbursement of IR&D and B&P expenses unde r NASA/USDOD R&D procurement contracts and 
agreements56;  or (vi) the USDOL's payment to Edmonds Community College under the High Growth 
Job Training Initiative.57 
13. The Panel further found that the FSC/ETI a nd successor act subsidies constitute prohibited 
export subsidies within the meaning of Articles 3.1(a) and 3.2 of the SCM Agreement .58  However, the 
Panel considered that the European Communities had failed to demonstrate that the Washington State 
tax measures provided for in House Bill 2294 are inc onsistent with Articles 3.1(a) and 3.2 of the 
SCM Agreement .59 
14. The Panel determined that the above measures provided Boeing's LCA division with 
subsidies amounting to "at least $5. 3 billion" over the period 1989-2006.60  The Panel declined to take 
account of the estimated future subsid y amounts associated with these measures.61  
                                                      
49Supra , footnote 18, item (ii). 
50Supra , footnote 18, item (iii). 
51Panel Report, paras. 7.1406 and 7.1431(f)(i).  The Panel estimated the amount of the subsidy 
provided to Boeing through the FSC/ETI legislation over the period 1989-2006 to be approximately $2.199 billion. ( Ibid., para. 7.1429)  
52Panel Report, paras. 7.1171 and 7.1432(c)(i).  
53Panel Report, paras. 7.1171 and 7.1432(c)(ii).  
54Panel Report, paras. 7.1257 and 7.1432(e)(i). 
55Panel Report, paras. 7.1312 and 7.1432(d)(i).  
56Panel Report, paras. 7.1354 and 7.1432(d)(ii).  
57Panel Report, paras. 7.1375 and 7.1432(f)(i).  
58Panel Report, paras. 7.1464 and 8.2(a).  
59Panel Report, paras. 7.1590 and 8.2(b).  
60Panel Report, para. 7.1433. 
61Panel Report, paras. 7.153-7.158. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 12 HSBI omitted, as indicated [[HSBI]]  
 
  15. At the outset of its analysis of the European  Communities' claims of serious prejudice, the 
Panel made a number of findings regarding the rele vant "markets", "subsidized products", and "like 
products" for purposes of its analysis.  The parties ag reed, and the Panel found, that "the LCA market 
is a global market geographically".
62  The European Communities fu rther divided the global LCA 
market into five market segments, or product markets, on the basis of the flight range and seating capacity of the various LCA families.
63  Its serious prejudice claim focused on three of these product 
markets:  (i) the 100-200 seat LCA market;  (ii)  the 200-300 seat LCA market;  and (iii) the 300-400 
seat LCA market.64  The relevant Boeing "subsidized product( s)" and Airbus "like product(s)" in each 
market are set out at Table 3 in paragraph 897 of this Report.  The United States accepted the 
European Communities' division of the market as the basis for evaluating the European Communities' 
serious prejudice claim65, and so did the Panel.66  The Panel further expressed the view that, provided 
that the European Communities demonstrated one of the alleged forms of serious prejudice in 
subparagraphs (a) through (c) of Ar ticle 6.3 in relation to a particular Boeing subsidized LCA and a 
corresponding Airbus like product, it would establish serious prejudice to the European Communities' 
LCA-related interests for purposes of Article 5(c) of the SCM Agreement .67 
16. The Panel further noted that, in presenting its  arguments, the European Communities drew a 
distinction "based on the nature of the subsidies"  between, on the one hand, the effects of the 
subsidies benefiting Boeing's 787 family of LCA and,  on the other hand, the effects of the subsidies 
benefiting Boeing's 737NG and 777 families of LCA.68  With regard to the 787, which competes in 
the 200-300 seat LCA market, the European Co mmunities argued that the subsidies have two 
principal effects , whereas, with respect to the 737NG and 777, which compete in the 100-200 seat and 
the 300-400 seat LCA markets, respectively, the subsidies were alleged to have only one of those 
effects.69  For all three product markets, the European Communities alleged that all of the subsidies 
have "price effects" because they provide Boeing w ith the ability to charge lower prices either by 
reducing Boeing's marginal unit costs or by increasing Boeing's non-operating cash flow.70  For the 
200-300 seat LCA market, the European Communities alle ged that, in addition to those price effects, 
the aeronautics R&D subsidies  have "technology effects" in that they "have helped Boeing develop, 
launch and produce a technologically-advanced 200-300 seat LCA much more quickly than it could 
                                                      
62Panel Report, para. 7.1671.   
63Panel Report, para. 7.1669.   
64Panel Report, para. 7.1670. 
65Panel Report, para. 7.1670. 
66Panel Report, para. 7.1672.   
67Panel Report, para. 7.1667.   
68Panel Report, para. 7.1696. 
69Panel Report, paras. 7.1697 and 7.1698. 
70Panel Report, paras. 7.1697 and 7.1698.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  have on its own".
71  Thus, the Panel understood the European Communities to argue that the subsidies 
cause significant price suppression, significant lost sales, and displacement and impedance (and a 
threat thereof), in the 200-300 seat LCA market through both the technology effects and the price 
effects that they have on Boeing's comme rcial behaviour with respect to the 787.72  For the 100-200 
seat and 300-400 seat LCA markets, the Panel understood the European Communities to argue that the subsidies cause the same market phenomena, but only through the price effects on Boeing's 
commercial behaviour with respect to the 737NG and 777.
73   
17. The Panel concluded as follows with respect  to the European Communities' claims 
concerning the technology effects  of the aeronautics R&D subsidies: 
{T}he effect of the aeronautics R&D subsidies is a threat of 
displacement and impedance of Eu ropean Communities' exports from 
third country markets within the meaning of Article 6.3(b) of the SCM Agreement, with respect to the 200-300 seat wide-body LCA product market, and significant lost sales and significant price 
suppression, within the meaning of Article 6.3(c) of the 
SCM Agreement with respect to that product market, each of which constitute serious prejudice to the interests of the European Communities within the meaning of Article 5(c) of the SCM Agreement.
74 
18. As regards the European Communities' claim of price effects of the FSC/ETI subsidies and 
the Washington State and City of Everett B&O ta x rate reductions (the "tied tax subsidies"): 
... the Panel {was} satisfied that the effects of the FSC/ETI subsidies 
and the Washington State B&O tax subsidies in the 100-200 seat single aisle LCA product market were to significantly suppress 
Airbus' prices in sales in which it competed against Boeing and to 
cause Airbus to lose significant sales, and to displace and impede European Communities' exports from third country markets in that 
product market.  {The Panel was} also satisfied that the effects of the 
                                                      
71Panel Report, para. 7.1697 (quoting European Communities' first written submission to the Panel, 
para. 1343).  The aeronautics R&D subsidies consist of :  (i) the payments made to Boeing and the access to 
NASA facilities, equipment, and employees provided to Boeing by NASA pursuant to procurement contracts 
and Space Act Agreements entered into under the eight aeronautics R&D prog rammes at issue;  and (ii) the 
payments made to Boeing and the access to USDOD facilities provided to Boeing pursuant to assistance 
instruments entered into under the 23 USDOD RDT&E progra mmes at issue.  The Pane l identified these as four 
types of measures, namely:  (i) the payments made to Boeing pursuant to procurement contracts entered into 
under the eight NASA aeronautics R&D programmes at issu e;  (ii) the access to NASA facilities, equipment, 
and employees provided to Boeing pursuant to procurement contracts an d Space Act Agreements entered into 
under the eight NASA aeronautics R&D programmes at issue;  (iii) the payments made to Boeing pursuant to 
assistance instruments entered into und er the 23 USDOD RDT&E programmes at  issue;  and (iv) the access to 
USDOD facilities provided to Boeing pursuant to assist ance instruments entered into under the 23 USDOD 
RDT&E programmes at issue. (See ibid., paras. 7.1110, 7.1210, 7.1431, and 7.1433) 
72Panel Report, para. 7.1697. 
73Panel Report, para. 7.1698. 
74Panel Report, para. 7.1797. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  FSC/ETI subsidies, the Washington State B&O tax subsidies and the 
City of Everett B&O tax subsidies in the 300-400 seat wide-body LCA product market were to signifi cantly suppress Airbus' prices in 
sales in which it competed against Bo eing and to cause Airbus to lose 
significant sales, and to displace and impede European Communities' 
exports from third country markets in that product market.
75 
19. In its assessment of the effects of the subsid ies in the 200-300 seat LCA market, the Panel 
observed that the NASA and USDOD aeronautics R&D subsidies, on the one hand, and the State of 
Washington and City of Everett B&O tax rate reductions76, on the other hand, "operate through 
entirely distinct causal mechanisms".77  Given the different ways in which these two groups of 
subsidies operate, the Panel considered that it was not "appropriate to aggregate the effects of the 
B&O tax subsidies on Boeing's pricing of the 787 w ith the effects of the aeronautics R&D subsidies 
on Boeing's development of technologies applied to the 787".78  The Panel therefore evaluated the 
effects of the two B&O tax rate reductions on th eir own, and found that there was "insufficient 
evidence before {it} … to conclude that these subsid ies are of a magnitude that would enable them, 
on their own, to have such an effect on Boeing's pr ices of the 787 as would lead to a finding that their 
effects in the 200-300 seat wide-body market were significant price suppression, significant lost sales 
or displacement or impedance of European Commun ities imports into the United States or exports to 
third countries."79 
20. With respect to the remaining eight subs idies that the Panel found to be specific80, the Panel 
was not satisfied that the European Communitie s had established that, through their effects on 
Boeing's LCA pricing behaviour, these subsidies have caused serious prejudice to the 
European Communities' interests in any of the th ree LCA product markets relevant to this dispute.81   
                                                      
75Panel Report, para. 7.1823. 
76As explained infra , footnote 1882, the European Communities did not claim that the FSC/ETI 
subsidies had adverse effects in the 200-300 seat LCA ma rket, and the Panel conducted  its analysis on the basis 
that these subsidies had no ef fects in that product market. 
77Panel Report, para. 7.1824. 
78Panel Report, para. 7.1824. 
79Panel Report, para. 7.1824. 
80The eight remaining subsidies, which the Panel found amounted to approximately $550 million, 
consist of:  (i) the Washington State B&O tax credits for preproduction development, computer software and hardware, and property taxes;  (ii) the Washington St ate sales and use tax exemptions for computer hardware, 
peripherals and software;  (iii) the Washington Stat e workforce development programme and Employment 
Resource Center;  (iv) the property and sales tax abatements provided to Boeing pursuant to IRBs issued by the State of Kansas and municipalities therein;  (v) the reimbursement of a portion of Boeing's relocation expenses 
by the State of Illinois;  (vi) the 15- year EDGE tax credits provided by the State of Illinois;  (vii) the abatement 
or refund of a portion of Boeing's property taxes provide d by the State of Illinois;  and (viii) the payment to 
retire the lease of the previous tenant of Boeing's new headquarters building in Chicago. 
81Panel Report, paras. 7.1828 and 7.1834.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  21. The Panel exercised judicial economy with resp ect to the European Communities' claim that 
certain of the subsidies at issue threaten to cau se significant price suppression with respect to future 
orders of Airbus LCA
82, and with respect to the European Co mmunities' claim that the United States' 
violation of the 1992 Agreement constitutes serious prejudice to the European Communities' interests 
within the meaning of Article 5(c) of the SCM Agreement .83 
C. Appellate Proceedings 
22. On 1 April 2011, the European Union notified the DSB of its intention to appeal certain issues 
of law 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 Appeal84 pursuant to Rule 20 of the Working 
Procedures for Appellate Review85 (the " Working Procedures ").   
23. Also on 1 April 2011, the Appellate Body recei ved a request from the European Union that 
the Appellate Body adopt additional procedures to protect BCI and HSBI in these appellate 
proceedings.86  The European Union explained that the reas ons for this request were substantially the 
same as the reasons given by the participants in EC and certain member States – Large Civil Aircraft , 
namely, that disclosure of confidential information (which in this dispute includes company-specific 
data on productivity, costs, prices, sales campai gns, commercial agreements, and privileged advice) 
could be "severely prejudicial" to the originators of  the information, that is, to the manufacturers of 
LCA, as well as their customers and suppliers.87  The European Union requested the adoption of a 
procedural ruling with substantially the same te rms as the one adopted by the Appellate Body in 
EC and certain member States – Large Civil Aircraft .  On the same day, the Appellate Body Division 
                                                      
82In particular, the A330, A350XW B-800, A320, and A350XWB-900/1000 families of LCA. (Panel 
Report, para. 7.1851)  We also note that the Panel do es not appear to have explicitly reached any finding or 
conclusion regarding the European Communities' claim that the United States' use of the subsidies at issue has 
caused displacement and impedance of its exports to the United States, within the meaning of Article 6.3(a) of 
the SCM Agreement , with respect to orders of Airbus' A330 a nd Original A350 families of LCA, or, in the 
alternative, threat of displacement or impedance with respect to deliveries of Airbus' A330 and A350XWB-800 
families of LCA.  Nevertheless, it seems to us that, in finding that factors other than the performance 
characteristics or the timing of the availability of the 787 led to the decisions of Continental Airlines and 
Northwest Airlines to purchase Boeing LCA rather than Airbus LCA, the Panel effectively found that the 
European Communities had not made out this aspect of its claim. ( Ibid., para. 7.1786 and footnote 3725 thereto)  
In any event, the European Union has not appealed the lack of an explicit finding by the Panel in this regard. 
83Panel Report, paras. 7.1893 and 8.3(b). 
84WT/DS353/8 (attached as Annex I to this Report).  Also on 1 April 2011, the European Union sent a 
letter to the Chair of the DSB explaining, inter alia , that the reason it decided to be the first to appeal certain 
findings in the Panel Report was that it could not accept further delays in this dispute.  This letter was circulated 
to WTO Members as do cument WT/DS353/9. 
85WT/AB/WP/6, 16 August 2010.   
86Previously, on 23 March 2011, the European Union had sent a letter to the Director of the Appellate 
Body Secretariat suggesting, in the even t of an appeal of the Panel Report in this dispute, the adoption of additional 
procedures concerning the treatment of BCI and HSBI in the appellate proceedings. 
87Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 17. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 16 HSBI omitted, as indicated [[HSBI]]  
 
  selected to hear this appeal invited the United Stat es and the third parties to comment in writing on the 
European Union's request, and informed the particip ants and third parties of its decision to adopt 
temporary precautions to protect confidential inform ation.  Given that the Panel record was, in 
accordance with Rule 25 of the Working Procedures, to be transmitted to the Appellate Body 
immediately upon the filing of a Notice of Appeal , the Division decided to provide additional 
protection to all BCI and HSBI transmitted to the A ppellate Body as part of that record, pending its 
final decision on the European Union's request. 
24. Written comments were received from the United States on 6 April 2011 and from Australia, 
Brazil, Canada, China, and Japan on 12 April 2011.   The United States shared  the European Union's 
view that it was necessary for the Di vision to adopt BCI/HSBI procedures in this appeal.  Overall, the 
United States agreed that the Appellate Body procedural ruling in EC and certain member States – 
Large Civil Aircraft  would serve as an appropriate basis for a procedural ruling on the protection of 
sensitive information in this appeal, with certain modifications made in the light of the previous 
experience.  The third participants expressed their support for, or did not oppose, the request of the 
European Union, and suggested certain modifications  to the proposed procedures in order to ensure 
that the rights of third participants to participate meaningfully in these appellate proceedings would be 
fully protected.  On 15 April 2011, the Division issued a Procedural Ruling adopting Additional 
Procedures to Protect Sensitive Information (the "A dditional Procedures"), pursuant to Rule 16(1) of 
the Working Procedures .  The Procedural Ruling and Additional Procedures are attached as Annex III 
to this Report. 
25. On 19 April 2011, pursuant to paragraph 19(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".  On the sam e day, in accordance with paragraph 19(xvi) of 
the Additional Procedures, the third participants  each provided a list of up to eight individuals 
designated as "Third Participant BCI-Approved Pe rsons".  Requests to change the BCI/HSBI 
Approved Persons and Third Partic ipants BCI-Approved Persons lists  were subsequently submitted 
by the European Union, the United States,  Australia, Brazil, Canada, and Korea.
88  The Division 
provided the participants and third participants w ith the opportunity to comment on each request.  No 
objections were made and all of the re quests were authorized by the Division.89   
                                                      
88Changes were submitted by the European Union on 10 August, 28 September, 10 and 11 October 
2011, and 23 February 2012;  by the United States on 11 August 2011;  and by Australia on 6 September, Brazil 
on 5 August, Canada on 28 April and 8 August, and Korea on 4 August and 12 September 2011.  
89Letters from the Presiding Member to the participan ts and third participants dated 6 May, 12 August, 
19 September, 7 October 2011 and at the second session of the oral hearing, and 6 March 2012.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 17  
 
  26. Upon receipt of the European Union's request for additional procedures for the protection of 
BCI and HSBI in these proceedings, the Division decided to suspend the deadlines that would 
otherwise apply under the Working Procedures  for the filing of a Notice of Other Appeal and for the 
filing of written submissions.  On 20 April 2011, af ter issuing its Procedural Ruling, the Division 
provided the participants and third participan ts the deadlines for filing written submissions,  pursuant 
to Rule 26 of the Working Procedures .  In that communication, the Division also invited the 
participants to address in their appellees' submi ssions, and the third participants in their written 
submissions, the implications for the legal issues in this appeal arising from the Appellate Body report 
in EC and certain member States – Large Civil Aircraft , which was subsequently circulated on 
18 May 2011.   
27. The European Union filed an appellant's submission on 21 April 2011.
90  On 28 April 2011, 
the United States notified the DSB of its intention to appeal certain issues of law covered in the 
Panel Report and certain legal inte rpretations developed by the Pane l, pursuant to Articles 16.4 and 17 
of the DSU, and filed a Notice of Other Appeal91 pursuant to Rules 23 and 26(2) of the Working 
Procedures .  On the same day, the United States filed an other appellant's submission.92   
28. On 19 May 2011, pursuant to Rule 30(1) of the Working Procedures , the European Union 
notified the Appellate Body Division hearing this  appeal, as well as the United States and the third 
participants, that it was withdrawing its appeal insofar as it related to subsidies contingent upon 
export, with immediate effect. 
29. On 15 June 2011, the European Union and the United States each filed an appellee's 
submission93 and, on 23 June 2011, Australia, Brazil, Ca nada, China, Japan, and Korea each filed a 
third participant's submission.94  
30. On 4 July 2011, the Chair of the Appellate Body  informed the Chair of the DSB that, due to 
the considerable size of the record and complexity of  the appeal, the need to hold multiple sessions of 
the oral hearing, and the overall workload of th e Appellate Body, the Appe llate Body would not be 
able to circulate its Report by 31 May 2011—that is, by the expiration of the 60-day period provided 
under Article 17.5 of the DSU.  The Chair of the DSB was also informed th at the Appellate Body 
                                                      
90Pursuant to Rules 21 and 26(2) of the Working Procedures .   
91WT/DS353/10 (attached as Annex II to this Report). 
92Pursuant to Rules 23(3) and 26(2) of the Working Procedures .  
93Pursuant to Rules 22, 23(4), and 26(2) of the Working Procedures .   
94Pursuant to Rules 24(1) and 26(2) of the Working Procedures . WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 18 HSBI omitted, as indicated [[HSBI]]  
 
  would hold a first session of the oral hearing in August and a second session in October 2011, and 
would provide thereafter an estimate for when its Report would be circulated.
95 
31. By joint letter dated 11 July 2011, the participan ts requested that the oral hearing in this 
appeal be opened to public observation to the extent  that this would be possible given the need for 
protection of sensitive information.  The particip ants 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 pu blic observation and the Additional Procedures, and 
proposed specific modalities for that purpose.  On  12 July 2011, the Division invited the third 
participants to comment on the participants' reque st and proposed modalities.  On 15 July 2011, 
Canada and China submitted comments on the particip ants' request to open the oral hearing to public 
observation.  Canada agreed with the joint proposal  of the participants that the Division adopt the 
same additional procedures that were adopted in EC and certain member States – Large Civil 
Aircraft .  China expressed its wish that the Di vision follow the same practice as in EC and certain 
member States – Large Civil Aircraft  to allow third participants the opportunity to request confidential 
treatment of their oral statements.  On 26 Ju ly 2011, the Division issued a Procedural Ruling 
authorizing the participants' joint request for ope ning the hearing to public observation via closed-
circuit broadcasting and adopted A dditional Procedures on the Conduct of the Oral Hearing, including 
the protection of certain sensitive information duri ng the oral hearing.  The Procedural Ruling is 
attached as Annex IV to this Report.   
32. The oral hearing in this appeal took place in two sessions:  the first on 16-19 August 2011, 
and the second on 11-14 October 2011.  Pursuant to  the Procedural Ruling of 26 July 2011, the 
participants and third participants did not refer to  any BCI or HSBI in their opening statements at 
either session of the oral hearing.  The opening stat ements of the participants  and third participants, 
with the exception of China and Korea, were vi deotaped at both the first and second sessions of the 
oral hearing.  Upon confirmation that no BCI or HSBI  had been inadvertently uttered, the videotapes 
of the opening statements were broadcast on 23 Au gust and 18 October 2011 to those members of the 
public who had registered for the viewing.  No participant or third participant made a closing 
statement at either session of the oral hearing. 
                                                      
95WT/DS353/11.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 19  
 
  33. Following the first session of the hearing, th e Division invited the participants and third 
participants to submit additional written memoranda, pursuant to Rule 28 of the Working Procedures .  
The European Union and the United States each submitted an additional memorandum on 
5 September 2011, and Brazil, Ca nada, Japan, and Korea each s ubmitted an additional memorandum 
on 12 September 2011.  The participants and third participants were given an opportunity at the 
second session of the oral hearing to make comments on the others' additional memoranda.
  
34. Pursuant to paragraph 19(xiii) of the Proce dural Ruling of 15 April 2011, the Division 
informed the participants and third participants, on 23 February 2012, that it had found it necessary to 
include in the Appellate Body Report some references to information that was treated by the Panel as 
BCI or HSBI.  Also pursuant to paragraph 19(xiii) of  the Procedural Ruling, an advance copy of the 
Appellate Body Report was provided to the Eur opean Union and the United States on 29 February 
2012.  Both participants were requested to indicat e, by 5 March 2012, whether there was a continuing 
need to treat all of the business sensitive informati on in the same manner as the Panel, and whether 
any BCI or HSBI had been included in the Appella te Body Report without having been identified as 
such.  On 5 March 2012, the European Union indicated  that it had not identified any BCI or HSBI that 
was not designated as such in the Appellate Body Report, and that it was willing to remove BCI 
protection with respect to two sentences consisting of EU BCI.  On that date, the United States 
identified one instance in which it considered that BCI had been inadvertently disclosed, and indicated 
that the relevant text should be designated as BCI , or revised so as to avoid the need for BCI 
protection.  The United States also identified a number of instances, consisting of US BCI or EU BCI, 
for which it suggested, or did not object to, the rem oval of BCI protection.  On the same day, the 
Division requested the participants to respond to  each other's comments by 7 March 2012.  On 6 
March 2012, the European Union indicated that it had no objection to the United States' proposal to remove BCI protection for informa tion that related to the United States' interests, but objected to 
doing so with respect to such information relating to the European Union's interests.  On 7 March 
2012, the United States stated that it had no objection to the removal of BCI protection for the two sentences identified by the European  Union in its letter of 5 March 2012.  The Division modified the 
one inadvertent disclosure of BCI information, as s uggested by the United States, so as to avoid the 
need for BCI protection.  The Division decided to remove BCI protection in certain instances in which 
the participants suggested, or did not object to, such removal.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 20 HSBI omitted, as indicated [[HSBI]]  
 
  II. Arguments of the Participants  and the Third Participants 
A. Claims of Error by the European Union – Appellant 
1. Annex V to the SCM Agreement 
35. The European Union asserts that the Panel erre d by refusing to rule that the information-
gathering procedure under Annex V to the SCM Agreement  had been initiated, and by denying a 
number of related requests.  The European Union s ubmits that, in proceeding in the way it did, the 
Panel failed to make an objective assessment of the matter within the meaning of Article 11 of the 
DSU and erred in its interpretation and application of Article 7.4 the SCM Agreement  and paragraph 2 
of Annex V thereto.  The European Union requests th e Appellate Body to find that the Panel erred in 
not ruling on whether the Annex V procedure had been initiated, and to complete the analysis and 
make a finding that the Annex V procedure is initiate d by negative consensus or automatically.  In 
addition, and independently of these requests, th e European Union urges the Appellate Body to 
"constantly bear in mind the circumstances of this case"96, in particular the withholding of information 
and non-cooperation by the United States.  On that  basis, the Appellate Body should preclude the 
United States from criticizing the Panel for its assessmen t of the facts or drawing of factual inferences 
and, "{i}n case of doubt or evidentiary conflict or equipoise, the Appellate B ody should rule in favour 
of the European Union".97 
36. In its appellant's submission, the European Un ion draws a distinction between DSB "action" 
and issues that call for a "decision" by the DSB.98  The European Union notes that, under Article 2.4 
of the DSU, "decisions" require consensus, but the requirement for "actions" to occur by negative 
consensus permeates the DSU.  By way of example,  the European Union points out that the final 
sentence of Article 2.1 indicates that, "where the DSB 'administer{s}' dispute settlement rules, it 
proceeds by way of 'decisions or actions'"99;  and Article 6.1 confirms that a panel is not established 
by a consensus decision, but by way of DSB action by negative consensus on the one condition that a 
request for the establishment of a panel is receive d, which is something different from a consensus 
decision.  That is why a WTO document recording the establishment of the panel "in accordance with 
Article 6 of the DSU "100 is subsequently distributed.101  Moreover, Articles 16.4, 17.14, 22.6, and the 
final sentence of Article 22.7 also describe DSB actions that take place on the one condition that a 
                                                      
96European Union's appellant's submission, para. 53. 
97European Union's appellant's submission, para. 53. 
98European Union's appellant's submission, paras. 21, 24, and  25. 
99European Union's appellant's submission, para. 23. 
100European Union's appellant's submission, para. 27.  
101European Union's appellant's submission, paras. 27 and 28.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 21  
 
  request is received.  Like Annex V to the SCM Agreement , the second sentence of Article 22.6 of the 
DSU, regarding referrals to arbitration on the leve l of suspension of concessi ons or other obligations, 
does not expressly refer to negative consensus.  Ye t, it must be the case that a Member can seek 
review of a request for suspension of concessions  without that review being blocked by the 
complaining Member through a refusal to support a consensus decision. 
37. The European Union submits that this "action"  versus "decision" distinction likewise applies 
to Annex V to the SCM Agreement .  In support of its position, th e European Union refers to:  
Article 7.4 of the SCM Agreement , which provides for the establishment of a panel "unless the DSB 
decides by consensus not to establish a panel";  pa ragraph 1 of Annex V, which states that "{e}very 
Member shall cooperate in the development of ev idence to be examined by a panel in procedures 
under paragraphs 4 through 6 of Ar ticle 7";  and paragraph 2 of A nnex V, which states that, "{i}n 
cases where matters are referred to the DSB under pa ragraph 4 of Article 7, the DSB shall, upon 
request, initiate the procedure to obtain such information".
  
38. The European Union asserts that the following te n considerations relating to the text and 
context of Annex V support its position that action is in itiated by negative consensus.  First, the direct 
cross-reference in paragraph 2 of  Annex V to Article 7.4 of the SCM Agreement  provides a "strong 
textual basis"102 for negative consensus to initiate an Annex V procedure, particularly in the light of 
the arguments made in relation to Article 22.6 of the DSU above. 
39. Second, the terms used in paragraph 2 of Annex V indicate that "the provision creates 
{a mandatory} obligation on the DSB to proceed  according to the terms of the treaty".103  No such 
mandatory language is used in the DSU wher e decision is required by consensus.  The 
European Union argues that "Members would not ob lige the DSB to act, and yet at the same time 
provide the defending Member in a dispute w ith the means to frustrate such action".104  Such "internal 
incoherence" would make the treaty provision "wholl y ineffective", thus, an interpretation requiring a 
consensus decision must be avoided.105 
40. Third, paragraph 2 of Annex V uses the term "req uest", which is also used in Articles 6.1, 
22.6, and 22.7 of the DSU.  This provides further support for mandatory DSB initiation upon the 
satisfaction of the one condition of receiving a request. 
                                                      
102European Union's appellant's submission, para. 21.  
103European Union's appellant's submission, para. 33. 
104European Union's appellant's submission, para. 33. (original underlining omitted) 
105European Union's appellant's submission, para. 33. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 22 HSBI omitted, as indicated [[HSBI]]  
 
  41. Fourth, the ordinary meaning of the word "under" in paragraph 2 of Annex V includes 
"covered by", "subject to the authority".
106  The initiation of an Annex V procedure is, therefore, 
subject to the negative consensus rule in Article 7.4 of the SCM Agreement .  The references to "cases" 
and "matters" in paragraph 2 of Annex V also provide this link to Article 7.4. 
42. Fifth, Article 2.1 of the DSU provides that the DSB administer relevant "rules and 
procedures".  Appendix 2 to the DSU includes Annex V to the SCM Agreement  as relevant rules and 
procedures for DSB rulings.  The use of the term "p rocedure" in Annex V thus "clearly falls within 
the scope of a DSB action by negative consensus admi nistering the rules and procedures referred to in 
the DSU ".107 
43. Sixth, the requirement in paragraph 1 of A nnex V for every Member to cooperate in the 
development of evidence and comply with the procedures "informs the remainder of Annex V"108 and 
provides strong support for the inability of a Member to block initiation of an Annex V procedure and 
therefore also for mandatory action by negative con sensus.  Article 1.2 of the DSU requires the same 
interpretation in order to avoid conflict between diffe rent provisions.  The European Union argues that 
the drafters of the SCM Agreement could not have intended to ma ke initiation of an Annex V 
procedure mandatory ("the DSB shall … initiate") a nd at the same time enable a Member to block 
such initiation.   
44. Seventh, pursuant to paragraph 5 of Annex V, the information-gathering process shall be 
completed within 60 days from the matter's referral to the DSB.  Therefore, there is an implicit 
assumption that an Annex V procedure will be estab lished contemporaneously with the panel for the 
same "matter" following the same negative consensus action.  
45. Eighth, paragraphs 6 to 9 of Annex V in eff ect create penalties for the non-cooperation of a 
Member.  Permitting a WTO Member to block initi ation of an Annex V procedure by requiring a 
consensus decision would defeat the purpose of these provisions. 
46. Ninth, consequences for non-cooperation in  countervailing duty investigations under 
Article 12.7 of the SCM Agreement  are evidence that the drafters recognized the importance of 
gathering information in subsidies disputes.  Therefore, in the context of subsidies disputes involving claims of serious prejudice, there is no reason why a Member should be free to prevent information-
gathering with impunity. 
                                                      
106European Union's appellant's submission, para. 35 (referring to Shorter Oxford English Dictionary , 
5th edn, W.R. Trumble, A. Stevenson (eds) (Oxfor d University Press, 2002), Vol. 2, p. 3425). 
107European Union's appellant's submission, para. 37. 
108European Union's appellant's submission, para. 38.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 23  
 
  47. Tenth, the Appellate Body report in Canada – Aircraft  confirms the general principle that 
Members must cooperate during information-gathering procedures, and that it may be appropriate to 
draw adverse inferences when they fail to do so.
109 
48. The European Union contends that the Pane l erroneously "re-state{d}" part of the 
European Communities' complaint as a request for a ruling on "a narrow factual  proposition", namely, 
that the DSB had initiated an Annex V pr ocedure by action by negative consensus.110  In the 
European Union's view, the Panel's reasoning is "circular and unreasonable"111 because the Panel used 
as a justification for rejecting the Europ ean Communities' request precisely what the 
European Communities was challenging:  the absence of an Annex V procedure. 
49. The European Union also relies on the object and purpose to support its view that the 
initiation of the Annex V procedure "is and must be by action by negative consensus".112  It claims 
that the Annex V procedure is a "corollary and integral part"113 of panel establishment in a dispute 
settlement proceeding that is launched by negative c onsensus.  Finding that initiation of an Annex V 
procedure requires decision by consensus, hence allowing a veto of the defending party, would 
"severely limit the ability of a complaining party to successfully bring a serious prejudice case", and 
the SCM Agreement  "would be severely hampered".114  The European Union adds that the 
complaining party must have a tool to prepare its serious prejudice case by obtaining the necessary information prior to its written submissions to the panel. 
50. The European Union finds confirmation of its interpretation in the preparatory work of the 
SCM Agreement .  In this respect, the European Union r ecalls that the substantive provisions of 
Annex V to the SCM Agreement  first appeared in the third draft text  circulated by the Chairman of the 
Negotiating Group on Subsidies and Countervailing Measu res, and that "{i}t remains clear from this 
and subsequent drafts that the Annex V procedure was tied-to the panel request".
115  I n  t h e  
European Union's view, this explains why, when the reference to negative consensus was 
subsequently added to Article 7.4 of the SCM Agreement , it was well understood that the same 
decision-making rule would apply to the linked Annex V procedure. 
                                                      
109European Union's appellant's submission, para. 42 (referring to Appellate Body Report, Canada – 
Aircraft , para. 202).  
110European Union's appellant's submission, para. 50. (original emphasis) 
111European Union's appellant's submission, para. 50.  
112European Union's appellant's submission, para. 44.  
113European Union's appellant's submission, para. 44.  
114European Union's appellant's submission, para. 44.  
115European Union's appellant's submission, para. 45 (referring to MTN.GNG/NG10/W/38/Rev.2, 
2 November 1990). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 24 HSBI omitted, as indicated [[HSBI]]  
 
  51. The European Union characteriz es as "particularly instructive"
116 the fact that the Annex V 
procedure was added to the SCM Agreement  following a proposal made by the United States.  The 
European Union recalls that, in the Uruguay Ro und negotiations, the United States "eloquently 
explained"117 the object and purpose of its proposal, the essen tial elements of which were agreed to by 
all Members by consensus.  The European Un ion summarizes the United States' proposal as a 
"wish{}" for "an information gathering procedur e hand-in-hand with a panel procedure that is 
mandatory (that is, by negative consensus) backed up with a threat of adverse inferences in case of 
failure to co-operate".118 
52. In the light of the above, th e European Union requests the A ppellate Body to reverse the 
Panel's findings denying the European Communities' requests and to complete the analysis and make 
the following findings:  (i) that the initiation of  an Annex V procedure is by action by negative 
consensus;  (ii) that, as a matter of law, all the conditions for the initiation of an Annex V procedure 
were fulfilled in this case, and such procedure was initiated and/or is deemed to have been initiated 
and/or should have been initiated;  (iii) that, in refusing to cooperate in the information-gathering 
process, the United States failed to comply with its obligations under the firs t sentence of paragraph 1 
of Annex V to the SCM Agreement ;  and (iv) that the European Communities was entitled to present 
its serious prejudice case based on th e evidence available to it, that the Panel was entitled to complete 
the record as necessary relying on best informatio n otherwise available, and that the Panel was 
entitled to draw adverse inferences.119 
53. At the oral hearing, the European Union placed less emphasis on the alleged distinction 
between DSB "actions" and "decisions".  Instead, the European Union focused its arguments on the 
reasons why it considers that the DSB may deci de to initiate Annex V procedures by negative 
consensus.  The European Union also provided ad ditional arguments to support its view that the 
Appellate Body has jurisdiction to make a ruling on this matter.  
2. Financial Contribution – Scope of Article 1.1(a)(1) of the SCM Agreement  
54. The European Union requests reversal or modification of the Panel's finding that 
Article 1.1(a)(1) excludes "purchases of servi ces" by a government from the scope of the 
SCM Agreement .  However, the European Union does not re quest the Appellate Body to complete the 
                                                      
116European Union's appellant's submission, para. 46 (referring to MTN/GNG/NG10/W/40, 5 October 
1990, pp. 2-3).  
117European Union's appellant's submission, para. 46.  
118European Union's appellant's submission, para. 47. 
119European Union's appellant's submission, paras. 51 and 52.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 25  
 
  analysis by examining the USDOD RDT&E progra mme measures that were found by the Panel to 
constitute purchases of services. 
55. The European Union argues that, in adopting an  interpretation of Article 1.1(a)(1) that 
excludes purchases of services by a government from the scope of the SCM Agreement— even if those 
transactions included "direct transfers of funds",  "provi{sion} {of} goo ds", or other activities 
specifically covered by Article 1.1(a)(1)—the Panel failed to apply properly the customary rules of 
treaty interpretation codified in Articles 31 to 33 of the Vienna Convention on the Law of Treaties
120 
(the " Vienna Convention ").  The Panel's interpretation provides "a road map for entirely avoiding the 
disciplines of the SCM Agreement ", and "would allow Members to massively distort international 
trade in goods , by transferring enormous amounts of funding to specific industries and companies on 
non-market terms, as long as those 'transfers of funds' are pursuant to transactions properly 
characterised as purchases of services".121  The European Union contends that the Panel failed to 
consider, in a holistic manner and in accordance with Article 31(1) of the Vienna Convention , the 
ordinary meaning of the terms of Article 1.1(a)(1), in  their context, and in the light of their object and 
purpose.122  In particular, the European Union objects to the Panel's evaluation of "context" and 
"object and purpose". 
56. The European Union recalls that the Panel de rived two conclusions from the context provided 
by Article 1.1(a)(1)(iii) and Article 14(d) of the SCM Agreement , which reference the provision of 
"goods or services" and the purchase of "goods", but not the purchase of services.123  First, that the 
drafters intended such an exclusion, even if the tr ansactions could be covered by other elements of the 
definition of financial contribution;  and, second, that such an interpretation would render the term 
"purchases {of} goods" under Article 1.1(a)(1)(iii) inutile.  The European Union notes that the 
Appellate Body has, in previous cases, emphasized  the holistic nature of treaty interpretation and 
cautioned that an interpretation that excessively na rrows the meaning of a term in a manner that 
frustrates the object and purpose of the treaty cannot constitute a "holistic" interpretation.124  I n  
finding that the ordinary meaning of the term  "direct transfer of funds" in its context excludes  a 
significant class of direct transfers of funds (that is, those that occur pursuant to transactions properly 
                                                      
120Done at Vienna, 23 May 1969, 1155 UNTS 331;  8 International Legal Materials 679. 
121European Union's appellant's submission, para. 103. (original emphasis) 
122European Union's appellant's submission, paras. 102 and 103.  The European Union recalls 
approvingly the Panel's finding that the "ordinary meaning" of the phrase "a government practice involves a 
direct transfer of funds" in Article 1.1(a)(1)(i) is broad enough to cover fund transfers that occur as part of a purchase of services. ( Ibid., para. 104 (referring to Panel Report, para. 7.954)) 
123European Union's appellant's submission, paras. 108-110 (referring to Panel Report, paras. 7.955 
and 7.956). 
124European Union's appellant's submission, paras. 111 and 112 (referring to Appellate Body Report, 
US – Continued Zeroing , para. 268). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 26 HSBI omitted, as indicated [[HSBI]]  
 
  characterized as "purchases of services"), the Panel di d not rely on the context and object and purpose 
to "narrow the range of possible meanings of the treaty term".
125  Nor did the Panel seek to "ascertain 
the common intention of the parties"126 to the treaty, which is the goal of treaty interpretation under 
Article 31 of the Vienna Convention .  Instead, the Panel put aside concerns over object and purpose, 
and found that there is "every reason to believe"127 that future panels will somehow be able to deal 
effectively with "the enormous loophole potentially created by the interpretation".128 
57. The European Union further alleges that the Panel erred in concluding that the 
European Communities' interpretation could re nder the term "purchases {of} goods" "inutile".129  
Specifically, the Panel failed to appreciate, as pointed out by the panel in Japan – DRAMs (Korea) , 
that "certain … transactions might be covered simultaneously by differe nt sub-paragraphs of 
Article 1.1(a)(1)"130, and that such overlap is not unexpected .  Consequently, an interpretation that 
would allow purchases of goods to be covered by two different subparagraphs of  Article 1.1(a)(1) is 
neither unexpected nor discouraged in some way, a nd there is no need to attempt to interpret the 
ordinary meaning so as to avoid that result.  Moreover, the text of the SCM Agreement  itself 
acknowledges that overlaps between categories of fina ncial contributions are an integral feature of 
Article 1.1(a)(1), and therefore do not indicate "inuti lity" of certain subparagraphs of that provision.  
As an illustration, the European Union notes that an equity infusion could fall both under Article 1.1(a)(1)(i) as a "direct transfer of f unds", as well as under Article 1.1(a)(1)(iii) as a 
"purchase{} {of} goods". 
58. Moreover, the European Union asserts that the Panel also erred by dismissing the 
European Communities' interpretation on the ground that "the scope a nd coverage of Article 1.1(a)(1) 
of the SCM Agreement  would be precisely the same if those words { i.e., 'purchases goods'} had not 
been added to Article 1.1(a)(1)(iii)".
131  In the European Union's view , the scope of application of 
                                                      
125European Union's appellant's submission, para. 113 (quoting Appellate Body Report, China – 
Publications and Audiovisual Products , para. 399). 
126European Union's appellant's submission, para. 114 (quoting Appellate Body Report, US – 
Anti-Dumping and Countervailing Duties (China) , para. 312). 
127European Union's appellant's submission, para. 114 (referring to Panel Report, para. 7.960). 
128European Union's appellant's submission, para. 114. 
129Panel Report, para. 7.956.  
130European Union's appellant's submission, para. 115 (referring to Panel Report, Japan – DRAMs 
(Korea) , para. 7.439).  See also Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.92, 
where that panel found that the purchase of corpor ate bonds constitutes a "direct transfer of funds". 
131Panel Report, para. 7.956.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Article 1.1(a)(1)(iii) may serve an important purpo se that is not covered under any other subparagraph 
of Article 1.1(a)(1).
132 
59. With respect to the Panel's evaluation of th e object and purpose, the European Union notes 
that the SCM Agreement  aims to "impose multilateral disciplines on subsidies which distort 
international trade" in goods.133  Moreover, the Appellate Body has held that "measures that involve a 
service relating to a particular good"134 properly fall within the scope of the Multilateral Agreements 
on Trade in Goods in Annex 1A of the Marrakesh Agreement Establishing the World Trade 
Organization  (the " WTO Agreement ").  Thus, transactions properly characterized as "purchases of 
services" that nonetheless relate to a particular "good" should not fall outside the scope of the 
SCM Agreement .  The Panel's approach would create "a considerable gap"135 in the coverage of the  
SCM Agreement  as it would allow a Member to avoid entirely the  SCM Agreement  simply by asking 
for some type of service from a goods producer in exchange for something that would otherwise be 
considered an actionable or prohibite d subsidy under Parts II and III of the  SCM Agreement  (whether 
through a transfer of funds, foregoing of government  revenue otherwise due, or provision of goods or 
services). 
60. Furthermore, the European Union observes that, in  the application of its own test to the R&D 
contracts and agreements in this dispute—that is, whether the service contract was principally for the 
benefit and use of the US Government (or unrelated third parties)136—the Panel did not eliminate the 
"loophole"137 created by an exclusion of purchases of services from the scope of the SCM Agreement .  
In the European Union's view, the Panel's test allows  Members to package together in one transaction:  
(i) a transaction properly characterized as a "purchase of  services" (whether or not for market value);  
and (ii) an enormous direct transfer of funds in the form of a grant.138  Even if, as the Panel noted, 
                                                      
132European Union's appellant's submission, para. 117.  The European Union provides an example of 
such a transaction, such as where the government purch ases goods from a company, and the "consideration" for 
the purchase is or includes the prom ise to exercise government discretion in enforcing regulations in a certain 
way, or to provide preferential treatment in competitions for future government contracts. ( Ibid.) 
133European Union's appellant's submission, para. 118 (referring to Panel Report, Brazil – Aircraft , 
para. 7.26;  and  Panel Report, Brazil – Aircraft (Article 21.5 – Canada II) , para. 4.4). 
134Appellate Body Report, EC – Bananas III , para. 221. 
135European Union's appellant's submission, para. 119.  In support of its argument, the European Union 
refers to the Appellate Body's finding in Canada – Autos , where the Appellate Body did not treat the omission 
of the term "in law or in fact" under Article 3.1(b) of the SCM Agreement  (where it was expressly included in 
the preceding subparagraph 3.1(a)) as excluding a refere nce from that Article's scope of coverage of de facto  
contingency on the use of domestic over imported goods.  The Appellate Body explained that limiting the 
application to only contingency "in law" would be contrary to the object and purpose of the SCM Agreement  and 
encourage circumvention of its disciplines. ( Ibid., para. 120 (referring to Appellate Body Report, Canada – 
Autos , paras. 142 and 143)) 
136European Union's appellant's submission, para. 123 (referring to Panel Report, para. 7.1137). 
137European Union's appellant's submission, paras. 121 and 123.   
138European Union's appellant's submission, paras. 123 and 124. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  panels and domestic inve stigating authorities could detect transac tions not properly characterized as 
"purchases of services", Members could still combin e transactions properly characterized as 
"purchases of services" with grants in a manner that  shields the grants from the disciplines of the 
SCM Agreement .
139 
61. Finally, with respect to the supplementary means of interpretation provided for under 
Article 32 of the Vienna Convention , the European Union believes that the negotiating history 
provides "limited insight into the conclusions th at can already be drawn under the Article 31 
interpretation".140  Neither the Panel nor the parties could a ttribute any significance to the elimination 
of the term "purchase of services" from earlier drafts of Article 1.1(a)(1).  In particular, whereas it remains unclear why the drafters omitted an exp licit reference to "purchase of services", "it is 
unambiguously clear that the drafters did not insert an exemption  in the SCM Agreement  according to 
which a transaction that 'involves a direct transfer of funds' or 'provi{sion} {of} goods or services 
other than general infrastructure'"
141 would fall outside the scope of Article 1.1(a)(1) to the extent that 
it is also considered a "purchase of services". 
3. Specificity – Allocation of Patent Rights 
62. The European Union claims that the Panel erre d in its interpretation of the term "granting 
authority" in Article 2.1 of the SCM Agreement  when it found that the "granting authority" in this case 
was the US Government as a whole.   
63. The European Union's asserts that the Panel did not set out a systematic interpretation of the 
term "granting authority" in accordance with the Vienna Convention , but rather implicitly interpreted 
the term as encompassing the highest authority of the US Government instead of the particular 
authority that actually granted the subsidies at issue.   The ordinary meaning of "granting authority" is 
the "body or persons exercising power" that "bestow {s} or confer{s}" a subsidy "as a favour, or in 
answer to a request".142  In addition, different provisions of the SCM Agreement  employ different 
terms to reference the actor at issue—for example, whereas Article 2.1 refers to "granting authority", 
Articles 5 and 6 use the term "Member".  In the European Union's view, if the drafters of the 
SCM Agreement  had intended Article 2.1 to focus on the activities of the government as a whole, they 
would have used the term "Member" in that provisi on as well.  Thus, the use of different terms in the 
                                                      
139European Union's appellant's submission, para. 124.   
140European Union's appellant's submission, para. 125. 
141European Union's appellant's submission, para. 126. (original emphasis) 
142European Union's appellant's submission, para. 72 (referring to Oxford English Dictionary ,  
online version as at November 2010, availa ble at <http://www.oed.com:80/Entry/80776> and 
<http://www.oed.com:80/Entry/13349>, respectively).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  SCM Agreement  and other WTO agreements "confirms a di stinction between a 'Member', on the one 
hand, and 'authorities' comprising a Member's in ternal governmental structures, on the other"
143, and 
the European Union therefore rejects the Panel's interpretation of "granting authority" as being 
equivalent to "Member".  The European Union fu rther asserts that the object and purpose of the 
SCM Agreement  could be frustrated by an interpretation of Article 2.1 "that looks to government-wide 
policies of a Member, rather than the actions and le gislation of the authority that actually provides the 
subsidy".144   
64. The European Union notes that, acco rding to Article 2.1(a) of the SCM Agreement , either the 
"granting authority" or "the legislation pursuant to which the granting authority operates" can "explicitly limit{} access to a subsidy", and therefore specificity can be analyzed from either of these 
two points of view.  Moreover, under Article 2. 1(b), which was not specifically addressed by the 
Panel, specificity may likewise be evaluated from the perspective of either the "granting authority" or 
the "legislation pursuant to which the granting authority operates".  The United States did not properly present a developed defence under the terms of Artic le 2.1(b), and the Panel did not evaluate the 
United States' arguments according to the terms of Article 2.1(b), nor did it make any findings that the 
United States had met the factual requisites of that  provision.  If the Panel had properly considered 
Article 2.1(b), "the Parties' argum ents may have ultimately turned to  Article 2.1(c), pursuant to which 
the European Union had also presented argument and evidence".
145  The European Union lastly 
contends that, by focusing its analysis exclusiv ely on Article 2.1(a), the Panel failed to interpret 
Article 2.1 in a holistic manner. 
65. The European Union submits that, as a conseque nce of adopting an erroneous interpretation 
of the term "granting authority", the Panel also erred in its application of Article 2.1 of the 
SCM Agreement .  The European Union notes that it is undisputed that NASA has its own specific 
legislation and regulations concerning patent waivers.  NASA's statutory basis for performing 
aeronautical R&D is provided by the Space Act, which specifically states that any invention made 
pursuant to a NASA contract "shall be the exclusive property of the United States, and if such 
                                                      
143European Union's appellant's submission, para. 74.  The European Union further underlines that 
several provisions of the SCM Agreement  repeatedly refer to "the authorities of a Member" and "the authorities 
of the importing Member", that both the SCM Agreement and the Agreement on Implementation of Article VI of 
the General Agreement on Tariffs and Trade 1994  (the " Anti-Dumping Agreement ") frequently and consistently 
use "authority" or "authorities" as signifying an investigating authority of a Member, and that other WTO 
agreements also distinguish between "authority" and "Mem ber" by utilizing the term "authority" when referring 
to internal government entities. ( Ibid.) 
144European Union's appellant's submission, para. 76. 
145European Union's appellant's submission, para. 77 (referring to European Communities' first written 
submission to the Panel, paras. 854-856;  and European  Communities' second written submission to the Panel, 
paras. 578-582). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  invention is patentable a patent therefor  shall be issued to the United States"
146 unless waived by 
NASA.  The European Union also notes that th e Panel correctly acknowledged that, pursuant to 
NASA-specific regulations, NASA generally waives patent rights to contractors at their request.147  In 
the light of such a process of requesting and granti ng patent waivers, it is clear that the "granting 
authority" is NASA, and not the US Government as  a whole, because the request to waive the patent 
right is made to NASA, and NASA is the body that bestows or confers the patent waiver. 
66. As regards USDOD patent transfers, the Eur opean Union submits that, when applying its 
interpretation of "granting author ity", the Panel likewise erred in finding that USDOD patent transfers 
are not "specific" within the meaning of Article 2.1(a) of the SCM Agreement .  The European Union 
recalls the uncontested fact that, as the entity that  grants the R&D contracts, the USDOD need not 
waive or grant rights in favour of a contractor  to inventions arising from USDOD-funded contracts.148  
As with NASA, the USDOD is the "granting author ity", because it is the body that includes in its 
R&D contracts the clauses providing that contract ors are generally entitled to the rights from the 
inventions developed pursuant to these contracts, a nd it is also the body that chooses not to exercise 
its authority to remove this entitlement.  The Panel found, as an alternative basis for specificity of the 
USDOD RDT&E programme as a whole, that "RDT&E  funding goes 'predominantly' to firms in the 
defense industry, and this is enough to establis h de facto specificity under Article 2.1(c)".149  
Consequently, it is the European Union's contention that the transfers of patent rights deriving from the RDT&E funding likewise go predominantly to firms in the defence industry.
150   
67. In its oral statement at the first session of the oral hearing, the European Union emphasized 
that it had argued before the Panel that the a llocations of patent rights under NASA and USDOD 
contracts and agreements are specific, based on both Articles 2.1(a) and 2.1(c) of the SCM Agreement .  
The European Union explained that, under Article 2.1(a), it had focused on the explicit limitations in 
the types of R&D that NASA and USDOD could fund,  and consequently the enterprises that could 
benefit from the patent waivers.  The European Union noted that it had presented evidence to the 
Panel regarding the manner in which discretion has been exercised by the granting authority in the 
decision to grant a subsidy in accordance with Artic le 2.1(c).  It had also argued that Boeing,  
                                                      
146Space Act, section 305(a)(2). 
147European Union's appellant's submission, para. 80 (referring to Panel Report, para. 7.1287). 
148European Union's appellant's submission, para. 88 (referring to Panel Report, para. 7.1291). 
149Panel Report, para. 7.1197. 
150The European Union points out that the United States did not contest the key underlying facts 
regarding the RDT&E funding, for example, the aver age share of RDT&E fundin g distributed to Boeing 
(12.6%) and to five aerospace companies (45.2%). (European Union's appellant's submission, para. 91 (referring 
to United States' first written submission to the Panel, para . 338))  Accordingly, in the European Union's view, if 
the proper "granting authority" is determined, such undisputed facts provide a strong basis for a finding of 
specificity within the meaning of Article 2.1 of the SCM Agreement . (Ibid.)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  together with four other companies, received up to 45% of the total USDOD R&D funding, which 
also supports a finding of disproportionality.  The Panel failed to consider any of the 
European Communities' evidence and arguments regard ing Article 2.1(c) and hence ignored the third 
set of principles in that provision.  In the European  Union's view, the Panel's failure to consider the 
actions of the authorities that exercise the discretion to grant a subsidy creates an important gap in the 
subsidy disciplines.  In the case at issue, NASA and the USDOD had some discretion in deciding 
whether to waive/transfer the patent rights, and wh ether to enter into the R&D contracts in the first 
place.  However, although there was a claim of de facto  specificity pursuant to Article 2.1(c), the 
Panel came to a sudden and unexpected halt after c onsidering the arguments under Article 2.1(a).  The 
European Union therefore considers that the Pane l failed to provide the holistic interpretation and 
application of Article 2.1 required by the SCM Agreement .   
4. Adverse Effects  
68. The European Union requests the Appellate Body to:  (i) reverse the Panel's finding that it 
was not "appropriate to aggregate" the effects of the B&O tax rate reductions with the effects of the 
aeronautics R&D subsidies in the 200-300 seat LCA market151;  (ii) reverse the Panel's finding that the 
remaining subsidies, on their own, do not cause adverse effects152;  and (iii) reverse the Panel's finding 
that the USDOD RDT&E programmes (other th an the Manufacturing Technology Program 
("ManTech programme") and the Dual Use Science and Technology Program ("DUS&T 
programme")) do not cause the same effects as the ot her aeronautics R&D subsidies, at least to the 
extent that the remaining USDOD RDT&E progra mmes are funded through a ssistance instruments.153  
In connection with the second of these requests, th e European Union further requests the Appellate 
Body to complete the analysis and find that, wh en aggregated with the tax subsidies (or the 
aeronautics R&D subsidies and the tax subsidies) that were found to cause adverse effects, the 
remaining subsidies also cause adverse effects.  The European Union does not seek to have the 
Appellate Body complete the analysis with respect to the other two grounds of appeal. 
(a) Collective assessment of the aer onautics R&D subsidies and the 
B&O tax rate reductions and their effects 
69. The European Union submits that the Panel e rred in its interpretati on and application of 
Articles 5 and 6.3 of the SCM Agreement  when it declined to assess the cumulative effects  of the B&O 
tax rate reductions and the aeronautics R&D subsidies in the 200-300 seat LCA market.  The reason 
given by the Panel for assessing the effects of these two groups of subsidies separately—that the two 
                                                      
151Panel Report, para. 7.1824. 
152Panel Report, para. 7.1828. 
153Panel Report, para. 7.1701. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  groups of subsidies operate through "entirely distinct causal mechanisms"
154—ignores the fact that 
both contributed to a negative commercial impact  on Airbus LCA in the 200-300 seat LCA market, 
and is not a legitimate basis to refrain from assessi ng the cumulative effects of all of the subsidies.  
Although panels enjoy a certain degree of discr etion in selecting an appropriate methodology for 
determining the effects of a subsidy, this discre tion is not unbounded, and does not permit a panel to 
isolate or compartmentalize its analysis so as to mask the contribution of any subsidy to adverse 
effects.  Rather, a proper interpre tation of Articles 5 and 6.3 of the SCM Agreement requires panels to 
assess—quantitatively or qualitatively—the collective e ffects of all subsidies that impact competition 
in the market at issue.   
70. The European Union suggests that the following ap proach is the proper one to take.  Initially, 
a panel should examine the nature of the individual s ubsidies, in terms of their structure, design, and 
operation, and aggregate in a group those specific subsidies that have a sufficient nexus to the 
subsidized product and have a similar structure, d esign, and operation.  Next, a panel should assess, 
by individual subsidy or group of subsidies, wh ether and how each subsi dy or group of subsidies 
provides a competitive advantage to the subsidized pr oducer and its products in the market.  At this 
stage of its analysis, as the Appellate Body has stat ed in previous disputes, a panel has a degree of 
discretion to structure its approach, and to select the evidence on which to rely.155  Irrespective of how 
a panel exercises that discretion, ultimately it mu st assess—quantitatively or qualitatively—whether 
the collective competitive impact of the different (groups of) subsidies found to have a negative 
impact on competition in the market causes one or more of the particular forms of adverse effects 
listed in Article 6.3 of the SCM Agreement . 
71. The European Union relies upon the text of Articles 5 and 6.3, in their context, as well as the 
object and purpose of the SCM Agreement , in support of its position.  Th e broad reference in Article 5 
to "the use of any subsidy "156, coupled with the broad reference in Article 6.3 to a "subsidized 
product", shows that neither provision distinguishes be tween different types of subsidies, and suggests 
that these provisions discipline the co llective impact of any and all s ubsidies benefiting the subsidized 
product in the market at issue.  These provisions make no reference to or distinction between any 
particular causal mechanisms.  Accordingly, in un dertaking the causation analysis required by these 
provisions, a panel must consider collectively the e ffects of all subsidies that support the same product 
and negatively impact competition in the market at issue in determining whether they amount to adverse effects within the meaning of Article 6. 3.  Articles 5 and 6.3 provide no support for an 
                                                      
154Panel Report, para. 7.1824. 
155European Union's appellant's submission, para. 202 (referring to Appellate Body Report, US – 
Upland Cotton , para. 436;  and Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 370). 
156Emphasis added by the European Union.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  interpretation that the effects of different subs idies cannot be assessed cumu latively simply because 
those subsidies affect competition th rough "distinct causal mechanisms".
157  The now expired 
Article 6.1 of the SCM Agreement  also provides contextual support for a cumulative assessment of the 
effects of subsidies in two ways.  First, in determining whether subsidies rise to an ad valorem level 
of subsidization sufficient to trigger the presumption of serious prejudice, Artic le 6.1(a) and Annex IV 
mandated that all subsidies be included (except those that are non-actionable).  Second, 
Article 6.1(b), (c), and (d) indicate that, when the drafters of the SCM Agreement wished to require 
isolation of the effects of particular types of s ubsidies, they did so explicitly.  Those provisions 
expressly identified types of subsidies that benefited the subsidiz ed product and affected the market at 
issue through a particular causal mechanism (subs idies covering operating losses for an industry or 
enterprise, as well as direct forgiveness of debt) and created a presumption of serious prejudice.  By 
contrast, Article 6.3 makes no distinction between subsidies based on their type or causal mechanism;  
instead, it focuses on the effects of subsidies.   
72. Moreover, the Panel's interpretation undermines the object and purpose of the 
SCM Agreement , which requires that its provisions be inte rpreted so as to "strengthen and improve"158 
the actionable subsidy disciplines, rather than undermine them.  The Panel's interpretation would 
enable Members to escape a finding of serious prejudice by providing a series of small subsidies each of which affects the recipient in a slightly differe nt way.  Under the Panel's approach, because these 
small subsidies work along different causal pathways, their effects may not be cumulated.  Thus, such 
subsidies could not be found to cause adverse effects if each, on its own, causes a degree of trade 
distortion that is insufficient to amount to adver se effects.  In reality, however, the respondent 
Member would, "through the use of any subsidy re ferred to in paragraphs 1 and 2 of Article 1, 
{cause} adverse effects".
159  The Panel's approach, therefore, undermines the object and purpose of 
the SCM Agreement .  In US – Upland Cotton , the Appellate Body highlighted the importance of 
examining whether the non-price-contingent  subsidies "contribute to price suppression"160, which the 
European Union considers to be fully consistent  with an approach whereby an assessment under 
Articles 5 and 6.3 would require consideration of whether each challenged specific subsidy benefiting 
a common subsidized product contributes to the same adverse effects claimed.   
                                                      
157Panel Report, para. 7.1824.  
158European Union's appellant's submission, para. 210.  
159European Union's appellant's submission, para. 211 (quoting Article 5 of the SCM Agreement ).  
160Appellate Body Report, US – Upland Cotton , footnote 589 to para. 450.  The European Union notes 
that Brazil did not appeal the panel's refusal to cumu late any effects of non-price-contingent subsidies. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 34 HSBI omitted, as indicated [[HSBI]]  
 
  73. The European Union recalls its argumen ts before the Panel that:  (i) " the aeronautics R&D 
subsidies  ... 'have helped Boeing develop, launch a nd produce a technologically-advanced 200-300 
seat LCA much more quickly than it could have on its own'"
161;  and (ii) " all of the subsidies  have ... 
'price effects' in that they have enabled Boeing to charge lower prices for its LCA".162  T h e  
United States did not address the issue of aggregati on, because it argued that the subsidies had neither 
technology effects nor price effects.  Because the European Communities raised claims and presented 
arguments regarding the adverse effects caused jointly by the B&O tax rate reductions and the 
aeronautics R&D subsidies in the 200-300 seat LCA market, the Panel was required to assess the 
effects of these subsidies cumulatively.  The Europ ean Union highlights, in this regard, that, with 
respect to the 100-200 seat and 300-400 seat LC A markets, the Panel found "inescapable"163 its 
conclusion that the cumulative effects of the FSC /ETI subsidies and the B&O tax rate reductions 
caused significant price suppression, significant lost sales, and displacement and impedance to the 
European Communities' interests.  These are th e same forms of adverse effects that the 
European Communities claimed the B&O tax rate reductions have caused in the 200-300 seat LCA 
market.164  Given, therefore, that the evidence that was before the Panel suggests that the B&O tax 
rate reductions could contribute to the adverse e ffects caused by the aeronautics R&D subsidies, both 
of which benefit the 787, the Panel was requi red to assess the effe cts of these subsidies 
cumulatively—even if it found that, "on their own"165, the B&O tax rate reducti ons were not shown to 
cause adverse effects in that market.   
74. The European Union considers that the Appellate Body report in EC and certain member 
States – Large Civil Aircraft supports its claim that the Panel's failure to aggregate the effects of the 
B&O tax rate reductions with the effects of th e aeronautics R&D subsidies in the 200-300 seat LCA 
market amounts to reversible legal error.  In that dispute, the Appellate Body recognized that a panel's 
discretion to structure its causation analysis is  not unlimited and cannot absolve it from having to 
establish a genuine and substantial relationship of cause and effect.  As the United States argued in 
that appeal, "isolating certain subsidies from a pa nel's causation analysis 'would permit circumvention 
of the disciplines of Article 6.3 in the case of sm aller measures that individually would not have 
caused adverse effects, but which collectively would affect competition in a manner inconsistent with 
                                                      
161Panel Report, para. 7.1597 (quoting European Co mmunities' first written submission to the Panel, 
para. 1343). (emphasis added by the Panel) 
162Panel Report, para.  7.1598 (quoting European Communities' first written submission to the Panel, 
para. 1229). (emphasis added by the Panel) 
163Panel Report, para. 7.1822. 
164European Union's appellant's submission, para. 216 (referring to Panel Report, para. 7.1822).   
165European Union's appellant's submission, para. 216.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Articles 5 and 6.3'."
166  The Appellate Body clarified that, wh en individual subsidies are aggregated, 
causation may be established for all of those aggregated subsidies, even if  some individual subsidies 
(or groups of subsidies) could not be found to be a genuine and substantial cause of adverse effects if 
considered separately.   
75. The European Union further notes that, in that dispute, the Appellate Body also held that 
subsidies may be aggregated in some circumstan ces, even where those subsidies have important 
"differences in the{ir} nature and operation", which "may suggest that these measures ha{ve} distinct 
effects".167  The Appellate Body found that, as long as the discrete subsidies "all have a genuine 
causal link" with the claimed market impact, th ey can be considered as "complement{ing} and 
supplement{ing}" each other.168  The Appellate Body further found that subsidies that were quite 
distinct from the launch aid/member State financ ing ("LA/MSF") subsidies in form, design, and 
operation (equity infusions, runway extensions, and other infrastructure subsidies) should be 
aggregated with the LA/MSF subsidies.  In this  case, the B&O tax rate reductions complement and 
supplement the effects of the aeronautics R&D subs idies, because they suppo rt Boeing's ability to 
achieve a pricing advantage.  Thus, according to  the European Union, having found that the 
aeronautics R&D subsidies allow Boeing to suppress Airbus' pricing in the 200-300 seat LCA market, 
and having also found that the B&O (along with  the FSC/ETI) tax subsidies had the capacity to 
suppress Airbus' pricing in the 100-200 seat and 30 0-400 seat LCA markets, the Panel should have 
aggregated the B&O tax rate reductions for the 200-300 seat LCA market with the aeronautics R&D 
subsidies.   
(b) Collective assessment of the tied tax subsidies and the remaining 
subsidies and their effects 
76. The European Union asserts that the Panel also erred in its interpretation and application of 
Articles 5 and 6.3 of the SCM Agreement  by failing to aggregate the tied tax subsidies with the 
remaining subsidies.  The European Union requests the Appellate Body to reverse the Panel's finding 
that the remaining subsidies do not, on their own, cau se adverse effects, and to find, instead, that the 
remaining subsidies also cause adverse effects when  aggregated with the tied tax subsidies (or with 
the aeronautics R&D subsidies coupled with the tied  tax subsidies) that we re found to cause adverse 
effects.  Given the adverse effects finding for the tied tax subsidies alone, a proper cumulative 
analysis must also result in an adverse effects finding for the remaining subsidies. 
                                                      
166European Union's appellant's submission, para. 726 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1367).  
167Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1397. 
168European Union's appellee's submission, para. 733 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1397). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  77. Referring to the statement by the panel in EC and certain member States – Large Civil 
Aircraft , the European Union submits that it is appropr iate to aggregate subsidies that complement 
and supplement each other in circumstances where th e subsidies have a "sufficient nexus with the 
subsidized product ... {and} they also have a suffici ent nexus with 'the par ticular effects-related 
variable{s} under examination'".
169  It follows that the Panel in this case should not have segregated 
its adverse effects analysis so that it could take account of the combined market effect of subsidies 
that collectively enhance Boeing's ca sh flow and ability to price down  its LCA.  Both the remaining 
subsidies and the tied tax subsidies contribute to pri ce effects and also satisfy the requirements set out 
by the panel in US – Upland Cotton for an "integrated examination of effects of any subsidies", in that 
the remaining subsidies (i) have "a sufficient nexus " with the "subsidized product" (that is, Boeing 
LCA) and (ii) impact the same "effects-related variable" as the tie d tax subsidies (that is, price).170  
Furthermore, the Appellate Body in the US – Upland Cotton  dispute recognized that 
non-price-contingent subsidies could nevertheless co ntribute to price suppression, and thereby implied 
that the panel could have aggregated non-price- contingent subsidies with the price-contingent 
subsidies.171   
78. The European Union considers that the Appellate Body report in EC and certain member 
States – Large Civil Aircraft further supports its claim that the Panel's failure to aggregate the effects 
of the tied tax subsidies with the effects of the remaining subsidies constitutes legal error.  The 
Appellate Body's findings in that case show that s ubsidies of a different nature can be aggregated 
when they have a genuine causal link with the same ove rall effect claimed.  In this dispute, the Panel 
found that the remaining subsidies increased the am ount of cash benefitting Boeing by $550 million.  
Instead of finding that subsidies "of this amount"172 did not result in market effects rising to the level 
of serious prejudice, the Panel should have combined the effects of those subsidies with the effects of 
the other subsidies causing the same market effect s.  The effects of these two groups of subsidies 
complemented and supplemented the "perv asive and consistent pricing advantage"173 enjoyed by 
Boeing resulting from the effects of the tied tax subs idies, because Boeing had those additional funds 
at its disposal to use in strategic sales campaigns .  Thus, having found that the tied tax subsidies 
caused, in and of themselves, serious prejudice, th e Panel should have cont inued its analysis and 
found that the remaining subsidies complement a nd supplement the pricing effects of those tax 
subsidies.   
                                                      
169Panel Report, EC and certain member States – Large Civil Aircraft , para. 7.1961.   
170Panel Report, US – Upland Cotton , para. 7.1192.  
171European Union's appellant's submission, para. 230 (referring to Appellate Body Report, US – 
Upland Cotton , footnote 589 to para. 450). 
172Panel Report, para. 7.1828. 
173European Union's appellee's submission, para. 737 (quoting Panel Report, para. 7.1819).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  79. The European Union also argues that the Pane l erred in not cumulating the effects of the 
remaining subsidies with the effects of both the aer onautics R&D subsidies and the tied tax subsidies.  
The Panel was tasked with assessing whether the u se of the challenged subsidies cause adverse 
effects, and erred by limiting its assessment to the question of whether the remaining subsidies, on 
their own, cause adverse effects.  By failing to take  the proper analytical steps to cumulate the effects 
of the remaining subsidies with the effects of th e aeronautics R&D subsidies (and the effects of the 
tied tax subsidies), the Panel failed to comply  with the causation requirements under Articles 5 
and 6.3 of the SCM Agreement .   
5. Article 11 of the DSU 
80. The European Union argues that the Panel acted  inconsistently with the principle of due 
process on two separate, but related, grounds when it decided to exclude all but two of the USDOD 
RDT&E programmes from its adverse effects analysis.  The European Union claims that the Panel's 
"predominan{ce}"174 approach was articulated for the first time in the Final Report issued by the 
Panel to the parties;  consequently, the parties were  not afforded an opportunity to comment on this 
approach.  The European Union argues that the appr oach the Panel took in the Final Report could not 
have been anticipated by the parties, given that both parties opposed the idea of separating 
procurement contracts from assistance instruments for purposes of determining the existence of a 
subsidy and adverse effects.  Along the same lines,  the European Union contends that the Interim 
Report explained that the only reason for ex cluding all but two USDOD RDT&E programmes was 
that the Panel did not have sufficient evidence about whether such programmes funded assistance 
instruments as opposed to procurement contracts.  By  contrast, the Panel then introduced in the Final 
Report a different standard, namely, whether the USDOD RDT&E programmes at issue " funded 
predominantly assistance instruments , as opposed to procurement contracts, or a mixture of assistance 
instruments and procurement contracts".175 
81. Second, the European Union contends that, a lthough the Panel recognized the insufficiency of 
evidence to ascertain the effects of assistance instruments alone, the Panel failed to seek from the 
United States the necessary informati on, despite the fact that the United States consistently ignored 
the European Communities' requests to produ ce information that would have permitted a 
contract-by-contract analysis.  To the extent that the Panel chose to  apply its "unexpected" 
"predominan{ce}" approach, the European Union a lleges that "it was imperative for the Panel to 
request the contract information from the United St ates that the European Union had been seeking to 
                                                      
174European Union's appellant's submission, para. 246 (referring to Panel Report, para. 7.1701). 
175European Union's appellant's submission, para. 2 46 (quoting Panel Report, para. 7.1701). (emphasis 
added by the European Union) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  enable it to make the assessment it cons idered necessary to resolve the dispute".
176  However, despite 
adopting the novel "predominan{ce}" approach, the Panel never directed enquiries to the 
United States under Article 13 of the DSU, nor did it  draw adverse inferences from instances of the 
United States' non-cooperation in disclosing relevant contracts. 
82. Consequently, in the European Union's view, th e Panel failed to protect the due process rights 
of the European Communities and th erefore acted inconsistently with its obligations under Article 11 
of the DSU.  In addition, the European Union argu es that the consequences of these Panel errors were 
aggravated by the United States' continuing failure to disclose the RDT&E contracts and details about 
the RDT&E programme elements that were exclus ively in its possession.  Similar to the panel's 
approach in US – Continued Zeroing , the European Union submits that the Panel "required evidence 
…, but then did not take the necessary steps to elicit from the parties information that might … 
'elucidate its understanding of the facts and issues in the dispute before it'."177  In that dispute, the 
Appellate Body found that the panel had violated Article 11 of the DSU. 
83. While the European Union requests the Appellate Body to reverse the Panel's finding that the 
USDOD RDT&E programmes—other than the Ma nTech and DUS&T programmes—do not cause the 
same effects as the other aeronautics R&D subsid ies, the European Union does not request the 
Appellate Body to complete the analysis.  
B. Arguments of the United States – Appellee 
1. Annex V to the SCM Agreement  
84. The United States submits that both the initiation of an Annex V procedure and the 
designation of a facilitator require a DSB decision by  positive consensus.  Neither can occur without 
the DSB reaching a "decision", which is defined as "{t}he action of coming to a determination or 
resolution with regard to any point or course of  action;  a resolution or conclusion arrived at".178  
Article 2.4 of the DSU and footnote 3 to Article IX:1 of the WTO Agreement  establish a general rule 
requiring positive consensus for DSB decisions unless otherwise expressly specified—such as in 
Articles 6.1, 16.4, 17.14, 22.6, and 22.7 of the DSU, which "all provide for the DSB to take specified procedural steps 'unless the DSB decides by co nsensus not to' take that procedural step".
179  
Articles 4.4 and 7.4, Articles 4.8, 4.9, 7.6, and 7.7, and Articles 4.10 and 7.9 of the SCM Agreement  
                                                      
176European Union's appellant's submission, para. 251. 
177European Union's appellant's submission, para. 258 (quoting Appellate Body Report, US – 
Continued Zeroing , para. 347, in turn quoting Panel Report, US – Continued Zeroing , footnote 20 to para. 6.20).  
178United States' appellee's submission, para. 54 (quoting The New Shorter Oxford English Dictionary , 
4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 608).  
179United States' appellee's submission, para. 55.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  require the same.  Given that Annex V prescribes no specific decision-making rule, the general rule of 
positive consensus must apply.  Initiation of a pro cedure and designation of a DSB representative as 
facilitator are actions that fall within the ordinary meaning of "decision", and as such they require the 
consensus of the DSB under Article 2.4 of the DSU and Article IX:1 of the WTO Agreement . 
85. The United States notes that its position is in line  with the consistent practice of the DSB, 
which has in all past cases initiated Annex V pr ocedures and designated facilitators by positive 
consensus.  Furthermore, before subsequently  reversing its position in this dispute, the 
European Communities itself "vigorou sly advocated the view that initiation of an Annex V process is 
subject to positive consensus"
180 in opposing the United States' request for initiation of an Annex V 
procedure in EC and certain member States – Large Civil Aircraft .  In the context of that dispute, the 
European Communities expressed to the DSB its view that, "consistent with WTO jurisprudence, an 
Annex V procedure could not be initiated by only one party to a dispute, but required a meeting of the 
minds;  an actual agreement between the parties".181  
86. The United States adds that there is "no support in the 'overall framework' of the DSU for the 
distinction the {European Union} seeks to draw betw een 'decisions' and 'actions' of the DSB, or the 
different decision-making rules the {European Union} would assign to each".182  The "overall 
framework" of the DSU calls for the DSB to do a nu mber of different things, but does not divide these 
functions into "actions" and "decisions".  The DSU uses the term "action" in connection with the DSB 
only three times, in Articles 2.1, 21.7, and 21.8, and in none of these provisions does the use of the 
term "action" support the existence of the action/d ecision dichotomy posited by the European Union.  
Article 2.1, in particular, merely states a special  rule identifying which Members may participate in 
dispute settlement matters under the Plurilateral Trad e Agreements, and cannot serve as the type of 
"framing principle"183 that the European Union contends it does.  Moreover, the European Union's 
argument that the DSB does not take a "decision" in  establishing a panel (Article 6.1), adopting panel 
and Appellate Body reports (Articles 16.4 and 17. 14), or authorizing the suspension of concessions 
(Articles 22.6 and 22.7) "rests on a misperception of the nature of a decision".184  A  decision  is a 
particular type of action .185  Whether a panel is established or there is a consensus not to establish a 
panel, the DSB has taken a decision regarding the est ablishment of a panel.  Furthermore, when the 
DSB establishes a panel or adopts a report, it declares that it has "agreed to establish a panel" or that it 
                                                      
180United States' appellee's submission, para. 56.  
181United States' appellee's submission, para. 56 (quoting WT/DSB/M/196, para. 45). 
182United States' appellee's submission, para. 59.  
183United States' appellee's submission, para. 62. (footnote omitted)  
184United States' appellee's submission, para. 63. 
185See United States' appellee's submission, footnote 94 to para. 62.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  "adopts" the report.  This indicates that the DSB is not a "passive spectator"
186, but that it considered 
an action and took a decision with regard to that actio n.  Thus, to the extent that the overall framework 
of the DSU is relevant to the initiation of an Anne x V procedure, it indicates that the DSB operates by 
positive consensus except where explicit exceptions provide otherwise.  The United States stresses 
that no such express exception applies to the initiati on of an Annex V procedure or the designation of 
a DSB representative to facilitate such procedure.  
87. The United States also emphasizes that, even though the information-gathering procedure 
contemplated in Annex V is related to a pane l's review of claims under Article 6 of the 
SCM Agreement , Annex V calls for a collaborative procedur e independent of th e panel proceedings 
and which operates under different rules.  Such procedure is "completely optional"187 in the sense that 
it may well be that neither party requests it in a given dispute.  Only the DSB, and not the panel, has a 
role in such process.  Indeed, since the duration of the process is limited to 60 days, it may well be 
that the panel will not have been composed for a substantial part of that period.  Furthermore, 
Annex V provides no detailed guidan ce regarding procedures thereunder,  and the DSB representative, 
whose " sole purpose"188 is to ensure the timely development of the necessary information, has none of 
the authority of a panel.  Accordingly, the United States reasons that there is no basis to transpose 
procedural rules applicable to panels into the Annex V procedure. 
88. With respect to the ten points raised by the Eu ropean Union in support of its argument that 
initiation of an Annex V procedure is a DSB action subject to negative consensus, the United States 
characterizes the first, fourth, and seventh points as no n sequiturs.  The fact that there is a relationship 
between an Annex V procedure and a panel's review of claims under Article 6 of the SCM Agreement 
says nothing about the procedures applicable to the respective initiation or administration of each.  The DSB uses negative consensus fo r some dispute-related decisi ons, and positive consensus for 
others, such as authorizing the Chair of the DSB to  draft non-standard terms of  reference.  Moreover, 
some steps—such as requesting consultations, beco ming a third party to a dispute, or referring a 
matter to arbitration under Article 22.6 of the DS U—do not require any action by the DSB.  This 
means that it is not safe to assume, simply because a pro cedure is related to a dispute, that it is subject 
to negative consensus.  It also m eans that the reference in paragraph 2 of Annex V to Article 7.4 of 
the SCM Agreement  does not import a negative-consensus decisi on rule.  Instead, this cross-reference 
simply identifies establishment of a panel as a precond ition for initiation of an Annex V procedure.   
                                                      
186United States' appellee's submission, para. 64.  
187United States' appellee's submission, para. 66.  
188United States' appellee's submission, para. 66 (quoting Annex V, para. 6). (emphasis added by the 
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  89. The United States also takes issue with the Euro pean Union's contentions that the references 
in Annex V to "under", "cases", and "matters" mean that an Annex V procedure and a panel 
establishment are not separate.  The phrase "under paragraph 4 of Article 7" simply clarifies that 
Annex V is not available when a panel is establis hed under another provision —such as Article 4.4 of 
the SCM Agreement —and does not suggest that Article 7.4 go verns initiation of an Annex V process 
or designation of a DSB representative as facilitator.   Additionally, since a "matter" is a specific 
measure and the legal basis of a complaint, an Anne x V procedure is not a "matter", but merely "one 
procedural step that may occur in  the process of addressing a matter".
189  Just because an Annex V 
procedure is related to a matter does not mean th at the decision-making rules are the same.  The 
United States further contests the European Union' s assumption that the initiation of an information-
gathering procedure will occur upon establishment of a panel.  Para graph 5 of Annex V sets a 60-day 
limit from the date on which the matter has been  referred to the DSB for completion of the 
information-gathering process, without regard to th e actual date of initiation.  Such a time-limit does 
not indicate that the rules for establishing a pane l (such as the negative consensus rule) apply to 
initiation of an Annex V procedure.  
90. The United States also rejects the European Union' s third and fifth consid erations that textual 
linkages between Annex V and provisions of the SCM Agreement  indicate a negative consensus rule 
for decisions related to Annex V.  A Member's "r equest" can trigger a positive or negative consensus 
decision under the DSU.  This is best demonstrated  by Article 6.1 of the DSU, pursuant to which a 
"request" to establish a panel requires positive con sensus at the first DSB meeting at which the 
request is presented, but then the same requ est requires negative consensus at the second DSB 
meeting.  Furthermore, although the word "procedur e" in paragraph 2 of Annex V is linked to the 
"rules and procedures" that Article  2.1 and Appendix 2 to the DSU provide for the DSB to administer, 
this does not imply a negative consensus rule, b ecause the DSB administers many procedures through 
positive consensus, such as decisions establishing a single panel or modifying procedures for 
particular disputes. 
91. In the view of the United States, the European Union's second, sixth, eighth, ninth, and tenth 
considerations all raise the spectre that a positiv e consensus approach to Annex V procedures would 
render them "wholly ineffective".190  Recalling that the DSB has used positive consensus for many 
                                                      
189United States' appellee's submission, para. 70. 
190United States' appellee's submission, para. 75 (referring to European Union's appellant's submission, 
pars. 33). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  decisions relating to disputes, including for initiation of Annex V procedures, the United States 
observes that the European Union's "alarmism"
191 is unwarranted.   
92. For the United States, a positive consensus rule comports more with the collaborative nature 
of initiating an Annex V procedure and designating a representative of the DSB as facilitator.  Indeed, 
the United States cautions that, given the structur e of Annex V, a negative consensus rule for the 
appointment of a facilitator would be "unworkable"192, because Annex V establishes no default 
procedures except for partial supervision by a DSB representative, who has very limited authority.  
The United States disagrees with the European Un ion's argument that the drafters of the 
SCM Agreement could not have intended to make initiation of an Annex V procedure mandatory and, 
at the same time, made it possible for a Member to  block such initiation.  For the United States, the 
relevant provisions—including Article  2.4 of the DSU—simply reflect a balance in the system, and 
are but one illustration of circumstances in which the DSB is expected to act, but it must do so by 
consensus.  Decision-making by consensus requires Members to work together  to find solutions.  
While this may be difficult, the rule ensures that the solution reached reflect s the collective interests 
of all Members. 
93. The United States specifically refutes the sixth point of the European Union—namely, that 
the existence of the general obligation to coope rate that paragraph 1 of Annex V places on all 
Members confirms that initiation must be subject  to negative consensus— because it cannot be the 
case that the drafters created "an obligati on to cooperate, but a right to do nothing".193  Paragraph 1 of 
Annex V creates a generalized obligation to cooperat e in developing evidence that is separate and 
independent from the procedure contemplated under pa ragraph 2.  The obligation applies even if there 
is no request under paragraph 2 for an Annex V pr ocedure, and it extends beyond such a procedure 
because it also covers the provision of informati on sought by the panel under Article 13 of the DSU, 
the submission by parties of information in suppor t of their arguments, and any other procedure that 
develops information during the course of the panel proceeding. 
94. As to the eighth argument of the European Union, the United States highlights that the 
consequences of non-cooperation set out in paragra phs 6 to 9 of Annex V are in fact an explicit 
recognition of the possibility that the parties wi ll fail to cooperate, and highlights that such 
consequences—the use of the best information av ailable or the drawing of adverse inferences—are 
essentially the same as those relating to non-cooper ation in the context of panel proceedings.  
                                                      
191United States' appellee's submission, para. 75.  
192United States' appellee's submission, para. 59. 
193United States' appellee's submission, para. 78 (quoting European Union's appellant's submission, 
para. 38).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Therefore, blocking an Annex V procedure does not re lieve a Member of its obligation to respond to a 
panel's request for information or shield the Me mber from the consequences of failing to do so.  
95. Responding specifically to the European Union's ninth argument, the United States argues 
that a domestic countervailing duty proceeding is not akin to an Annex V procedure.  Like investigating authorities whose requests for informat ion are not satisfactorily answered, a panel may 
rely on the best information available when a pa rty fails to provide the requested information.  
Furthermore, and with respect to the European Un ion's tenth point, a panel's information-gathering 
capabilities and powers to use the best available in formation and draw adverse inferences are not 
affected by the presence or absence of an Annex V procedure. 
96. With respect to the object and purpose of the SCM Agreement
194, the United States submits 
that interpreting the relevant provisions to mean that an Annex V procedure is initiated by positive 
consensus conforms to the object and purpose of the SCM Agreement  by requiring a collaborative 
approach that balances the needs and sensitivities of  the complaining party and the responding party.  
In contrast, accepting the position of the European  Union would allow the complaining party to 
dictate the procedural rules.  This is illustrated by the fact that the European Union goes as far as to 
argue that, not only does the DSB designate a re presentative by negative consensus, but the 
complaining party may also unilaterally choose the candidate for the post.195  Such a result would, in 
the view of the United States,  upset the "delicate balance"196 that the SCM Agreement strikes between 
the interests of complaining parties and responding parties. 
97. Lastly, the United States urges the Appellate Body to attach no weight to the 
European Union's reliance on the negotiating history of the SCM Agreement  and the original proposal 
for an information-gathering pro cedure.  The United States disagre es with the European Union's 
argument that the negotiating history makes "clear" that "the linked Annex V procedure would follow 
the same procedure"197 as set out in Article 7.4 of the SCM Agreement.   Moreover, the United States 
emphasizes that its proposal during the Uruguay Rou nd negotiations was premised on the lack of "an 
                                                      
194The United States recalls that the object and purpose of the SCM Agreement  has been held to be 
"to strengthen and improve GATT disciplines relating to the use of both subsidies and countervailing measures, while, recognizing at the same time, the right of Memb ers to impose such measures under certain conditions". 
(United States' appellee's submission, para. 83 (quoting Appellate Body Report, US – Softwood Lumber IV , 
para. 64, in turn referring to Appellate Body Report, US – Carbon Steel , paras. 73 and 74)) 
195United States' appellee's submission, para. 84 (referring to, inter alia , European Communities' 
request for preliminary rulings, para. 44).   
196United States' appellee's submission, para. 84 (quoting Appellate Body Report, US – Anti-Dumping 
and Countervailing Duties (China) , para. 301;  and Appellate Body Report, US – Countervailing Duty 
Investigation on DRAMS , para. 115;  and referring to Appellate Body Report, US – Softwood Lumber IV , 
para. 64). 
197United States' appellee's submission, para. 85 (quoting European Union's appellant's submission, 
para. 45). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  information-gathering mechanism or a means for assuring the co-operation of the party in possession 
of information necessary to demonstrate adverse effects"
198 in the Tokyo Round  Agreement on 
Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and 
Trade199 (the " Tokyo Round Subsidies Code ").  The situation is different under the DSU, which, as the 
Appellate Body has recognized, endows panels with  the authority to draw adverse inferences from a 
Member's refusal to provide information and, thereby, provides a strong incentive for cooperation.200  
2. Financial Contribution – Scope of Article 1.1(a)(1) of the SCM Agreement  
98. The United States agrees with the Panel that tran sactions that are properly characterized as 
"purchases of services" fall outside the scope of Article 1.1(a)(1) and, consequently, of the 
SCM Agreement .  In the United States' view, this finding is "beyond reproach".201 
99. The United States underscores that a proper interpretation of the SCM Agreement  gives 
meaning to all of its terms and does not in sert words and concepts that are not there.202  Moreover, as 
the Appellate Body has stated, it involves a "holistic exercise"203 of applying relevant interpretative 
rules to derive the meaning of the terms of a treat y so as to enforce the parties' intentions.  The 
United States argues that the object and purpose of th e treaty, which is stated at a "high level of 
generality"204, cannot be elevated over other considera tions.  An attempt to read "purchases of 
services" into the text of Article 1.1(a)(1) "so as to  advance 'holistic' goals divined from the object and 
purpose" would be incompatible with the principles of treaty interpretation.205  M o r e o v e r ,  t h e  
United States disagrees that an interpretati on that "narrows the meaning of a term"206 necessarily 
frustrates the object and purpose of the SCM Agreement .  Rather, consistent with previous 
                                                      
198United States' appellee's submission, para. 86 (quoting MTN.GNG/NG10/W/40, p. 2). 
199BISD 26S/56, entered into force 1 January 1980. 
200United States' appellee's submission, para. 86 (referring to Appellate Body Report, Canada – 
Aircraft , para. 202). 
201United States' appellee's submission, para. 148.  
202United States' appellee's submission, para. 154 (referring to Appellate Body Reports in India – 
Patents (US) , para. 45;  India – Quantitative Restrictions , para. 94;  EC – Hormones , para. 181;  US – Line Pipe , 
para. 250;  US – Steel Safeguards , para. 471;  EC – Bed Linen , para. 83;  EC – Computer Equipment , para. 83;  
EC – Poultry , para. 146;  and EC – Selected Customs Matters , para. 297). 
203Appellate Body Report, China – Publications and Audiovisual Products , para. 399;  Appellate Body 
Report, US – Continued Zeroing , paras. 268 and 273. 
204United States' appellee's submission, para. 155. 
205United States' appellee's submission, para. 155. 
206United States' appellee's submission, para. 156.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Appellate Body jurisprudence, the object and purpose of the SCM Agreement  reflects a "delicate 
balance"
207 that lies at the heart of the Agreement. 
100. For the United States, the European Union's speci fic criticisms of the Panel's interpretation do 
not provide a basis for including purchases of services within the scope of the SCM Agreement .  First, 
the Panel engaged in a "careful consideration of all text and context, including how each provision 
informed the scope of the others"208 in a type of holistic exercise pr eviously endorsed by the Appellate 
Body.  Contrary to the European Union's arguments,  the Panel applied all of the relevant rules of 
treaty interpretation in a manner consistent  with the Appellate Body's guidance. 
101. The United States also asserts that the Panel co rrectly treated the list of categories under the 
subparagraphs of Article 1.1(a)(1) as "closed"209, and as imparting meaning to each other.  Unlike 
other provisions of the SCM Agreement —including those relating to "benefit" (Articles 1.1(b) and 14) 
and "export contingent" subsidies (A rticle 3.1(a)), which set out a non-exhaustive list of terms that 
inform the breadth of these terms—the closed list  of transactions included in the definition of 
"financial contribution" in Article 1.1(a)(1) is stru ctured so that a transaction that does not fall within 
one of the listed categories is not covered by the Agreement.  For the United States, there must be 
precision with respect to which subparagraph th e specific transaction falls under, as this has 
repercussions for other aspects of a subsidy analysis , such as benefit under Article 14, and specificity 
under Article 2.1. 
102. The United States considers "misplace{d}"210 the European Union's reliance on a statement 
by the panel in Japan – DRAMs (Korea) that certain transactions could be covered by more than one 
of the subparagraphs in Article 1.1(a)(1).  While the Panel did acknowledge the possibility of overlap, 
it did not find this to be the case with respect to  purchases of "goods".  As the European Communities' 
argument regarding "purchase of services" necessarily implied such an overlap, it "could not stand".211  
Therefore, the example of equity infusions provi ded by the European Union to illustrate that a 
transaction can fall into two categories is "simply irrelevant"212 to the case of purchases of goods.  The 
United States disagrees in any event that tran sactions involving equity infusions qualify as both 
purchases of goods and direct transfers of funds,  because it does not accept the European Union's 
                                                      
207See Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 301;  
Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 115;  and Appellate Body 
Report, US – Softwood Lumber IV , para. 64. 
208United States' appellee's submission, para. 158. 
209Panel Report, para. 7.955. 
210United States' appellee's submission, para. 163 (referring to European Union's appellant's 
submission, para. 115, in turn referring to Panel Report, Japan – DRAMs (Korea) , para. 7.439). 
211United States' appellee's submission, para. 165. 
212United States' appellee's submission, para. 166. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  reading of the Appellate Body's findings in US – Softwood Lumber IV  to mean that "ownership rights 
can be considered 'goods'".
213  Furthermore, Articles 14(a) and 14(d), which provide two "separate 
and distinct" guidelines for calculating the amount of subsidy for equity capital and purchases of 
goods, respectively, "demonstrate{} that the meanings  of these two terms are clearly distinct in the 
context of the SCM Agreement", and that an equi ty infusion can fall only within a single category.214 
103. The United States supports the Panel's conclusion that categorizing "direct transfers of funds" 
as encompassing "purchases {of} goods" would render the explicit reference in subparagraph (iii) 
"redundant and inutile"215, an outcome not permitted by the rules of treaty interpretation.  The 
European Union attempts to avoid the conclusion of  inutility by positing that the term "purchases {of} 
goods" covers transactions that would otherwise fall outside the SCM Agreement , such as where the 
government promises to exercise preferential treatment  in exchange for a private company's provision 
of goods.216  In the United States' view, this does not provide a basis to ascribe an independent 
meaning to the term "purchases {of} goods".217  The United States questions whether this would be a 
"purchase" at all, since the European Union provid es no evidence that such transactions occur or that 
the drafters wished to cover them. 
104. The United States further asserts that the Europ ean Union's interpretation ignores the object 
and purpose of the SCM Agreement , which "reflects a delicate balance between the Members that 
sought to impose more disciplines on the use of su bsidies and those that sought to impose more 
disciplines on the application of countervailing measures".218  The United States does not agree with 
the European Union's characterizations of previous  Appellate Body statements regarding the object 
and purpose of the SCM Agreement , because they result in "a one-sided evaluation of disciplines on 
subsidies that would disregard or minimize provisions  that … 'recogniz{e} … the right of Members to 
impose such measures under certain conditions'."219 
                                                      
213United States' appellee's submission, para. 167 (quoting European Union's appellant's submission, 
para. 116, in turn referring to Appellate Body Report, US – Softwood Lumber IV , paras. 46-76). 
214United States' appellee's submission, para. 168. 
215Panel Report, para. 7.956. 
216United States' appellee's submission, para. 170 (referring to European Union's appellant's 
submission, para. 117). 
217United States' appellee's submission, para. 172. 
218United States' appellee's submission, para. 173 (quoting Appellate Body Report, US – Anti-Dumping 
and Countervailing Duties (China) , para. 301, in turn quoting Appellate Body Report, US – Countervailing 
Duty Investigation of DRAMS , para. 115). 
219United States' appellee's submission, para. 173 (quoting Appellate Body Report, US – Anti-Dumping 
and Countervailing Duties (China) , para. 301;  and Appellate Body Report, US – Softwood Lumber IV , 
para. 64).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  105. The United States disagrees that the Panel's an alysis creates the "loopholes" envisaged by the 
European Union.  Rather, the Panel was aware of  the risk that Members would characterize their 
transactions as "purchases of services" in order to avoid the disciplines under the SCM Agreement , 
and expressed confidence that this would be detected by WTO pane ls and investigating authorities.
220  
The concerns relating to circumvention do not ari se here because the focus is only on transactions 
"properly characterized " as "purchases of services".221  The United States also notes the 
European Union's argument that the Panel's analysis would allow Members to avoid the 
SCM Agreement  by asking for a service from a goods producer "in exchange for ... a transfer of funds, 
foregoing of government reve nue otherwise due, or provi sion of goods and services".222  T h e  
United States is not convin ced that these "scenarios"223 present a threat of circumvention. 
106. In the case of the scenario in which the gove rnment provides a service in exchange for a 
"transfer of funds", the United States denies that "circumvention" would o ccur, because the resulting 
transaction would either:  (i) not be a financia l contribution (because it constitutes a "purchase of 
services");  (ii) be some other type of financial c ontribution (such as a grant with incidental services);  
or (iii) be a net transfer of funds to the government, which is not covered by the SCM Agreement .224  
Regarding the scenario involving a supply of servi ces in exchange for a government's foregoing of 
revenue otherwise due, the United States notes that th is could be a transaction properly characterized 
as a "purchase of services", or a financial contribut ion with an "incidental service", but that such a 
determination would de pend on a detailed consideration of the facts.225  Finally, with respect to the 
scenario in which a government provides goods and services in exchange for a supply of goods by a 
producer, the United States refers to the Panel's findi ngs elsewhere in its Report that such transactions 
constitute "provision", rather than "purchases", of services, making the Eur opean Union's concerns 
about circumvention "{un}realistic".226 
107. Therefore, the United States requests the Appella te Body to uphold the Panel's finding that 
transactions properly characterized as "purch ases of services" are excluded from the scope of 
Article 1.1(a)(1)(i) of the SCM Agreement . 
                                                      
220United States' appellee's submission, para. 175 (referring to Panel Report, para. 7.960). 
221United States' appellee's submission, para. 175 (quoting Panel Report, para. 7.960 (original 
emphasis)). 
222European Union's appellant's submission, para. 119. 
223United States' appellee's submission, para. 178. 
224See United States' appellee's submission, paras. 179-182. 
225United States' appellee's submission, para. 183. 
226United States' appellee's submission, para. 184. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  3. Specificity – Allocation of Patent Rights 
108. The United States notes that the European Uni on does not dispute the Panel's statement that 
"the allocation of patent rights is uniform under a ll ... U.S. government departments and agencies, for 
all enterprises in all sectors".227  According to the United States, that should be the end of the analysis 
under Article 2.1(a) of the SCM Agreement .  Contrary to what the European Union argues, nothing in 
the SCM Agreement  supports the notion that uniform treatme nt becomes specific when individual 
government agencies, such as NASA and the USDOD, accord such tr eatment pursuant to contracts 
and agreements subject to agency-specific procedural rules.228 
109. The United States also observes that, although th e Panel came to its decision before the 
Appellate Body issued its reports in US – Anti-Dumping and Countervailing Duties (China)  and  
EC and certain member States – Large Civil Aircraft , the Panel's analysis "follows the lines laid out 
in those reports".229  The Panel properly considered all of the legal instruments at all government 
levels and conducted a "detailed evaluation"230, examining each instrument individually and 
considering it as part of a broader "framework".231  It further examined whether the authorities or the 
legislation imposed limitations on access to the alleged subsidy, and found that they did not.  Lastly, 
in the United States' view, the Panel concluded—albeit without using these precise words—that "evidence under consideration unequivocally indicates … non-specificity by reason of law"
232 under 
Article 2.1(a), rendering further analysis unnecessary. 
110. The United States asserts that the European  Union misinterprets Article 2.1 of the 
SCM Agreement  in calling for an analysis based on a subset of the US legislation related to the 
challenged financial contributions.  The "fundamental flaw" in the European Union's approach is its 
insistence that, under Article 2.1(a), "the only 'gra nting authority' for purposes of the specificity 
analysis is the entity that directly conferred the alleged financial cont ribution to the alleged 
recipient."233  If multiple authorities participate in the pr ocess of granting the subsidy, nothing in the 
text of Article 2.1(a) prevents a panel from consid ering all of them to be collectively "the granting 
authority".  The United States asserts that the Europ ean Union also errs in failing to recognize that 
                                                      
227Panel Report, para. 7.1276.  
228United States' appellee's submission, para. 115.  
229United States' appellee's submission, para. 124.  
230United States' appellee's submission, para. 126.  
231Panel Report, para. 7.1293.  
232United States' appellee's submission, para. 126 (quoting Appellate Body Report, US – Anti-Dumping 
and Countervailing Duties (China) , para. 371;  and Appellate Body Report, EC and certain member States – 
Large Civil Aircraft , para. 945).  
233United States' appellee's submission, para. 128.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Article 2.1(a) "does not restrict th e analysis to the granting authority or the legislation", but rather 
"allows a consideration of both, as appropriate".
234 
111. The United States agrees with the European Un ion on the ordinary meaning of the term 
"granting authority"235, but it rejects the European Union's c onclusion that "granting authority" means 
only the governmental entity that executed the document conferring the financial contribution 
underlying the subsidy.  The European Union fa ils to address the full definition of the word 
"authority", which may entail " one or more  of '{t}hose in power or control' of the alleged subsidy".236  
The context provided by Article 1.1(a)(1) of the SCM Agreement —which refers to "government or 
any public body"—confirms the previ ous conclusion.  Article 2.1 of the SCM Agreement  frames the 
specificity analysis in different terms, because it refe rs to the "granting author ity".  This change in 
terminology "moves the focus of the analysis to th e 'authority' responsible for granting the subsidy 
and away from the mechanical act of making the contribution".237  In response to the 
European Union's contention that a Member cannot be a granting authority because the SCM Agreement  uses the term "Member" in some contexts and "authority" in others, the United States 
argues that the term "authority" is "conceptually br oader"—it can cover one entity or multiple entities 
at a variety of levels—whereas "Member" "refers exclusively to the Member as a whole".
238 
112. The United States rejects the proposition that Artic le 2.1(a) creates a binary, one-or-the-other 
choice between "the granting authority" and "the le gislation pursuant to which the granting authority 
operates".  Instead, the United States considers th at the term "granting authority" calls for "an 
examination, as appropriate, of the authority, the legislation, or both".239  In addition, the 
United States rejects the European Union's asserti on that the Panel based its conclusion regarding 
non-specificity on "an overall 'policy' related to intellectual property rights in government 
                                                      
234United States' appellee's submission, para. 128. (original emphasis)  The United States notes that the 
Appellate Body has emphasized that the use of the term "principles"—instead of, for instance, "rules"—in the 
chapeau of Article 2.1 "suggests that subparagraphs (a) through (c) are to be  considered within an analytical 
framework that recognizes and accords ap propriate weight to each principle". ( Ibid., para. 132 (quoting 
Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 366;  and Appellate Body 
Report, EC and certain member States – Large Civil Aircraft , para. 942))   
235United States' appellee's submission, para. 129 (referring to European Union's appellant's 
submission, para. 72). 
236United States' appellee's submission, para. 129 (quoting The New Shorter Oxford English Dictionary , 
4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 151). (emphasis added by the United States)   The United States also notes that the Appellate Body r eached essentially the same conclusion when it found in 
US – Anti-Dumping and Countervailing Duties (China)  that, in considering specificity under Article 2.1(a),  
"a proper factual analysis" is "based on the totality of evidence, at all levels of government " (Ibid., para. 129 
(quoting Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 400) (emphasis 
added by the United States)) 
237United States' appellee's submission, para. 130. 
238United States' appellee's submission, para. 131. 
239United States' appellee's submission, para. 132.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  contracts".
240  The Panel based its conclusion on lega l requirements and nothing in its reasoning 
suggests that a WTO Member could rely, as the Eur opean Union fears, on a general policy "to defeat 
specificity for differential treatment among sectors".241 
113. With respect to the European Union's argume nts regarding NASA, the United States notes 
that, if the European Union means to suggest that "the Space Act and its implementing regulations are 
the only legislation pursuant to which NASA operates, it is wrong."242  Instead, NASA operates 
pursuant to additional measures—the Patent and Trademark Law Amendments Act of 1980243 
(the "Bayh-Dole Act"), the 1983 Presidential Memorandum244, and the 1987 Executive Order245—and 
these instruments "form part of the 'legislation' th at can indicate specificity or non-specificity for 
purposes of Article 2.1(a)".246  The European Union identifies nothing in the SCM Agreement  "that 
precludes consideration of the full spectrum of measures affecting an authority's grant of a 
subsidy".247  The European Union erroneously focuses on the "granting authority" as opposed to the 
subsidy and limitations on access to it.  The Unite d States notes that the NASA contracts and waiver 
instruments do not "limit access"248 to the alleged subsidy to Boeing or the aerospace industry.  Other 
enterprises in other industries can have access to the same rights through contracts with other 
agencies.  The United States further submits that "{ t}he mere fact that the {European Communities} 
addressed two agencies {did} not preclude the Pa nel from addressing the availability of identical 
treatment throughout the U.S. government."249  
114. With respect to the USDOD, the United States as serts that the European Union's "attempts to 
paint the allocation of patent rights … as specific ar e even more invalid than its arguments regarding 
NASA, because {US}DOD does not even have its  own laws and regulations in this area."250  T h e  
USDOD follows the general regulations  applicable to all agencies under United States Code of 
Federal Regulations , Title 48, sections 27.300-27.306.251  The USDOD's role in entering into 
contracts "does not mean that it is the sole grantin g authority, or that it limits access to the alleged 
                                                      
240United States' appellee's submission, para. 133 (quoting European Union's appellant's submission, 
para. 70).  
241United States' appellee's submission, para. 134.  
242United States' appellee's submission, para. 137. (original emphasis) 
243Codified at United States Code , Title 35, chapter 18, sections 200-212 (Patent Rights in Inventions 
Made with Federal Assistance) (Panel Exhibit EC-558). 
244Memorandum to the Heads of Executive Departments and Agencies: Government Patent Policy, 
Public Papers 248, 18 February 1983 (Panel Exhibit EC-560). 
245Executive Order 12591, Facilitati ng Access to Science and Technol ogy, 10 April 1987 (Panel 
Exhibit EC-561).  
246United States' appellee's submission, para. 137. (footnote omitted) 
247United States' appellee's submission, para. 137.  
248United States' appellee's submission, para. 139. 
249United States' appellee's submission, para. 140.  
250United States' appellee's submission, para. 142. 
251(Patent Rights under Government Contracts) (Panel Exhibit EC-559).   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  subsidy … from other agencies in other sectors".
252  Nor does it mean that "the legislation pursuant to 
which the patent rights allocation occurs is {}specific".253  The USDOD is, like all agencies, " required  
to allow its contractors to 'retain' title to inventions"254, and it may only do otherwise "in exceptional 
circumstances".255  The exception, however, does not change the analysis under Article 2.1(a), 
because " all agencies have the same authority".256  The European Union's arguments "provide no 
support for considering specificity in isolation for each agency"257, and hence provide no basis for the 
Appellate Body to reverse the Panel's findings on specificity.   
115. At the oral hearing, the United States rejected the European Union's argument that the Panel 
erred in not addressing its assertions of de facto  specificity under Article 2.1(c) of the 
SCM Agreement .  In the United States' view, there was no re levant argument for the Panel to address.  
Article 2.1(c) frames the specificity analysis in terms of whether there was "the granting of 
disproportionately large amounts of subsidy to certain enterprises".258  Accordingly, disproportionality 
depends on the subsidy, and not on particular granting authorities.  The European Union's assertions 
covered only NASA and USDOD contract s, which did not provide any information with regard to the 
subsidy as granted by other entities,  and hence did not contain any re levant information for purposes 
of the assessment of disproportionality. 
4. Adverse Effects 
116. The United States contends that the European Un ion's two grounds of appeal relating to the 
Panel's decision not to aggregate the effects of certain groups of subsidies "lack merit".259  T h e  
European Union's "extremely broad interpretation"260 of Articles 5 and 6.3 of the SCM Agreement , 
which amounts to requiring cumulative assessment in a ll cases, is inconsistent with the text of these 
provisions, as well as with the Appellate Body's previous interpretation of these provisions.   
(a) Collective assessment of the aer onautics R&D subsidies and the 
B&O tax rate reductions and their effects 
117. The United States submits that the Panel prope rly assessed the effects of the aeronautics R&D 
subsidies separately from those of the B&O tax rate reductions.  The Panel's approach is permissible 
                                                      
252United States' appellee's submission, para. 143. 
253United States' appellee's submission, para. 143. 
254United States' appellee's submission, para. 144. (original emphasis) 
255United States Code , Title 35, chapter 18, section 202 (Disposition of rights) (Panel Exhibit US-137).  
256United States' appellee's submission, para. 144. (original emphasis) 
257United States' appellee's submission, para. 147. 
258United States' oral statement at the first session of the oral hearing. 
259United States' appellee's submission, para. 187. 
260United States' appellee's submission, para. 190. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  under Articles 5 and 6.3 of the SCM Agreement and consistent with the Appellate Body's 
interpretation of these provisions, which affirms that  panels enjoy "a certain degree of discretion in 
selecting an appropriate methodology" for determining adverse effects, and that the "appropriateness 
of a particular method may have to be determined on a case-specific basis".
261  The United States also 
points out that, although the European Union repeatedly relies upon the report of the panel in  US – Upland Cotton , that panel declined to aggregate non-price-contingent subsidies with 
price-contingent subsidies because the former we re "of a different nature, and thus effect".
262 
118. The United States considers that, in this disput e, given the argumentation and evidence before 
it concerning the fundamentally different natures of the aeronautics R&D subsidies and the B&O tax 
rate reductions, the Panel selected an appropriate  methodology based on "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".263  The Panel structured its 
adverse effects analysis in the light of the Europ ean Communities' allegations about the nature of the 
various subsidies and their effects on Boeing's commercial behaviour.  Before the Panel, the 
European Communities drew a "categorical distinction"264 between subsidies alleged to reduce 
Boeing's marginal unit costs and all other subsidies at issue, and neve r alleged that the B&O tax rate 
reductions had any "technology" or other effect on Boeing's ability to launch the 787 in 2004.  The 
Panel properly assessed the effects of these two groups of subsidies separately, and properly considered that "it is clear that the two groups of  subsidies operate through entirely distinct causal 
mechanisms".
265   
119. The United States adds that the Panel's appro ach accords with the views of the Appellate 
Body in EC and certain member States – Large Civil Aircraft .  In that case, the Appellate Body 
identified two methodologies that seek to account for the combined effects of multiple subsidies:  
(i) an "aggregate" assessment, in which the effect s of multiple subsidies ar e assessed collectively and 
simultaneously;  and (ii) a "complementary" assessmen t, in which the effects of one group of very 
similar subsidies are analyzed fi rst and then, if that first group of subsidies has a "genuine and 
substantial" causal relationship with the allege d market phenomena, discerning whether a second 
group of subsidies has a "genuine causal connection"  with the same market phenomena, such that the 
second group "complement{s} or supplement{s}" the first.266  The Appellate Body endorsed the 
                                                      
261Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1376. 
262Panel Report, US – Upland Cotton , para. 7.1307. 
263United States' appellee's submission, para. 196 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1376). 
264United States' appellee's submission, para. 197. 
265Panel Report, para. 7.1824. 
266Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1378 and 1379.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  panel's application of the latter methodology, while  stressing the need to establish a "genuine causal 
connection" for each subsidy.
267  The United States understands the Appellate Body as having 
considered that both methodologies for assessing th e effects of multiple subsidies should focus on 
discerning whether the various subsidies operate through the same causal mech anism to cause adverse 
effects, and recognized the importance of ensuring that subsidies with little or no causal relationship 
are not found to cause adverse effect s simply because they are grouped together with subsidies that do 
have a genuine and substantial cau sal connection with the alleged effects.  In the case at hand, the 
Panel aggregated all subsidies a lleged to operate through the causal mechanism of enhancing Boeing's 
ability to launch the 787, namely, the aeronautics R& D subsidies.  Since the Panel did not find that 
the aeronautics R&D subsidies have the "price effect s" of causing Boeing to reduce the sales price of 
the 787, and since the B&O tax rate reductions, by their nature, design, and operation, did not, and 
were not, alleged to have affected Boeing's launch of the 787, the United States submits that the Panel 
properly did not include them in its analysis of the effects of the aeronautics R&D subsidies.   
120. The United States argues that there is no suppor t for the "extremely broad interpretation" of 
Articles 5 and 6.3 of the SCM Agreement proposed by the European Union, which amounts to an 
argument that "these provisions require a cumulative assessment in all cases ".268  Such a rule is not 
supported by the text of Articles 5 and 6.3 and is in consistent with the Appella te Body's interpretation 
of these provisions in prior cases.  The United States poi nts out that the reference in Article 5 to "any 
subsidy" and the references in each of the subparagra phs of Article 6.3 to "the  effect of the subsidy" 
are in the singular form.  This reflects the requireme nt that a "genuine and s ubstantial relationship of 
cause and effect" or a "genuine causal connection" must be established between any particular subsidy 
found to exist and any adverse effect found to exist269, rather than the Eur opean Union's suggestion 
that "these provisions discipline the collective  impact of any and all  subsidies benefiting the 
subsidised product in the market at issue".270  Although it may be true that "{t}he text of {Articles 5 
and 6.3 of the SCM Agreement } does not even refer to any 'mechan ism' or manner in which subsidies 
cause adverse effects"271, it is equally true that the text of these provisions does not refer to subsidies 
that complement and supplement the "product eff ect" of other subsidies.  Nevertheless, in EC and 
certain member States – Large Civil Aircraft , the Appellate Body found that  it was permissible for the 
                                                      
267United States' appellee's submission, para. 200 (referring to Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , paras. 1378 and 1379). 
268United States' appellee's submission, para. 203 (referring to European Union's appellant's 
submission, paras. 205 and 206). (original emphasis) 
269United States' appellee's submission, para. 204 (referring to Appellate Body Report, US – Upland 
Cotton , para. 438;  and Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
paras. 1376 and 1378). 
270European Union's appellant's submission, para. 205. (original emphasis) 
271European Union's appellant's submission, para. 207. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  panel to examine whether multiple subsidies compleme nt and supplement a particular "product effect" 
in its analysis of adverse effects.
272  The United States recalls, in this regard, that "Article 6.3(c) 
requires the establishment of a causal link between th e subsidies and the particular market situations 
being claimed under that provision"273, but the precise methodology to be used to establish such a 
causal link is not specified in the SCM Agreement . 
121. The United States adds that the European Union' s proposed interpretation is at odds with the 
Appellate Body's finding in EC and certain member States – Large Civil Aircraft , and would 
undermine the "methodological discretion"274 that panels enjoy in their analysis of adverse effects and 
overlook the case-specific nature of the determin ation as to whether a cumulative assessment is 
appropriate.  Such a determinati on "depend{s} 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".275  T h e  
United States underlines in this regard that, in EC and certain member States – Large Civil Aircraft , 
the Appellate Body found that the panel "was require d to find more than simply that two or more 
subsidies 'support{ed} the same subsidised produc t and negatively impact{ed} competition in the 
market at issue'".276  The United States understands the Appella te Body as having found that the panel 
was required to establish that the non-LA/MSF subsid ies had a "genuine causal link" with the same 
causal mechanism through which the LA/MSF operated (Airbus' ability to launch its LCA models) so 
as to cause the alleged adverse effects in a way similar to the LA/MSF subsidies.277  For all of these 
reasons, the United States submits that the Appe llate Body should reject the European Union's 
"one-size-fits-all analytical approach"278 whereby aggregation or cumulation is required in all cases. 
                                                      
272United States' appellee's submission, para. 207 (referring to Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , paras. 1378 and 1381-1409). 
273United States' appellee's submission, para. 207 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1231). 
274United States' appellee's submission, para. 208. 
275United States' appellee's submission, para. 209 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1376). 
276United States' appellee's submission, para. 210 (quoting European Union's appellant's submission, 
para. 206;  and referring to Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
para. 1376). 
277United States' appellee's submission, para. 210.  Th e United States quotes the following statement of 
the Appellate Body in paragraph 1379 of its report in EC and certain member States – Large Civil Aircraft :  
"{T}he Panel's approach to the analysis of causation did not absolve it from establishing a genuine causal link 
between the different categories of non-LA/MSF subsidies and Airbus' ability to launch and bring to market its 
LCA models, thereby similarly causing the displacement and significant lost  sales of Boeing LCA during the 
reference period". (emphasis added by the United States) 
278United States' appellee's submission, para. 211.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (b) Collective assessment of the tied tax subsidies and the remaining 
subsidies and their effects 
122. The United States argues that the Panel did not err in declining to aggregate the remaining 
subsidies and the tied tax subsidies in its analysis of  adverse effects.  Accordingly, the Appellate Body 
should reject the European Union's request to revers e the Panel's finding that the remaining subsidies 
do not cause adverse effects, as well as its further request that the Appellate Body find that, when 
aggregated with the tied tax subsidies (or the aer onautics R&D subsidies), the remaining subsidies 
also cause adverse effects.  The United States observ es that, implicit in this request to complete the 
analysis is a request that the Appellate Body find th at the remaining subsidies have led Boeing to offer 
particular price reductions for particular subsid ized products, yet the European Union does not 
identify any factual findings or undisputed facts that would support such a finding.  Nor does the 
European Union's Notice of Appeal contain a request  that the Appellate Body complete the analysis 
with respect to this Panel finding. 
123. In the view of the United States, the European Union grounds its appeal on two flawed 
arguments.  The first incorrectly relies on the panel reports in US – Upland Cotton and EC and certain 
member States – Large Civil Aircraft , and the second incorporates by reference the flawed 
interpretation of Articles 5 and 6.3 of the SCM Agreement as requiring the collective assessment of 
"any and all subsidies benefiting the subsidised product in the market at issue".
279  In response to the 
latter of these arguments, the United States relie s upon its response, summarized above, to the 
European Union's proposed interpretation of these provisi ons in the context of its appeal of the Panel's 
decision not to aggregate the effects of the aerona utics R&D subsidies with the effects of the B&O 
subsidies in the 200-300 seat LCA market. 
124. The United States observes that the Eur opean Union cites to the panel in US – Upland Cotton , 
which found that an "integrated examination of  effects of any subsidies" was permitted in 
circumstances where subsidies had "a sufficient nexus"' with (i) "the subsidized product" and (ii) "the 
particular effects-related variable under examination"280, and asserts that "{t}he Remaining Subsidies 
in this dispute fulfil these requirements".281  The United States characterizes such an assertion as 
"incorrect"282 for two main reasons.  First, no sufficien t nexus between the remaining subsidies and 
the subsidized products has been established.  B ased on the arguments of the European Communities, 
the Panel identified three separate  groups of subsidized products.  The Panel found that the remaining 
                                                      
279European Union's appellant's submission, para. 205. (original emphasis) 
280European Union's appellant's submission, para. 227 (quoting Panel Report, US – Upland Cotton , 
para. 7.1192). 
281European Union's appellant's submission, para. 228. 
282United States' appellee's submission, para. 213. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  subsidies, "unlike the {tied} tax subsidies … are not  directly related to Boeing's production or sale of 
LCA"
283, and the European Union itself concedes that the remaining subsidies are not tied to the 
production of Boeing LCA.  The mere fact that the remaining subsidies were received by Boeing's 
LCA division says very little about the existence of any nexus between the subsidies and any of the 
three groups of subsidized products and, as the Unit ed States argued before the Panel, "the ways in 
which Boeing supposedly used the alleged subsidies is critical to its causation arguments";  "{y}et 
that 'evidence' is essentially non-existent".284  Furthermore, the Panel never agreed with the 
European Communities' contention that the remaini ng subsidies confer the equivalent of additional 
cash flow.  Second, the remaining subsidies do no t impact the same "effects-related variable"  
as the tied tax subsidies—namely, price.  The Panel rejected both bases underpinning the 
European Communities' causation theory for the price effects of the remaining subsidies and  
other non-recurring subsidies—that is, (i) the Cabral price effects model285 and (ii) the 
European Communities' arguments that Boeing would not have been economically viable without the 
subsidies.286  The United States points out that the Panel did, however, correctly take into account its 
findings on the nature and magnitude of the rema ining subsidies in assessing their effects and in 
reaching the conclusion that the evidence was simply  insufficient to support the allegation that the 
remaining subsidies have an impact on the price of any subsidized product. 
125. The United States further rejects the European Un ion's attempt to rely upon a statement by the 
panel in EC and certain member States – Large Civil Aircraft  as support for the proposition that 
"a panel must not segregate its adve rse effects analysis so that it ca nnot take account of the combined 
market effect of subsidies that collectively enha nce Boeing's cash flow and its ability to price down 
LCA."287  The United States stresses that the Panel did not  find that the remaining subsidies or the tied 
tax subsidies "enhance Boeing's cash flow", much l ess that they do so "collectively", and that the 
Panel rejected all of the European Communities' arguments that the remaining subsidies "enhance" 
Boeing's "ability to price down LCA".288  This contrasts sharply with the situation in EC and certain 
member States – Large Civil Aircraft  where the Appellate Body upheld that panel's findings that the 
non-LA/MSF subsidies complemented and supplemente d the effects of the LA/MSF subsidies.  The 
circumstances of this dispute are, in fact, mo re comparable to those where the Appellate Body 
                                                      
283Panel Report, para. 7.1827. 
284See Panel Report, footnote 3786 to para. 7.1828 (referring to United States' comments on the 
European Communities' response to Panel Question 301, paras. 601 and 602). 
285Panel Report, para. 7.1832.  The Cabral model is explained in detail in Appendix VII.F.2 of the 
Panel Report, p. 757. 
286Panel Report, para. 7.1831. 
287United States' appellee's submission, para. 217 (quoting European Union's appellant's submission, 
para. 226). 
288United States' appellee's submission, para. 218 (quoting Panel Report, paras. 7.1829-7.1832).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  reversed the EC and certain member States – Large Civil Aircraft  panel because "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 prov ide a sufficient basis to determine that {research 
and technological development ("R&TD")} subsidi es 'complemented and supplemented' the 'product 
effect' of LA/MSF in enabling Airbus to  launch particular models of LCA."
289  Similarly, here, the 
European Communities' general allegation that th e remaining subsidies "constitute the functional 
equivalent of additional cash flow available to Boeing's LCA division"290—which the Panel did not 
accept—could not have provided a suff icient basis to determine that those subsidies complement and 
supplement the effect of the tied tax subsidies in en abling Boeing to reduce the price of each aircraft it 
manufactures and sells.  Thus, submits  the United States, the approach taken by the Appellate Body in 
EC and certain member States – Large Civil Aircraft confirms that the Panel in this case was correct 
to decline to aggregate the tied tax s ubsidies and the remaining subsidies. 
5. Article 11 of the DSU 
126. The United States further contends that the Pane l acted consistently w ith its obligations under 
Article 11 of the DSU when it found that it was unable to determine whether certain USDOD RDT&E 
subsidies cause the alleged adverse effects. 
127. The United States submits that the European Un ion's allegation that the Panel should have 
afforded it an opportunity to respond to the Panel' s approach or to seek n ecessary information from 
the United States is without merit.  As an initial matter, parties are not entitled to make comments on 
the panel's revisions to its interim report because, otherwise, "the interim review stage {would turn} 
into a potentially indefinite cycle of comments and changes".291  In any event, the United States 
maintains that, in this case, th e European Communities had all the opportunities it needed to make its 
prima facie case, since the Panel afforded the parties the opportunity to comment on the Interim 
Report, and addressed such comments in the Fina l Report, in accordance with Article 15.3 of 
the DSU.   
                                                      
289Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1407. 
290European Union's appellant's submission, para. 228. 
291United States' appellee's submission, para. 223. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  128. Moreover, the United States contends that the Panel's approach was not "unexpected"
292 or 
"surprising"293, because the European Comm unities had "clear notice"294 that the USDOD RDT&E 
programmes funded different categories of contracti ng instruments that could be treated differently 
under Article 1 of the SCM Agreement .  Several of the Panel's questions to the parties show the 
Panel's concern over the different legal implications of the diverg ences among the categories of legal 
instruments underlying the alleged subsidies.  T hus, the Panel conducted an  objective assessment of 
the arguments and evidence submitted by the parties and, having found that assistance instruments, 
but not procurement contracts, were "specific" subs idies, the Panel correctly concluded that it could 
only make adverse effects findings on those USDOD RDT&E programmes for which it had discernible evidence of the effects of the assistan ce instruments—namely, the ManTech and DUS&T 
programmes.  The European Union misunderstands th e Panel's analysis in arguing that the Panel 
limited its findings to two USDOD RDT&E programm es.  Rather, the Panel made it clear that its 
analysis of adverse effects was in respect of all the RDT&E programmes, but that the European Communities failed to adduce arguments or  evidence with respect to the effects of the 
subsidies under all but two of the USDOD RDT&E programmes at issue. 
129. The United States asserts that the Panel was under no obligation under Article 13 of the DSU 
"to develop information on behalf of the complaining party".
295  In addition, the United States did not 
fail to cooperate with the inform ation-gathering process, because it complied with the relevant 
decisions and rulings by the DSB under Annex V to the SCM Agreement , and discussed at great 
length throughout the Panel proceedings individual pr ocurement contracts and assistance instruments.  
Furthermore, the Panel did ask numerous ques tions about the differences between the legal 
instruments funded pursuant to the USDOD RDT&E pr ogrammes at issue.  The European Union, 
again, misunderstands the Panel's adverse effects finding when faulting the Panel for not requesting 
specific contracts from the United States.  As the United States sees it, the Panel did not need "more 
contracts" but, rather, more evidence from the Eu ropean Communities relating to the effects of the 
assistance instruments that the United States had placed on the record "years earlier".296 
                                                      
292European Union's appellant's submission, para. 244.  
293European Union's appellant's submission, para. 247.  
294United States' appellee's submission, para. 227.  
295United States' appellee's submission, para. 239. 
296United States' appellee's submission, para. 243.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  C. Claims of Error by the United States – Other Appellant 
1. NASA Procurement Contracts and USDOD Assistance Instruments 
(a) Financial contribution – Application of the "purchase of services" 
test 
(i) NASA 
130. The United States requests the Appellate Body to reverse the Panel's application of its 
"purchase of services" test to the procurement cont racts entered into between NASA and Boeing for 
aeronautics R&D and the Panel's ultimate finding that the transactions are not "purchases of services".  The United States' appeal is twofold.  First, th e United States asserts that the Panel erred in the 
application of its "purchase of services" test to the facts of the case.  Second, the United States argues 
that, in its consideration of the evidence, the Pa nel failed to make an "objective assessment of the 
matter" under Article 11 of the DSU.  In the event of reversal of th e Panel's finding on one or both of 
these grounds, the United States does not seek completi on of the analysis given the complexity and 
disputed nature of the facts on the Panel record. 
131. The United States agrees with the test laid down by the Panel for identifying a transaction 
involving a government's purchase of services.  The United States does not dispute that, in order to 
determine whether a transaction involves a purchase of services, it must be determined whether the 
object of the transaction was "principally for the benefit and use"
297 of the private entity or of the 
government (or unrelated third parties).  Although th e United States disagrees with the Panel's use of 
"an inapposite definition for the term 'service'"298, it does not consider that the use of such a definition 
affected the Panel's overall conclusion.  Noneth eless, in order "to avoid future confusion"299, the 
United States requests the Appellate Body to clarif y the Panel's reasoning by using a more appropriate 
definition of the word "service". 
132. The United States highlights that the Panel's t est "necessitates comparative analysis", since 
"{r}eaching a conclusion as to whether the government  has paid for services 'principally' for the use 
and benefit of the recipient, as opposed to the use and benefit to the government (or unrelated third 
parties) requires a comparison of how each party to the transaction could actually use or benefit from the research."
300   
                                                      
297Panel Report, para. 7.978.  
298United States' other appellant's submission, para. 23;  see also para. 19. 
299United States' other appellant's submission, para. 23. 
300United States' other appellant's submission, para. 23. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  133. Absent consideration of what both parties to the research transactions received, it is 
impossible to reach a reasoned conclusion as to wh ether the benefit and use of the research is 
principally for one side or the other.  According to the United States, the Panel looked exclusively at 
the benefit and use of NASA's research to Boei ng, without addressing the benefit and use to the 
government or third parties unrelated to Boeing.  However, this "one-sided"
301 approach failed to 
follow the legal test that the Panel correctly found to be necessary and, accordingly, failed to establish 
a "financial contribution" for purposes of Article 1.1(a)(1) of the SCM Agreement , the treaty text that 
the Panel sought to apply. 
134. According to the United States, the NASA progr ammes and contracts before the Panel had the 
objective of expanding foundational aeronautics knowle dge for the broader scientific community in 
the United States and other countries, and not only fo r Boeing.  However, the Panel erred by focusing 
narrowly on two of NASA's statutory objectives, while ignoring the fact that a significant portion of 
NASA's aeronautics research went to objectives of "undeniable government use".302  Second, even 
though the Panel noted that almost all of the tran sactions between NASA and Boeing took the form of 
procurement contracts—as opposed to assistance in struments—it nevertheless concluded that this did 
not "shed very much light on the nature of the transactions".303  Third, the Panel did not discuss the 
evidence on record showing that NASA and unrelat ed third parties benefited from the aeronautics 
R&D conducted by Boeing.  Fourth, the Panel likewise failed to engage in a comparative analysis of 
the benefit and use of the resulting intellectual prope rty rights to the parties on either side of the 
transactions.  Lastly, when addressing whether the tr ansactions at issue "involve the typical elements 
of a purchase of services"304, the Panel erred by focusing only on whether the contracts provided for a 
fee, while never addressing " other  typical elements of a purchase, such as the existence of a 
value-for-value exchange".305 
135. The United States further asserts that the Panel's finding that the access provided to Boeing to 
NASA facilities, equipment, and employees under the R&D contracts was a financial contribution 
must fail along with its finding regarding the contracts themselves.  The Panel provided no 
explanation for this finding.  The United Stat es submits, moreover, that recognizing that the NASA 
R&D contracts at issue were purchases of services leads to the conclusion that any access to NASA 
facilities, equipment, and employees was "incidental"306 to that purchase. 
                                                      
301United States' other appellant's submission, para. 13.  See, more generally, paras. 16-37. 
302United States' other appellant's submission, para. 25.  
303Panel Report, para. 7.984.  
304Panel Report, para. 7.1026.  
305United States' other appellant's submission, para. 36. (original emphasis)  
306United States' other appellant's submission, para. 39.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  136. In addition to alleging an error of application, the United States asserts that the Panel failed to 
make an objective assessment of the matter under Ar ticle 11 of the DSU in its evaluation of the 
"benefit and use" of the research under the contracts at  issue.  The United States claims that the Panel 
erred, first, by failing to consider evidence rega rding NASA's objectives in its assessment of the 
"benefit and use" to Boeing and the government and unrelated third parties
307;  and, second, by failing 
to consider other objective evidence of the usef ulness of the aeronautics R&D programmes to the 
government and unrelated third parties.308 
137. The United States recalls the Panel's emphasis on two of the nine Space Act's stated 
objectives, namely, the "preservation of the role of the United States as a leader in aeronautical and space science and technology" and the "preservati on of the United States preeminent position in 
aeronautics and space through research and tec hnology development related to associated 
manufacturing processes".
309  The United States observes, however, that there are other objectives of 
the Space Act to which the Panel did not give ade quate consideration—such as "{t}he expansion of 
human knowledge of the Earth and of phenomena in the atmosphere and space"310—which are critical 
to understanding the use and benefit for the governme nt and the broader community.  In the view of 
the United States, the Panel gave "inadequate cons ideration" to the objective "{t}he improvement of 
the usefulness, performance, speed , safety, and efficiency of aeronautical and space vehicles".311  The 
United States explains that NASA's activities in  this area—including research undertaken by 
Boeing—are for the use and benefit of the government , because they improve air travel safety, make 
air traffic management more efficient, and discove r ways to reduce the environmental impact of air 
travel.  As several official statements demons trate, "NASA did not see these advances as specific to 
Boeing".312 
138. Moreover, the United States contends, "{t}he ev idence is not limited to official expressions" 
of NASA's objectives, but rather there is also ev idence of the "usefulness of NASA research to the 
broader scientific community in the United States and across the world".313  The United States notes 
that NASA scientists present their aeronautics re search at conferences open to the worldwide 
aerospace community—including Airbus employees— and also publish in scholarly journals.  In 
                                                      
307See United States' other appellant's submission, paras. 45-58. 
308See United States' other appellant's submission, paras. 59 and 60. 
309United States' other appellant's s ubmission, para. 45 (quoting Space Ac t, sections 102(d)(5) and (9) 
respectively).  See also Panel Report, para. 7.982.  
310United States' other appellant's submission, para. 45 (quoting Sp ace Act, section 102(d)(1)).  
311United States' other appellant's submission, para. 46 (quoting Sp ace Act, section 102(d)(2)).  
312United States' other appellant's submission, para. 48 (referring to, inter alia , statements by NASA 
Administrator Dan Goldin, in testimony to Congress at the 24 April 2001 Senate Hearing on Science, 
Technology and Space of the Committee on Commer ce, Science and Transpor tation, FDCH Political 
Transcripts (Panel Exhibit EC-292)). 
313United States' other appellant's submission, para. 59.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  addition, NASA requires contractors to submit periodic reports on the progress of their work, which 
are also publicly available.  This evidence s hows how private entities' work under NASA research 
contracts advances the Space Act's objective of "{t}h e expansion of human knowledge of the Earth 
and of phenomena in the atmosphere and space".
314   
139. The United States submits that, by omitting essen tially all of this evidence, and discussing 
only evidence supporting the European Commun ities' allegation that NASA aeronautics R&D 
programmes existed to serve Boeing, the Panel fail ed to make an objective assessment of the facts 
under Article 11 of the DSU.  The United States therefore requests the Appellate Body to reverse the 
Panel's conclusion that NASA's R&D contracts with  Boeing constitute a "direct transfer of funds" 
under Article 1.1(a)(1)(i) of the SCM Agreement . 
140. At the oral hearing, the United States emphasized  that the Panel's test for determining whether 
a measure could be properly characterized as a "p urchase of services" is not an issue before the 
Appellate Body, since neither of the participants has challenged the Panel's test on appeal.  In the 
United States' view, because the participants have accepted the appropriateness of the "principally for 
the benefit and use test" applied by the Panel, the Appellate Body has not had the benefit of a 
vigorous presentation of differing points of view  and arguments for and against the test. 
141. Also at the oral hearing, the United States emphasized that it is not requesting the Appellate 
Body to make a finding as to the consistency of the "principally for the benefit and use test" with the 
SCM Agreement .  However, in the event the Appellate Body  were to reverse the Panel's "principally 
for the benefit and use" test, the United States noted that the Panel's finding that the NASA 
procurement contracts with Boeing are financial co ntributions would necessarily fail, as this finding 
would then have been based on an invalid test.  The United States added that, since many of the 
Panel's findings were based on that test, it is di fficult to envisage how the Appellate Body could 
complete the Panel's analysis based on those sa me findings while using a different legal test. 
(ii) USDOD  
142. The United States requests the Appellate Body to reverse the Panel's findings that the 
assistance instruments between the USDOD and Boeing for aeronautics R&D are not properly 
characterized as "purchases of services" and its consequential finding that the payments and access to USDOD facilities provided to Boeing thereunder cons titute "financial contributions" within the 
meaning of Article 1.1(a)(1) of the SCM Agreement .  
                                                      
314United States' other appellant's submission, para. 60 (quoting Sp ace Act, section 102(d)(1)).   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  143. First, the United States asserts that the Panel's fa ilure to consider the descriptions of the work 
performed under the assistan ce instruments constituted a significant error, given that the Panel itself 
stated that the nature of the work Boeing was re quired to perform was "central to understanding the 
core term of the transaction".
315  The United States submits that, although the Panel found some 
"benefit and use" to the government from its an alysis of the cursory descriptions of the RDT&E 
programme element numbers, it would have found a "significant benefit and use to the government"316 
had it reviewed the statements of work.  The Unite d States recalls that the parties provided the Panel 
with the work descriptions and summaries of five cooperative agreements, si x technology investment 
agreements ("TIAs"), and two othe r transaction agreements ("OTAs").317   
144. The United States argues that these descriptions of the work to be performed, and in most 
cases "even the titles alone"318, illustrate that the research has m ilitary applications that clearly 
constitute a significant benefit and use to the governme nt.  In this regard, the United States points to 
the statement of work of some TIAs, and notes, fo r instance, that structural health monitoring is 
important for spotting structural damage befo re it impairs performance, which is an obvious 
advantage for operators of military aircraft.  Like wise, tanks used in missiles and improved materials 
for turbine engines are similarly useful to th e military, whereas precision image registration has 
military and intelligence applications.319  The United States asserts that, when assessing whether the 
research was principally for the benefit and use of th e government or the contractor, the Panel erred in 
not considering the "most compelling evidence", that is, the cooperative agreements, TIAs, and 
OTAs, which contain "the most precise and, therefore, most significant indication of the nature of the 
research".320 
145. In addition, the United States claims that the Pane l failed to take account of the limiting effect 
of the International Traffic in Arms Regulations (the "ITAR") on Boeing's ability to benefit from and 
use the results of the USDOD R&D.   While the Panel acknowledged that the ITAR restrict Boeing's 
use of certain USDOD R&D-created technology on LCA and that Boeing "complies with ITAR in 
general and took steps to ensure that the 787 will be 'ITAR free'"321, the Panel rejected the proposition 
that the ITAR make it "effectively impossible"322 for Boeing to use the R&D results.  The 
United States argues that the Panel failed to pr ogress beyond mere observations and actually consider 
                                                      
315Panel Report, para. 7.1137. (original emphasis) 
316United States' other appellant's submission, para. 84. 
317See United States' other appellant's submission, paras. 86-88. 
318United States' other appellant's submission, paras. 86 and 87. 
319See United States' other appellant's submission, para. 87. 
320United States' other appellant's submission, para. 89.  
321Panel Report, para. 7.1160. 
322Panel Report, para. 7.1160 (referring to Statement of Michael Bair (Panel Exhibit US-7)). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  the effect of ITAR restrictions.  Had it done so, the Panel would have realized that ITAR-controlled 
LCA are "commercially useless for Boeing"
323 for the following reasons:  restrictions on each LCA 
component are actively enforced;  exceptions to the re strictions are rare;  the ITAR limit the countries 
that an ITAR-controlled LCA may fly to;  and each  component that is exported requires detailed 
review by the US State Department before an  export licence is granted.  Furthermore, the 
United States refers to arguments that it made be fore the Panel that show that Boeing maintains 
"a rigorous and comprehensive set of internal procedures"324 to ensure ITAR components are not 
included in its products, including the Boeing 787.  Mo reover, the level of benefit and use to Boeing 
from the USDOD R&D assistance instruments is d ecreased when these ITAR restrictions are 
considered along with other findings of the Pa nel—namely, that the US DOD R&D was aimed at 
designing advanced defence systems or reducing thei r costs;  most agreements involved 50-50 cost 
sharing—and the European Communities' conces sion that 44% of payments under the 23 USDOD 
RDT&E programmes325, without even considering ITAR rest rictions, were directed at military 
objectives.  The United States argues that the Panel's failure to apply its findings regarding the ITAR 
to its weighing of the civil and military utility of  the USDOD research meant that it did not conduct 
the comparison needed for its "princip ally for the benefit and use" test. 
146. The Panel's second error, in the United States' vi ew, relates to the Panel's application of the 
"principally for the benefit and use" test to the fi ve categories of evidence that the Panel said it would 
consider.326  As regards the first two categories—the Panel's analysis of the relevant US legislation 
and the types of instruments entered into be tween the USDOD and Boeing—the United States 
contends that the formal regulatory categorization of the assistance instruments does not support a legal conclusion that the research at issue was prin cipally for the use and benefit of Boeing, because, 
                                                      
323United States' other appellant's submission, para. 95. 
324United States' other appellant's submission, para. 95. 
325United States' other appellant's submission, para. 98 (referring to Panel Exhibit EC-25, table at p. 20, 
containing data on USDOD RDT&E).  The Panel noted that the European Communi ties challenged funding 
under 13 "general aircraft" programmes—Defense Resear ch Sciences;  Materials;  Aerospace Flight Dynamics 
and Aerospace Vehicle Technologies;  Aerospace Propulsion;  Aerospace Sens ors;  Dual Use Applications and 
Dual Use Science & Technology;  Advanced Materials for Weapon Systems;  Flight Vehicle Technology;  
Aerospace Structures and Aerospace Technology Dev/Demo ;  Aerospace Propulsion and Power Technology;  
Flight Vehicle Technology Integration;  RDT&E for Aging Aircraft;  and Manufacturing Technology/Industrial 
Preparedness—and under 10 "military  aircraft" programmes—C-17;  CV-22;   Joint Strike Fighter;  AV-8B 
Aircraft;  Comanche;  F-22;  B-2 Advanced Technology Bomber;  V-22;  A-6 Squadrons;  and F/A-18 Squadrons. (See Panel Report, paras. 7.1114-7.1117;  and European Communities' first written submission to 
the Panel, paras. 676 and 677) 
326The five categories of evidence considered by the Panel were:  (i) the US legislation authorizing the 
programmes at issue;  (ii) the types of instruments en tered into between the USDOD and Boeing;  (iii) whether 
the USDOD had any "demonstrable use" for the R&D performed under the programmes;  (iv) the allocation of 
intellectual property rights under the transactions;  and (v) whether the transactions at issue had "the typical elements of a 'purchase of services'". (United States' other appellant's submission, para. 100;  Panel Report, 
para. 7.1138)   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  while cooperative agreements, TIAs, and OTAs may a ll fall in the category of "assistance", this does 
not mean that they require Boeing to perform research  that is principally for the benefit and use of the 
company.
327  As for the Panel's evaluation of the "demonstrable use"328 of the R&D performed under 
the programmes to the USDOD, the United States ass erts that the Panel's own findings support the 
conclusion that the USDOD was the principal bene ficiary or user of the research performed by 
Boeing.  With respect to the allocation of intellect ual property rights, the United States argues that this 
did not involve the government paying a private party and getting nothing in return;  rather, the 
assignment of data rights is part of what the priv ate party gets in exchange for contributing to a 
research project of interest to both parties.  Although the Panel seemed to have reached the same conclusion, the United States fails to see how the Pane l took this into account in its overall analysis of 
the assistance instruments.  Lastly, in its analysis  of the "typical elements" of a purchase of services, 
the Panel took "too narrow a view", considering on ly the profit to the seller and failing to address 
other typical elements, such as th e exchange of value for value.
329 
147. In sum, the United States argues that the Pane l did not explain "how it weighed the five 
factors it considered against each other".330  Moreover, the Panel's analysis of two of the factors that it 
did consider—namely, the "demonstrable use" for the R&D and the allocation of intellectual property 
rights—actually demonstrates that the R&D was for the benefit and use of the government.331  The 
United States does not consider that the Panel's cons ideration of the other three factors supports its 
conclusion that the assistance instruments were not  purchases of services, and therefore requests the 
Appellate Body to reverse the Panel's conclusi on under Article 1.1(a)(1)(i) and (iii) of the 
SCM  Agreement . 
148. As it did with respect to the NASA procurement contracts, the United States emphasized at 
the oral hearing that neither party has appealed the Panel's "principally for the benefit and use" test 
and, consequently, that such test is outside the sc ope of appellate review.  Nevertheless, in the event 
the Appellate Body were to reverse the Panel's te st, the United States noted that the Panel's finding 
that the USDOD assistance instruments are financial contributions would necessarily fail, as it would then have been based on an invalid test and it woul d be difficult for the Appellate Body to complete 
the analysis based on the same finding while using a different legal test. 
                                                      
327United States' other appellant's submission, paras. 102 and 106.  
328United States' other appellant's submission, para. 107.  
329United States' other appellant's submission, para. 109.  
330United States' other appellant's submission, para. 115.  
331See United States' other appellant's submission, paras. 101, 107, and 115. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  (b) Benefit 
(i) NASA 
149. The United States appeals the Panel's finding th at the financial contributions provided to 
Boeing under the NASA aeronautics R&D procurement contracts "confer a benefit" within the 
meaning of Article 1.1(b) of the SCM Agreement .  The United States submits that the Panel's finding 
that research under the NASA R&D contracts is "pri ncipally for the benefit and use of Boeing" was 
the sole basis for the finding of benefit.
332  In the United States' view, since the Panel's conclusion that 
the research was principally for the benefit and use of Boeing is erroneous, the finding of existence of 
a benefit is equally erroneous. 
150. The United States recalls that the Panel reached its conclusion under Article 1.1(b) in three 
steps.  First, the Panel noted that the "core 'ter m' upon which the financial contributions are provided" 
is "that Boeing use the payments and access to facilities, equipment and employees that it receives 
from NASA for the purpose of conducting aeronautics R&D work that is principally for Boeing's own benefit and use".
333  Second, the Panel stated that the "relevant market benchmark would be the terms 
of a commercial transaction in which one en tity pays another entity to conduct R&D".334  Third, the 
Panel concluded that "no commercial entity, i.e.  no private entity acting pursuant to commercial 
considerations, would provide payments (and access to its fac ilities and personnel) to another 
commercial entity on the condition that the other entity perform R&D activities principally for the 
benefit and use of that other entity".335  
151. The United States alleges that the third conclusion—namely, that no private entity would 
provide payments and other s upport under those terms—has no support, other than the Panel's 
erroneous finding that the research was principally for the benefit and use of Boeing, and therefore 
cannot establish the existence of a benefit for purpo ses of Article 1.1(b).  In the light of this, the 
United States requests the Appellate Body to reverse the Panel's finding that the financial 
contributions found by the Panel conferred a benefit on Boeing. 
152. In addition, the United States submits that th e Panel erred under Article 1.1(b) when it 
estimated the value of any benefit conferre d on Boeing under the NASA R&D contracts and 
agreements.  The Panel erred because it based its valuation of the total benefit conferred by NASA 
                                                      
332United States' other appellant's submission, para. 64.  
333Panel Report, para. 7.1038. 
334Panel Report, para. 7.1039 (referring to Europ ean Communities' response to Panel Question 21, 
para. 76;  and United States' response to Panel Question 136, para. 85). 
335Panel Report, para. 7.1039.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  "on a combination of transactions covering not only 'LCA-related research' challenged by the 
{European Communities}, but also other transacti ons that the {European Communities} did not 
challenge".
336 
153. The United States recalls that the Europ ean Communities explicitly excluded from its 
challenge any research conducted by Boeing for NASA on space, aircraft engines, hypersonic flight, 
air traffic management, and other topics unrelated  to Boeing's development and production of LCA.337  
The United States further recalls that, when NASA set out to determine the value of the research 
contracts covered by the European Communities' claims, "it first segrega ted all expenditures under 
contracts between Boeing and the four NASA aeronautics research centers, which came to 
$1.05 billion" and then "exc luded $280 million in expenditures for research that the 
{European Communities} had not challenged, resulti ng in a total value of $775 million between 1989 
and 2006".338  However, when calculating the value of  the NASA research contracts, the Panel 
"stopped with the $1.05 billion figure" and erred by  failing to deduct NASA's payments to Boeing for 
research unrelated to the European Communities' claims, "or even address the evidence that the 
$1.05 billion included such research".339  The United States characterizes this omission as an "error" 
inconsistent with Article 1.1(b) of the SCM Agreement  because "it treats transactions that were not 
part of the financial contribution under Article 1.1(a) as conferring a benefit".340 
154. The United States relies on the Appellate Body's reasoning in Canada – Aircraft341 as support 
for its assertion that a benefit for purposes of Artic le 1.1(b) can be conferred only by a financial 
contribution identified under Article 1.1(a).  Thus, th e evaluation of the benefit "is limited to what the 
government conferred through the financial cont ribution", and "government actions that are not part 
of the relevant financial contribution are not part of the benefit".342 
155. The United States adds that the Panel estim ated the value of the access to facilities, 
equipment, and employees provided by NASA to Boei ng based on the ratio of the payments under the 
challenged R&D contracts to total NASA payments  to all contractors.  Consequently, the 
                                                      
336United States' other appellant's submission, para. 66. 
337United States' other appellant's submission, para. 66 (referring to Panel Exhibit EC-25, containing a 
compilation of charts setting out NASA/USDOD/USDOC aeronautics R& D subsidies to Boeing's LCA 
division;  and CRA International, "Response to U.S. Assertions in DS353 Regarding Benefits of DoD RDT&E 
for Boeing's Large Civil Aircraft Division", CRA Project No. D08745-00 (November 2007) (Panel Exhibit EC-1176)). 
338United States' other appellant's submission, para. 66 (referring to United States' response to Panel 
Question 188, para. 223). 
339United States' other appellant's submission, para. 66. 
340United States' other appellant's submission, para. 66. 
341United States' other appellant's submission, para. 67 (referring to Appellate Body Report, Canada – 
Aircraft , para. 157). 
342United States' other appellant's submission, para. 67. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  United States submits that any error in calculati ng the total value of the payments under contracts 
would affect the estimated value of access to facilities, equipment, and employees. 
156. Therefore, if the Appellate Body were to uphold  the Panel's financial contribution finding, the 
United States requests the Appellate Body to modi fy the Panel's finding concerning the value of the 
benefit to Boeing resulting from the NASA aer onautics R&D programmes by deducting payments 
that are not part of the financial contribution cha llenged by the European Co mmunities, and adjusting, 
accordingly, the associated valu e of the access to NASA facilities, equipment, and employees 
provided to Boeing. 
157. At the oral hearing, the United States reject ed the European Union's argument that the 
United States' appeal "lacks legal foundation"
343 because its Notice of Other Appeal did not explicitly 
reference the value of the benefit as an issue on app eal.  In the United States' view, the amount of the 
benefit derives from the same process for identi fying the existence of the benefit, and the 
United States clearly referenced the issue of whethe r the financial contributions in question conferred 
a benefit in its Notice of Other Appeal.  The Unite d States also disagreed with the European Union's 
contention that Article 1.1(b) of the SCM Agreement  covers only the existence of a benefit, and not its 
value.  The United States asserted that the fact that the Appellate Body has found that a precise 
quantification of the amount of a subsidy is not re quired in proceedings under Articles 5 and 6 of the 
SCM Agreement  does not mean that valuation is entirely outside the analysis of Article 1.1(b).  
Furthermore, the United States argued that, even t hough the European Union contends that the Panel 
"found no adequate basis"344 to reduce the amount of the subsid y from $1.05 billion to $775 million, 
the fact is that the Panel made no finding on that point.  The United States contended that the four reasons alleged by the European Union in support of  the Panel's approach are either not mentioned by 
the Panel, irrelevant, or both.  For example,  the Panel never found that the United States had 
conducted a " subjective "
345 review to derive the $775 million figure.  Lastly, the United States 
rejected the European Union's assertion that the Panel understood the $1.05 billion figure to be an 
"estimate", and that the benefit could be more than $1.05 billion in the light of the Panel's finding in 
its adverse effects analysis that this type of s ubsidy "is intended to multiply the benefit from a given 
expenditure".346  The United States argued that the Panel's statement about "multiply{ing} the benefit" 
in the adverse effects context does not, and should no t, affect the valuation of the benefit for purposes 
of Article 1.1(b) of the SCM Agreement . 
                                                      
343European Union's appellee's submission, p. 42, subheading II.A.4.f.ii.1.  
344European Union's appellee's submission, para. 106.  
345European Union's appellee's submission, para. 106. (original emphasis) 
346Panel Report, para. 7.1760.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (ii) USDOD 
158. The United States challenges the Panel's finding that the financial contributions provided to 
Boeing under the USDOD assistance instruments confer a benefit within the meaning of Article 1.1(b) 
of the SCM Agreement .  The United States submits that such a finding is in error because the Panel 
failed to consider the payments and other c ontributions that Boeing makes under the assistance 
instruments. 
159. In the United States' view, the Panel "based its analysis of the benefit on a transaction that 
never occurred"
347, that is, that the USDOD provided paym ents and access to its facilities on the 
condition that Boeing perform R&D activities principally  for the benefit of Boeing without some form 
of royalties or repayment.  The United States not es that the assistance inst ruments submitted to the 
Panel generally require a contribution from Boeing, a nd it also recalls that the Panel itself found that 
"under assistance instruments, the 'recipient' is required to contribute its own funds to the R&D on a 
cost-shared basis".348  Accordingly, "the exchange on whic h the Panel based its finding of benefit 
—payment for research for the benefit and use of Boeing without some form of royalty or repayment—is not what the R&D {assistance instruments did}".
349 
160. The United States recalls that, in Canada – Aircraft , the Appellate Body emphasized that the 
comparison between the government's financial co ntribution and the market should focus on the 
"terms" offered by the government.350  In this respect, the United States contends that, "if the 
appreciation of the terms  of the financial contribution is inco rrect, the comparison with the market 
will also be incorrect, and any conclusion as to  the existence of a benefit will be invalid".351  In this 
case, the Panel failed to address all of the relevant te rms of the assistance instruments, and it did not 
consider that the terms it did address "required Boeing to perform research of benefit and use to 
{US}DOD and to contribute company resources to the R&D project".352   
161. The United States points out that, in making its analysis of benefit, the Panel first described 
what it characterized as the "core 'term'" of the USDOD assistance instruments, namely, "that Boeing 
use the payments and access to facilities it recei ved from {US}DOD for the purpose of conducting 
aeronautics R&D work that is principally for Boeing's own benefit and use".353  The Panel also noted 
                                                      
347United States' other appellant's submission, para. 116 (referring to Panel Report, para. 7.1184). 
348Panel Report, para. 7.1149.  
349United States' other appellant's submission, para. 116. 
350United States' other appellant's submission, para. 117 (referring to Appellate Body Report, Canada – 
Aircraft , para. 157). 
351United States' other appellant's submission, para. 117. (emphasis added) 
352United States' other appellant's submission, para. 118. 
353Panel Report, para. 7.1183. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  that both parties agreed that the proper benchmark fo r the comparison with the market is "the terms of 
a commercial transaction in which one en tity pays another to conduct R&D".
354  The United States 
acknowledges that, if a panel finds that a financia l contribution is "economically irrational", it may 
conclude that such a transaction confers a bene fit, even "absent evid ence to the contrary".355  
However, the United States contests the Panel's find ings in this case because "the transaction the 
Panel found to be economically irrational … is not  the financial transaction that actually occurred".356  
In addition to the government payments to Boei ng, Boeing contributed with its own resources to 
research that was of interest to the government. 
162. The United States asserts that, "when framed pr operly, the question posed by the Panel does 
not allow a conclusion in the abstract as to wh ether the transaction is economically rational".357  
Instead, the answer should depend on the "aggregate te rms of the transactions" and more specifically 
on "whether the actual exchange made by the pa rties was one that would have occurred on the 
market".358  The United States considers that this  was the case with the USDOD assistance 
instruments. 
163. Therefore, the United States requests the Appellate  Body to reverse the Panel's finding that 
the financial contribution it found to exist confer s a benefit on Boeing for purposes of Article 1.1(b) 
of the SCM Agreement .  The United States, however, does not re quest the Appellate Body to complete 
the analysis on this point because the Panel record  lacks sufficient factual evidence in this respect. 
164. The United States also requests reversal of the Panel's statement, in paragraph 7.1205 of the 
Panel Report, that it "{did} not consider it credible that less than 1 per cent of the $45 billion in 
aeronautics R&D funding that {US}DOD provided to  Boeing over the period 1991-2005 had any 
potential relevance to LCA".  The United States asserts  that this statement la cks an evidentiary basis 
and that, in making it, the Panel failed to make an objective assessment of the matter under Article 11 
of the DSU.  The United States further contends that  the challenged statement is inconsistent with the 
Panel's own finding that "any atte mpt by the Panel to go further and arrive at {its} own estimate of the 
amount of the subsidy to Boeing's LCA division would be speculative".359  Moreover, it is difficult to 
reconcile with the fact that the Panel recognized di fferences as to the exact scope of the term "dual 
                                                      
354Panel Report, para. 7.1184 (quoting European Communities' response to Panel Question 21, 
para. 76;  and United States' response to Panel Question 136, para. 85). 
355United States' other appellant's submission, para. 121. 
356United States' other appellant's submission, para. 121. 
357United States' other appellant's submission, para. 122. 
358United States' other appellant's submission, para. 122. 
359Panel Report, para. 7.1209.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  use" and emphasized that it was "not taking a position on this definitional issue".
360  In the light of 
this, the United States asserts that any finding as to the value of USDOD  funding for R&D of 
potential relevance to LCA "clearly  lacks an evidentiary basis".361  Accordingly, the United States 
submits, the Appellate Body should "find this comme nt to be inconsistent with Article 11 of the 
DSU"362 and reverse the Panel's finding in that regard. 
2. Washington State B&O Tax Rate Reduction 
(a) Financial contribution – Revenue foregone 
165. The United States claims that the Panel erred in  both the interpretation and application of the 
legal standard to be applied unde r Article 1.1(a)(1)(ii) of the SCM Agreement  to determine when there 
is a financial contribution because government re venue that is otherwise due is foregone.  
Accordingly, the United States requests the Appellate  Body to reverse the Panel's finding that the 
Washington State B&O tax rate reduction for manuf acturers of commercial airplanes or components, 
enacted as part of House Bill 2294, constitutes a fi nancial contribution under Ar ticle 1.1(a)(1)(ii) of 
the SCM Agreement . 
(i) Interpretation of Article 1.1(a)(1)(ii) of the SCM Agreement 
166. With regard to the interpretation of Article 1. 1(a)(1)(ii), the United States submits that the 
Panel "departed from the standard set forth in th e text of the SCM Agreem ent and engaged in an 
overly simplistic analysis that failed to take into  account the complexity of the Washington {State} 
B&O tax system".363  The United States adds that, despite the fact that the Panel referenced passages 
from prior Appellate Body reports in US – FSC  and US – FSC (Article 21.5 – EC) , including those 
"warnings about the risks inherent in a simple 'but for' test"364, the Panel incorrectly paraphrased and 
interpreted the Appellate Body's guidance.365 
                                                      
360Panel Report, footnote 2796 to para. 7.1205. 
361United States' other appellant's submission, para. 125. 
362United States' other appellant's submission, para. 125. 
363United States' other appellant's submission, para. 130.   
364United States' other appellant's submission, para. 130 (referring to Panel Report, paras. 7.116 and 
7.117;  Appellate Body Report, US – FSC , para. 90;  and Appellate Body Report, US – FSC (Article 21.5 – EC) , 
para. 91).  
365United States' other appellant's submission, para. 138 (referring to Panel Report, para. 7.120, in turn 
referring to Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 91 and 98). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  167. The United States argues that, contrary to the Panel's understanding, the requirement to 
compare the challenged tax measure with the treatment  applied to comparable income for taxpayers in 
comparable circumstances is not limited to "other situations"
366 where a "but for" test cannot be 
applied.  In US – FSC (Article 21.5 – EC) , the Appellate Body rejected the proposition that the "but 
for" test, or the "general rule" and "excepti on" analysis, reflects the correct standard under 
Article 1.1(a)(1)(ii).  The United States understa nds the Appellate Body to have explained, 
"{i}nstead", that "the challenged taxation measure  should always be compared to the treatment 
applied to comparable income, for taxpayers in comparable circumstances in the jurisdiction in 
issue".367  As the United States sees it, this standard is "t o be applied in all cases, and a 'but for' test is 
simply one methodology that may be useful for applying that standard in certain, limited situations".
368   
168. The United States considers that, while it may be  possible in some situations to apply a 
"but for" test to perform the comparison required by Article 1.1(a)(1)(ii), the Appellate Body noted 
that "usually"369 it will be difficult to do so.  According to  the United States, the general rule requires 
a comparison with the tax treatment of legitim ately comparable income.  The Panel, however, 
"erroneously elevated the 'but for' test to the stat us of {a} general rule and treated the comparison of 
legitimately comparable income as an exception to that rule, only to be ap plied if no 'but for' situation 
can be established".370 
(ii) Application of Article 1.1(a)(1)(ii) of the SCM Agreement 
169. With regard to the application of Article 1.1(a)(1)(ii), the United States challenges two 
aspects of the Panel's analysis.  The United States subm its that the Panel erred, first, by identifying as 
the normative benchmark, not the Washington State B& O tax system as a whole, but a subset of that 
tax system, namely, the tax rates applied to manufacturing, wholesaling, and retailing activities.  According to the United States, the Appellate Bo dy has clarified that the "prevailing domestic 
standard"
371 reflected in a Member's tax laws provides the reference point for determining whether 
"revenue … foregone" is "otherwise due", and for id entifying the fiscal treatment of the relevant 
income for taxpayers in comparable situations.372  The tax rates for manufacturing, wholesaling, and 
                                                      
366Panel Report, para. 7.120.  
367United States' other appellant's submission, para. 141 (referring to Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 91).  
368United States' other appellant's submission, para. 139.  
369Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 91.   
370United States' other appellant's submission, para. 142.   
371Appellate Body Report, US – FSC , para. 90. 
372United States' other appellant's submission, para. 152 (referring to Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 91).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  retailing activities do not, on their own, reflect the prevailing domestic standard.  Rather, the 
Washington State B&O tax system "is a multi-rate tax system that applies numerous tax rates to 
numerous individually identified categories of act ivities, and the tax rate applied to aerospace 
manufacturing and selling is within the range of tax rates applied to other activities".
373 
170. The United States observes that the Appellate Body has explained that "there must be a 
rational basis for comparing the fiscal treatment of the income subject to the contested measure and 
the fiscal treatment of certain other income".374  The Appellate Body has also stressed that "it is 
important to ensure that the examination under Artic le 1.1(a)(1)(ii) involves a comparison of the fiscal 
treatment of the relevant income for taxpayers in comparable situations".375  The United States asserts 
that there is no rational basis for the Panel to ha ve disregarded the fiscal treatment of the other 
activities that are also individually identified in th e Washington State tax code.  The Panel erred in 
relying on the language used in House Bill 2294 an d other documents produced by Washington State, 
because the terms used in those documents "do not  identify whether income generated by some 
activities is 'legitimately co mparable' to income generated by othe rs, or whether one rate 'foregoes' 
revenue that would otherwise be due".376  Such language is thus irrelevant to a proper analysis under 
Article 1.1(a)(1)(ii), and does not justify the Panel's failure to take into account the fiscal treatment of 
other relevant income for taxpaye rs in comparable situations. 
171. The United States submits that, instead of heedi ng the Appellate Body's instruction to conduct 
a substantive analysis of the normative benchmark, "the Panel tried to create simplicity by reducing 
the analysis to two classes of income––aerospace manufacturing and manufacturing not covered by a 
sector-specific rate––without regard to any other classes of income".377  The United States contends 
that such isolated consideration of a few lines from the Washington State tax code is contrary to the 
Appellate Body's instruction to consider the tax rules applied through the contested measure with the 
fiscal treatment of other relevant income for taxpayers in comparable situations. 
172. The United States asserts that the European Communities did not explain why income from 
certain categories of business activity in Washingt on State becomes not "legitimately comparable" 
simply because the Washington State B&O tax system imposes multiple tax rates on different categories of business activity.  The Panel likewise failed to explain or even address why business 
activities other than those in the categories of "m anufacturing", "wholesaling", and "retailing" are not 
"legitimately comparable" to aircraft manufacturing a nd selling.  The Panel's failure to consider this 
                                                      
373United States' other appellant's submission, para. 153.  
374Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 90. 
375Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 92.  
376United States' other appellant's submission, para. 155.   
377United States' other appellant's submission, para. 156.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  legal question was a result of its narrow focus on applying an oversimplified "but for" test.
378  Even 
assuming, arguendo , that all business activities subject to the Washington State B&O tax are not 
"legitimately comparable", the Panel's implicit finding—that "manufacturing", "wholesaling", and 
"retailing" are the exclusive categories of business activity that  are "legitimately comparable" to 
aircraft manufacturing and selling—is legally insuffici ent.  This is because the Panel failed to take 
into account, for example, other separately iden tified categories of business activity, such as 
manufacturing of semiconductor materials and manufact uring and selling of nuclear fuel processors.  
Indeed, the Panel never addressed why the other cate gories of business activity separately identified in 
the Washington State tax code, including a variety of other manufacturing and selling activities, would or would not be "legitimately comparable" to aircraft manufacturing and selling.  This failure 
by the Panel to identify properly "legitimately comparable" income for the purpose of making the 
comparison required under Article 1.1(a)(1)(ii) is fa tal to the Panel's financial contribution finding.
379 
173. The second error committed by the Panel in the appl ication of Article 1.1(a)(1)(ii) was that it 
failed to examine properly the fiscal treatment of other taxpayers in comparable situations.  The 
United States explains that evidence relating to th e effective tax rate is highly relevant to an 
understanding of the "fiscal treatment" of income  from business activities under the Washington State 
B&O tax system.380  The United States explains that, taking into account the pyramiding inherent in 
the Washington State B&O tax system, the B&O tax ra te reduction lowered the effective tax rate for 
aerospace manufacturing from 2.53% to 1.578%, wh ich exceeds the average effective tax rate for 
other Washington businesses of 1.53%.  Th e reduced B&O tax rate, therefore, "is not a favorable 
rate"381 for aerospace manufacturing.  Rather, it makes the effective tax rate for this sector " less 
unequal when compared to the effective tax rate ap plied to other business activities in the State".382  
For these reasons, the United States considers that th e tax rate applied to aerospace manufacturing and 
selling cannot be considered revenue  foregone that is otherwise due under Article 1.1(a)(1)(ii) of the 
SCM Agreement . 
174. The United States notes that the Panel's rejecti on of its arguments regarding the effective 
B&O tax rate in Washington State appears to be  founded on the United States' acknowledgment that 
such a rate "is not a normative benchmark by whic h to contrast the fiscal treatment afforded to 
                                                      
378United States' additional memorandum following the first session of the oral hearing, para. 51. 
379United States' additional memorandum following the first session of the oral hearing, para. 52. 
380See United States' other appellant submission, paras. 157-161;  United States' oral statement at the 
first session of the oral hearing;  and United States' additional memorandum following the first session of the 
oral hearing, para. 54.  
381United States' other appellant's submission, para. 157. (original emphasis) 
382United States' other appellant's submission, para. 157. (original emphasis)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  legitimately comparable income".
383  For the United States, the Panel's conclusion is a non sequitur 
because it does not render evidence of the effective tax ra te irrelevant to the Panel's analysis.  Instead, 
"evidence of the average effective rate of taxa tion is highly relevant––both factually and legally––to 
the determination of whether a fi nancial contribution was provided as a result of lowering the nominal 
tax rate for aerospace manufacturing and selling".384  The United States considers that the Panel's 
failure to take this evidence into  account in its analysis undermines it s finding that the tax rate applied 
to aerospace manufacturing and selling c onstitutes a financial contribution. 
(b) Specificity – Article 2.1(a) of the SCM Agreement  
175. The United States submits that the Panel erred in  the application of Article 2.1(a) of the 
SCM Agreement  by failing to consider, in its assessment of specificity, the entirety of the subsidy that 
the Panel had found to exist. 
176. The United States emphasizes that the evaluation under Article 2.1 of the SCM Agreement  
seeks "to determine whether a subsidy, as defined in paragraph 1 of Article 1 , is specific".385  
Therefore, the analysis "must address the specificity of the subsidy that has been found to exist, not 
some other subsidy, and not merely a part of the subsidy found to exist".386  According to the 
United States, once the Panel had identified the sta ndard rate of taxation in Washington State, and 
found that the application of a tax rate lower than the standard rate would co nstitute a subsidy, it was 
required to assess whether and how Washington St ate tax law "explicitly limits" access to such a 
subsidy to "certain enterprises".  The Panel failed to make such an assessment because it examined 
only whether the Washington State B&O tax rate re duction for aircraft manufacturing, wholesaling, 
and retailing was "specific";  however, "the exceptions  or differentiated rules that the Panel found to 
exist are not limited to the aircraft manufacturing industry".387  The United States notes, for example, 
the Panel's own recognition that there are other manufacturing, wholesaling, and retailing activities, 
apart from those relating to selling commercial aircraft  and components, that are subject to differential 
rates of taxation.388 
                                                      
383Panel Report, para. 7.137.   
384United States' other appellant's submission, para. 160.   
385Emphasis added by the United States.  
386United States' other appellant's submission, para. 168.   
387United States' other appellant's submission, para. 172.  
388United States' other appellant's submission, para. 172 (referring to Panel Report, paras. 7.202 
and 7.203).  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  177. The United States argues that the Panel failed to explain the relevance of evidence that "the 
differential tax rates were introduced at a range of  different times and for a variety of different 
purposes".
389  The United States observes that the Panel' s own description identifies the "exceptions" 
to the "general rates" as "all part of the same subsidy".390  The fact that the tax rates applied to other 
activities differ from the rate applied to aerospace manufacturing, wholesaling,  and retailing, and the 
fact that the tax rates differ among one another would,  at most, be relevant to the measurement of the 
benefit conferred to any particular recipient of th e financial contribution.  That question is separate 
from that of whether specificity exists.  More over, the United States argues that nothing in 
Article 2.1(a) indicates that the purpose  of a subsidy is relevant to the specificity analysis.  As the 
Panel explained, de jure  specificity must be discerned by evalua ting "the face of the legislation or … 
other statements or means by which th e granting authority expresses its will".391  The United States 
further asserts that the fact that differential taxation rates were created or modified at different times is 
not relevant to the specificity analysis.  The rele vant subject of the analysis should have been the 
Washington State tax code as it existed at th e time of the Panel's specificity analysis. 
178. The United States notes that, despite recognizing the need to examine the Washington State 
tax code "as a whole"392, the Panel made a de jure  specificity finding that is not supported by the 
evidence on the record and was based on irrelevant considerations.393  The Panel found that section 3 
of House Bill 2294 effectuates the addition of aircraft  manufacturing and selling to the existing "list of 
activities that are subject to a taxation rate  that differs from" the "general rates".394  The Panel was, 
therefore, required to determine whether all of th e industries that had been granted preferential 
taxation rates, taken together, woul d constitute "certain enterprises" for purposes of Article 2.1(a) of 
the SCM Agreement .  The Panel, however, did not conduct such an analysis.  Instead, it found that the 
taxation rates for other activities are not "part of a common subsidy programme" because they "were introduced at a range of different times and for a variety of different purposes".
395  I n  t h e  
United States' view, consideration of timing a nd purpose has potentially "troubling implications"396, 
which can be avoided by properly focusing on the text of the legislation as it exists.  In this regard, the 
United States notes that the different taxation rates are all set forth in the same provision of the Washington State tax code and each is descr ibed using nearly identical language.   
                                                      
389Panel Report, para. 7.205 (referring to Business and Occupation Tax – Differential Tax Rates, 
Revised Code of Washington , section 82.04 (Panel Exhibit US-191)). 
390United States' other appellant's submission, para. 175.  
391Panel Report, para. 7.192. 
392Panel Report, para. 7.199.  
393United States' additional memorandum following the first session of the oral hearing, para. 60.  
394Panel Report, para. 7.125;  United States' additional memorandum following the first session of the 
oral hearing, para. 61.  
395Panel Report, para. 7.205.  
396United States' additional memorandum following the first session of the oral hearing, para. 63.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  179. The United States submits that the relevant qu estion before the Panel was whether access to 
the subsidy that it had found to exist—that is, the a pplication of a preferential tax rate lower than the 
general rate—was explicitly limited to "certain ente rprises".  The Panel observed that the "differential 
rates" under the Washington State tax code we re explicitly limited to certain enterprises
397, but failed 
to analyze whether access was limited once all of the "d ifferential rates" were considered collectively.  
Because the Panel "did not even attempt to ascerta in" whether access to the subsidy was so limited, 
the United States maintains that the Panel's specificity finding "is without foundation".398   
180. Accordingly, the United States requests the Appella te Body to reverse the Panel's finding that 
"the B&O tax reduction granted to the aerospace i ndustry under {House Bill} 2294 is a subsidy that is 
specific within the meaning of Article 2.1(a)".399  The United States adds that it is not possible for the 
Appellate Body to complete the analysis.  The Pane l failed to make any factual findings as regards to 
whether any collection of enterprises or industries in  addition to "aerospace" would constitute "certain 
enterprises", and there is insufficien t evidence on the record to enable the Appellate Body to complete 
the analysis and determine that the preferential taxation rates are de jure  specific. 
3. City of Wichita Industrial Reve nue Bonds (IRBs) – Specificity 
181. The United States claims that the Panel erred in finding that the City of Wichita IRBs are "in 
fact … specific" within the meaning of Article 2.1(c) of the SCM Agreement  on the basis that 
disproportionately large amounts of the subsidy were provided to Boeing and Spirit AeroSystems 
("Spirit").400  The United States maintains that th e Panel used the wrong baseline for its 
disproportionality analysis, and that it failed to ta ke into account the lack of diversification of the 
economy of the City of Wichita. 
182. With respect to the Panel's baseline, the Un ited States criticizes the Panel for using Boeing 
and Spirit company-specific employment levels relati ve to total manufacturing employment within the 
jurisdiction of the granting authority.  The United St ates argues that the Panel's approach would result 
in findings of specificity even where a s ubsidy is "sufficiently broadly available"401 and there are no 
de jure  or de facto  limits on access to the subsidy.  The United States explains that there is no reason 
to assume that there is necessarily a "proportiona te" relationship between, on the one hand, the 
                                                      
397Panel Report, para. 7.204.  
398United States' other appellant's submission, para. 178.  
399Panel Report, para. 7.205. 
400In its other appellant's submission, the United States asserts that the Panel erred in finding that the 
IRBs issued after the date of the European Communities'  request for the establishment of a panel were within 
the Panel's terms of reference.  However, the United States did not provide argumentation in support of this claim.  At the oral hearing, the Un ited States confirmed that it was not pursuing this particular claim.   
401Panel Report, US – Upland Cotton , para. 7.1142. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 78 HSBI omitted, as indicated [[HSBI]]  
 
  number of employees of a particular company or gr oup of companies relative to all employment in the 
Wichita manufacturing sector and, on the other hand,  the amount of IRB tax benefits received.  It 
would have made much more sense, according to the United States, to look at qualifying investments 
during the relevant time period, or some other factor that bears an actual relationship to the number of 
companies that qualify for IRB funding.  The Panel's choice of baseline also took no account of the fact that some industries "may employ disproportionate numbers of people for a range of perfectly 
justifiable reasons".
402  Nor did the Panel account for the fact that many government programmes may 
be broadly or generally available, but the number of companies that use the programmes may not be 
directly proportionate to the level of overall employment that they represent, or that certain companies 
may not be able to assume the administrative effo rt required to participate in the programme, or 
otherwise be interested in participating in it.  These examples confirm that the Panel's approach, by 
focusing on a single numerical ratio and using the tota l level of manufacturing employment within the 
jurisdiction of the granting authority as its ba seline, does not provide a valid benchmark for 
determining proportionality.  Instead, it results in a finding of de facto  specificity "whenever 
discrepancies exist between a company's relative le vel of employment within an economy as a whole, 
and the amount of subsidy it receives".403 
183. The United States contends that the Panel could have avoided these problems if it had 
followed the approach, advocated by the United States, of using the group of recipients of the alleged 
subsidy as the baseline for the disproportionality an alysis.  This approach takes into account the 
proportion of companies that actually or potent ially qualify for IRB benefits, as opposed to 
determining specificity "based on a broader baselin e factor that would bear no relation to the 
proportion at which recipients would be expected to use the subsidy".404  As for the Panel's concern 
that the United States' approach would be incons istent with the purpose of determining whether a 
subsidy is sufficiently broadly available throughout  an economy, the United States contends that the 
panel in EC and certain member States – Large Civil Aircraft  came to the opposite conclusion.  That 
panel concluded that, "where the subsidy at issue has been granted pursuant to a subsidy programme, 
that programme should normally be used for the purpose of identifying the 'baseline' or 'reference 
data' needed to perform a disproportionality analysis".405  The United States asserts that, had the Panel 
used the actual or potential recipients of the subsid y programme as the baseline in this case, instead of 
the total level of manufacturing employment within the jurisdiction of the granting authority, it would 
not have found de facto  specificity, "because there is no informa tion on the record to suggest that 
                                                      
402United States' other appellant's submission, para. 184.  
403United States' other appellant's submission, para. 186. 
404United States' other appellant's submission, para. 188. 
405Panel Report, EC and certain member States – Large Civil Aircraft , para. 7.964.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Boeing's and Spirit's share of the Wichita IRB benefi ts was disproportionate to their respective shares 
of the overall group of actual or potential recipients of such IRBs".
406 
184. The United States maintains that the Panel also er red by failing to take into account the extent 
of economic diversification in the City of Wich ita.  The United States observes that it provided 
evidence to the Panel to support its argument that  the City of Wichita economy was undiversified and 
focused on aircraft production.  Despite the fact that the European Communities did not submit any 
rebuttal evidence, and notwithstanding the require ment in Article 2.1(c) that the extent of 
diversification of an economy shall be taken in to account, the Panel rejected the United States' 
argument.  The Panel "simply ignored that … it w as for the {European Communities} to demonstrate 
and for the Panel to find, that in addition to th e appearance of 'dispropor tionality', the subsidy was 
in fact  specific, even when taking into account the lack  of diversification of the Wichita economy and 
the evidence submitted by the United States to that effect".407 
185. At the oral hearing, the United States reiterated its criticisms of the Panel's approach.  First, 
the United States noted that the relevance of  Boeing's share of economic activity for the 
disproportionality analysis is unclear, regardless of the baseline group.  Where a subsidy is granted to 
virtually all applicants in amounts in proportion to the construction and improvement activity for 
which the subsidy is sought, the fact that a comp any receives more of the subsidy because it engages 
in more eligible activity cannot amount to a finding that this company has received disproportionately large amounts of subsidy.  Second, even assuming arguendo  that Boeing's share of economic activity 
was relevant, Boeing's employment level says ve ry little about the company's place within the 
economy, because no single indicator is capable of doing so alone.  According to the United States, the European Communities failed to present all the necessary evidence to  reach a meaningful 
conclusion as regards Boeing's place in the Wichita economy.  Third, it is also unclear why Boeing's 
share of total economic activity in the entire manuf acturing sector would be relevant for the Panel's 
disproportionality analysis.  In this respect, the Un ited States agreed with Australia that comparing a 
recipient's portion of the subsidy against the b aseline of its relative economic importance in the 
economy as a whole would always lead to dispropor tionality and hence specificity to be found. 
186. For these reasons, the United States requests the Appellate Body to reverse the Panel's finding 
that the City of Wichita IRBs are "specific" within the meaning of Article 2.1(c) of the 
SCM Agreement . 
                                                      
406United States' other appellant's submission, para. 190. 
407United States' other appellant's submission, para. 193. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  4. Adverse Effects 
(a) Technology effects of the aeronautics R&D subsidies 
187. The United States claims that the Panel erred in finding that the aeronautics R&D subsidies 
have caused adverse effects under Articles 5(c) and 6.3 of the SCM Agreement .  At the outset, the 
United States recalls that the Panel conducted its exam ination of the adverse effects of the aeronautics 
R&D subsidies in two stages, beginning with "an analysis of the effects of the subsidies on Boeing 's 
pricing and product offerings, followed by an anal ysis of the effects of the subsidies … on Airbus ' 
prices and sales".408  The United States' arguments address both stages of the Panel's analysis. 
(i) The Panel's finding that the aeronautics R&D subsidies have 
improved Boeing's product offering for the 787 
188. The United States raises two separate and independ ent grounds of appeal with respect to the 
first stage of the Panel's analysis.  First, the Un ited States asserts that the Panel erred when finding 
that the aeronautics R&D subsidies have caused a dverse effects under Articles 5(c) and 6.3 of the 
SCM Agreement  because they have "contributed in a genuine and substan tial way to Boeing's 
development of technologies for the 787".409  Second, the United States claims that the Panel erred in 
its application of Article 6.3(c) of the SCM Agreement  "by failing to incorporate all of its relevant 
findings into the counterfactual analysis of whether, absent the subsidies, Boeing would have launched the 787 at the same level of technological innovation in 2004".
410   
The Panel's findings on a genuine and substantial link between the aeronautics R&D 
subsidies and the 787 
189. The United States submits that th e facts, as found by the Panel, do not establish the existence 
of a genuine and substantial rela tionship of cause and effect between the aeronautics R&D subsidies 
and the development of technologies for the 787.  The United States notes that the Panel made a number of findings
411 and characterized the NASA R&D subs idies as "strategically-focused R&D 
programmes with a significant and pervasive commercia l dimension, undertaken in collaboration with 
U.S. industry to provide competitive advantages to U.S. industry by funding research into high risk, 
high pay-off research of the sort that individual  companies are unlikely to fund on their own".412  
Regarding the USDOD's ManTech and DUS&T programmes, the Panel further noted that these 
                                                      
408Panel Report, para. 7.1660. (original emphasis) 
409Panel Report, para. 7.1773. 
410United States' other appellant's submission, para. 215. 
411United States' other appellant's submission, para. 219 (referring to Panel Report, paras. 7.1740, 
7.1742, 7.1745-7.1748, and 7.1771). 
412Panel Report, para. 7.1764.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  programmes are "focused on pursuing 'dual use' te chnologies through collaborative efforts with U.S. 
industry".
413  However, the Panel also made "a number of other findings" that show that the links the 
Panel attempted to forge between NASA/USDOD R&D and the availability of technologies to 
the development of the 787 in 2004 do not amount to "a  genuine and substantia l relationship of cause 
and effect".414  The United States thus asserts that, "having made these findings , the Panel had to take 
account of them in its analysis of causation", and th e failure to do so means that the Panel's findings 
"were in error".415  The United States makes the following  specific arguments in this regard. 
190. First, the United States asserts that much of  the NASA R&D at issue in this dispute was 
neither in the causal pathway of the technologies that  the Panel considered most relevant to the 787, 
nor was it aimed at making Boeing more competitive.416  Although the Panel "correctly recognized 
that NASA research in particular areas of aeronautics science would have different degrees of 
relevance to Boeing's ability to launch the 787 in 2004", it erred when examining "only three 
programs" and then "extrapolating their eff ects" to the other NASA and USDOD programmes.417  By 
doing so, the Panel "exaggerated the effect"418 of these remaining programmes.  The United States 
recalls that the Panel focused on the work on composites and composites technologies studied under 
the three NASA programmes—namely, the Adva nced Composites Technology Program ("ACT 
programme"), the Advanced Subsonic Technology Program ("AST programme"), and the Research 
and Technology Base Program ("R&T Base programme ")—because, in the Panel's view, they were 
"the most commercially and technologically significant programmes".419  The United States therefore 
contests the Panel's "broad conclusion" about the nature and magnitude of the entirety of Boeing's 
participation in the aeronautics R&D programmes, wh ich was based solely on the Panel's view about 
this "subset of the research" under the three programm es that the Panel considered to be "on the high 
end of significance to the 787".420 
                                                      
413Panel Report, para. 7.1764. 
414United States' other appellant's submission, para. 220 (referring to subsections VI.B.1.a and b of its 
submission;  and Panel Report, para. 7.1760). 
415United States' other appellant's submission, para. 221. (emphasis added)  The United States "does not 
agree with the picture of NA SA's work that the Panel draws.  However,  the Panel's errors do not, except as 
indicated below, rise to the level of a failure to ma ke an objective assessment under Article 11 of the DSU". 
(Ibid.)  
416United States' other appellant's submission, p. 90, subheading VI.B.1.a. 
417United States' other appellant's submission, para. 222. 
418United States' other appellant's submission, para. 222. 
419Panel Report, para. 7.1702. 
420United States' other appellant's submission, para. 224. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  191. The United States recalls, in this respect, that the Panel's findings establish that most of the 
NASA R&D programmes "did not relate to the identified areas of  commercial advantage for the 787", 
and that they "were not directed at a competitive advantage for industry in the first place".
421  As an 
example, the United States points to the Aviation Safety Program ("AS programme"), which is aimed 
at "saving lives", and not at conferring a "compe titive advantage" or developing technologies for 
"Boeing's exclusive or predominant use".422  It also refers to the High-Speed Research Program 
("HSR programme"), which accounts for "nearly 40 per cent of the $1.05 billion in NASA contracts 
with Boeing that the Panel found to be subsidies" , and notes that the research under this programme 
related to supersonic flight and "was not on the cau sal pathway that … led to the technologies selected 
for the subsonic 787".423  In the light of this, the United States contends that the Panel's findings 
indicate "little or no relationship"424 between the AS programme or the HSR programme supersonic 
research, on the one hand, and the technology used on  the 787, on the other hand.  Consequently, the 
United States asserts that the presence of this r esearch in the larger category of aeronautics R&D 
subsidies analyzed by the Panel "call{s} into question whether the remaining research related to 
the 787 was sufficient to cause serious prejudice of the type the Panel found to exist".425 
192. Second, the United States contends that, ev en when the NASA research was on the causal 
pathway toward technologies incorporated in the 787, the Panel found that the research stopped at a 
level far lower than what Boeing required in orde r to apply a technology in a commercial context.426  
The United States notes that the Panel itself recognized that "it takes a significant amount of time and 
effort to mature a technology from in itial concept to commercial application".427  Indeed, the Panel 
illustrated the distance between different levels  of technology maturation by reference to the 
NASA technology readiness levels ("TRLs"), a scale that traces the progress of research from "Basic 
scientific/engineering principles observed and reported"  (TRL 1) to "operational use of actual system 
tested, and benefits proven" (TRL 9).428  The Panel further found that "NASA's research efforts focus 
on the development of higher risk technologi es up to TRL 6 (prototype demonstration)".429  T h e  
                                                      
421United States' other appellant's submission, para. 224. (emphases added) 
422United States' other appellant's submission, para. 225. 
423United States' other appellant's submission, para. 226. 
424United States' other appellant's submission, para. 228. 
425United States' other appellant's submission, para. 228. 
426United States' other appellant's submission, p. 93, subheading VI.B.1.b. 
427United States' other appellant's submission, para. 229 (referring to, inter alia , Panel Report, 
para. 7.1758). 
428United States' other appellant's submission, para. 230 (referring to Panel Report, para. 7.1748;  and 
D.J. Peisen et al., Case Studies: Time Required to Mature Aer onautic Technologies to Operational Readiness  
(SAIC and GRA, Inc., November 1999) (Panel Exhibit EC-795) ("Peisen Study")). 
429Panel Report, para. 7.1748.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  United States contends that any "further work n eeded to mature technologies" to reach "operational 
use" (TRL 9) would have to be performed by Boeing or some other entity.
430 
193. In this respect, the United States notes that the evidence cited by the Panel indicates that, for 
airframe technologies, it takes 16.5 years to move from TRL 1 to TRL 9, 11.3 years of which are devoted to moving from TRL 6 to TRL 9.
431  This means that it takes, on average, 5.2 years to move 
from TRL 1 to TRL 6.  The United States highlight s, however, that the Panel "did not use these 
figures, apparently because it misunderstood the table it was citing".432  The Panel stated that "the 
average time from TRL 1 to TRL 6 was 11.3 years  …, while the average time from TRL 1 to TRL 9 
was 16.5 years".433  In the United States' view, these findings by the Panel demonstrate that "even if a 
NASA technology is in the causal pathway toward a technology ready for operational use … on the 787", it would "require{} substantial additiona l private development work to get there."
434 
194. Third, the United States emphasizes that Boei ng devoted a substantial amount of its own 
research toward developing the technologies used on the 787.435  Specifically, the United States 
recalls that the Panel itself found that "Boeing co nducted a substantial amount of research on its own 
to develop and launch the 787"436, and that NASA aeronautics research "stops at TRL 6 or lower", 
whereas the major time commitment in the development process "comes  in the subsequent stages of 
turning technological concepts into commercial applications".437  The Panel also found that, "even at 
the earlier stages of development, {Boeing}  conducted work independent of NASA".438  Therefore, 
the United States contends that NASA-funded researc h played a small role in Boeing's ability to 
launch a technologically innovative 787 in 2004. 
195. Fourth, the United States points to the role of  Boeing's suppliers, who are responsible for a 
substantial amount of the technology needed for the 787, and to Boeing's own experience, which 
largely contributed to its ability to integrat e those technologies into a finished product.439  According 
to the United States, even if the Panel were correct that Boeing had NASA and USDOD to "thank{} 
                                                      
430United States' other appellant's submission, para. 230 (referring to Affidavit of Branko Sarh (Panel 
Exhibit US-1254), para. 15). 
431United States' other appellant's submission, para. 231 (referring to Peisen Study, p. 11).  
432United States' other appellant's submission, para. 232.  
433Panel Report, para. 7.1748. (emphasis added) 
434United States' other appellant's submission, para. 235. 
435United States' other appellant's submission, p. 96, subheading VI.B.1.c. 
436United States' other appellant's submission, para. 236. 
437United States' other appellant's submission, para. 236. 
438United States' other appellant's submission, para. 236 (referring to Panel Report, para. 7.1746). 
439United States' other appellant's submission, p. 96, subheading VI.B.1.d. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  … in large part"
440 for its technology integration abilities in civil aeronautics, the Panel's findings 
establish that the "company's ho me-grown capabilities were also responsible for a large part" of 
"Boeing's ability to accommodate the technology stream coming from suppliers".441  Therefore, the 
suppliers' contribution to Boeing's knowledge base attenuates any link between the aeronautics R&D 
subsidies and the technology used on the 787. 
196. The United States further considers that the Panel failed to make an objective assessment 
under Article 11 of the DSU, since there was no mean ingful support in the evidence for the finding 
that Boeing's ability to use other companies' comme rcially available technologies on the 787 was due 
to "the knowledge and experience that Boeing obtai ned pursuant to the aeronautics R&D subsidies as 
an integrator of the various technologies".442  The Panel simply accepted the European Communities' 
assertion that "NASA provides relevant learning and experience to perform the task of integrating 
technologies supplied by third parties into a complete {LCA}"443;  but the European Communities 
cited no evidence.  The United States submits that there was, however, evidence on the Panel record 
suggesting that Boeing had developed experience in  the application of composites in primary and 
secondary structures since the 1960s, had further developed this experience when work on the 777 
began in the late 1980s, and had con tinued to develop it in the 1990s.  This work involved integrating 
the technologies of multiple suppliers independe nt of the NASA and USDOD R&D programmes.  
Therefore, the United States asserts, the Panel's fi nding that Boeing could meet the challenge of 
integrating technologies from a wide variety of s uppliers "thanks in large part to NASA and 
{US}DOD funding and support"444 lacks a basis in the evidence and should be reversed.   
197. The United States also alleges that the integration of a variety of supplier technologies in a 
commercial programme differs greatly, in both scale and quality, from the work executed pursuant to 
the NASA and USDOD R&D programmes at issue.  Even the largest NASA programme (the HSR 
programme) amounted to only $440 million, which, in the end, was only $307 million given that 
NASA cut the programme short.445  Furthermore, the nature of the "integration" in a NASA project is 
different in three critical ways from the "integration" that Boeing performed in producing LCA:  (i) NASA-funded aeronautics R&D projects do not a dvance beyond the laboratory and do not deal 
with real-world problems of applying these technolog ies;  (ii) most NASA research does not involve 
                                                      
440Panel Report, para. 7.1772 (quoting European Communities' oral statement at the first Panel meeting 
(BCI), para. 14). 
441United States' other appellant's submission, para. 239. 
442Panel Report, para. 7.1772. 
443United States' other appellant's submission, para. 247. 
444Panel Report, para. 7.1772 (quoting European Communities' oral statement at the first Panel meeting 
(BCI), para. 14). 
445United States' other appellant's submission, para. 242.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  making usable physical parts and components;  and (iii) even in those rare cases when NASA projects 
called for making a physical component, it was at most  one or two Articles over a period of months or 
years for laboratory test purposes.
446  The United States adds that a nother key difference between even 
the largest NASA project (the HSR programme) an d Boeing's development of LCA relates to the 
person in charge of the project.  For the former, NASA gives instructions as to "what gets done and 
how it gets done"447, whereas on an LCA development project, Boeing plays that role.  
198. Fifth, the United States contends that NASA's public dissemination requirement lessens the 
value of the aeronautics R&D subsidies to Boeing.448  The United States recalls the Panel's finding 
that "NASA publicly disseminated the reports that  summarized the results of the research conducted 
under the eight {NASA} programmes at issue, and that  this represents a situation in which Boeing has 
given up something of value in exchange for the funds and access to facilities, equipment and 
employees that it receives".449  The United States recognizes that the Panel also found that "there are 
restrictions on the dissemination of certain aspect s of NASA-funded research results, and that public 
dissemination does not occur immediately".450  However, the "critical implication" of the latter 
finding is that Limited Exclusive Rights Data ("LERD") clauses " only restrict dissemination of 
'certain aspects ' of research results for a ' limited ' time".451  Therefore, despite the fact that the Panel 
declined to attach an amount to how much of the NASA funding did not confer a benefit, the point remains that the Panel found that some portion of the $2.6 billion in funding had less value because of 
NASA's dissemination policies. 
199. Sixth, the United States asserts that, relative to the immense R&D expenditures of Boeing and 
its suppliers, that the magnitude of the aeronautics R&D subsidies is too small to create a genuine and 
substantial relationship of cause and e ffect with the technologies used on the 787.
452  T h e  
United States contends that the $2.6 billion in aer onautics R&D subsidies found by the Panel, spread 
over the 18 years from 1989 to 2006, "is small compared to Boeing's own {R&D} spending".453  In 
this regard, the United States notes that, when a full aircraft development programme like the 787 is 
under way, Boeing's R&D costs "run to more than $2 billion per year , as opposed to the average of 
$153 million per year of aeronautics R&D subsidies found by the Panel".454  Therefore, since the 
$2.6 billion total "is less significant than it appears" , and the total cost of developing an LCA is 
                                                      
446United States' other appellant's submission, para. 244. 
447United States' other appellant's submission, para. 245. 
448United States' other appellant's submission, p. 101, subheading VI.B.1.e. 
449Panel Report, para. 7.1100.   
450Panel Report, para. 7.1771. 
451United States' other appellant's submission, para. 250. (emphasis added) 
452United States' other appellant's submission, p. 102, subheading VI.B.1.f. 
453United States' other appellant's submission, para. 251. 
454United States' other appellant's submission, para. 251. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 86 HSBI omitted, as indicated [[HSBI]]  
 
  "greater", any link between the research and Boeing's ability to develop and launch the 
technologically innovative 787 in 2004 "is that much more attenuated".
455 
200. In conclusion, the United States submits that, wh en considered in their totality, the Panel's 
findings do not establish a genuine and substantial relationship of cause and effect and thus do not 
meet the requirement under Articles 5 and 6.3 of the SCM Agreement  for the aeronautics R&D 
subsidies to have caused adverse effects.   
201. At the oral hearing, the United States reject ed the European Union's assertion that the 
United States is disputing the Panel's findings of  fact.  The United States responded that it is 
challenging only one finding of fact  under Article 11 of the DSU (that is, that NASA research projects 
are "largely responsible"456 for Boeing's expertise as an integrator of aircraft), and that, otherwise, it 
accepts the facts as laid out by the Panel.  In the Un ited States' view, the issue of causation is a legal 
issue involving the application of the causation standard in the SCM Agreement  to the facts at issue.   
202. In the light of the above, the United States requ ests the Appellate Body to reverse the Panel's 
finding that the aeronautics R&D subsidies cau sed adverse effects to the interests of the 
European Communities, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement . 
The Panel's findings regarding the counterfactual analysis 
203. The United States raises a second ground of app eal, namely, that the Panel's counterfactual 
analysis was insufficient to demonstrate that, but  for the aeronautics R&D subsidies, Boeing would 
not have been able to launch the 787 in 2004.457  The United States describes the Panel's examination 
of whether Boeing would have launched the 787 wh en it did in the absence of the subsidies as 
"cursory"458, and it criticizes the Panel for failing to take  into account its own findings regarding the 
nature of the subsidy, Boeing's research prioriti es, its actual research activities, and its available 
resources.  A proper counterfactual causation anal ysis, in accordance with the Appellate Body's 
reasoning in US – Upland Cotton (Article 21.5 – Brazil) , would have more rigorously examined all of 
the Panel's findings and looked at all of the Pane l's findings in the context of the conditions of 
competition.459  It is the United States' contention that several findings of the Panel demonstrate that 
Boeing's commercial behaviour relating to the la unch of the 787 would not have changed in the 
absence of the aeronautics R&D subsidies. 
                                                      
455United States' other appellant's submission, para. 252. 
456United States' other appellant's submission, p. 96, subheading VI.B.1.d. 
457United States' other appellant's submission, p. 105, heading VI.B.2. 
458United States' other appellant's submission, para. 258. 
459United States' other appellant's submission, para. 261 (referring to Appellate Body Report,  
US – Upland Cotton (Article 21.5 – Brazil) , para. 351).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  204. The United States first recalls the Panel's c onclusion that "{t}he essence of the intense 
competition between Boeing and Airbus is to design and build better airplanes".
460  The United States 
sees this statement as recognition that LCA manuf acturers "have strong commercial incentives to 
spend the resources needed to gain a technical advantage over competitors".461  The United States also 
points to the Panel's finding that under the aeronautics R&D programmes "the definition of the scope and programme of research was arrive d at in collaboration with industry"
462 and that, as a result, the 
aeronautics R&D programmes focused on crea ting a competitive advantage for Boeing.463  Boeing 
therefore "knew what research needed to be  done, knew that it would result in a competitive 
advantage, and could formulate a plan for the de ployment of resources to meet those objectives".464  
Boeing's expected competitive advantage would, in  the United States' view, "provide a compelling 
motive to do just that".465   
205. In addition, the United States points to the Panel's finding that private parties can obtain 
access to NASA goods and services through reimbur sable Space Act Agreements, and that, under 
these instruments, "NASA requires full reimbursement , defined as 'full cost recovery' for the goods, 
services or facilities provided".466  The United States therefore submits that a private party may 
engage the NASA facilities, equipment, and employees by paying the agency the cost of their use.  
The United States further refers to the Panel's finding that Boeing was self-funding research on the same topics as NASA, and was doing so at the same time.
467  The United States also underscores the 
Panel's finding that Boeing had sufficient funds to achieve the same learni ng and experience as that 
which may have resulted from the ae ronautics R&D subsidies at issue.468 
206. The United States asserts that all of these findings "point to a straightforward counterfactual 
conclusion"469, namely, that, in the absence of the subsidi es, Boeing "would have funded this 'critical' 
research itself, either using Boeing's own resources or by obtaining them from NASA under a reimbursable Space Act Agreement".
470  Accordingly, a "proper counterfactual" analysis would have 
determined that "the aeronautics R&D subsidies are not a genuine and substan tial cause of adverse 
                                                      
460Panel Report, para. 7.1765. 
461United States' other appellant's submission, para. 263. 
462Panel Report, para. 7.1745. 
463United States' other appellant's submission, para. 264 (referring to Panel Report, para. 7.1740). 
464United States' other appellant's submission, para. 264. 
465United States' other appellant's submission, para. 264. 
466United States' other appellant's submission, para. 266 (quoting Panel Report, footnote 2624 to 
para. 7.1082). 
467United States' other appellant's submission, para. 267 (referring to Panel Report, para. 7.1746). 
468United States' other appellant's submission, para. 268 (referring to Panel Report, paras. 7.1759, 
7.1830, and 7.1831). 
469United States' other appellant's submission, para. 269. 
470United States' other appellant's submission, para. 270. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 88 HSBI omitted, as indicated [[HSBI]]  
 
  effects".
471  The Panel reached "the opp osite conclusion" and provided  "no explanation reconciling 
this conclusion with its other findings".472   
207. The United States also argues that the Panel's rejection of the proposition that Boeing would 
have performed the same research on the grounds that  there are "large disincentives for private sector 
investment in long term, high risk aeronautical R&D"473 is contradicted by the Panel's finding that the 
aeronautics R&D research has a greater effect than wh at its dollar value would indicate, because "it is 
intended to multiply the benefit from a given expenditure".474  The United States further notes that the 
Panel rejected the "United States' invitation to compare the amounts of the aeronautics R&D subsidies 
with Boeing's payments to shareholders".475  The United States explains, however, that it "did not 
'invite' this comparison", but rather a comparison of "net income and cash flow from operations over the period"
476, which it had demonstrated "were sufficien t to support Boeing's commercial behaviour 
absent the subsidies".477  It showed that such commercia l behaviour would have taken place " even if  
Boeing had made all $16 billion in shareholde r payments that it made over the period".478  Moreover, 
the Panel made a "more important error" by not accepting the proposition that "the effect of the aeronautics R&D subsidies was essentially to benefit Boeing's shareholders"
479, which is a necessary 
implication of the counterfactual analysis. 
208. In conclusion, the United States submits th at the Panel failed properly to conduct its 
counterfactual analysis, and thus failed to estab lish a causal link between the subsidies and the 
adverse effects to the interests of the European Communities.  For these reasons, the United States 
requests the Appellate Body to reverse the Pa nel's finding that, "absent the aeronautics R&D 
subsidies, Boeing would not have been able to launc h an aircraft incorporating all of the technologies 
that are incorporated on the 787 in 2004, w ith promised deliveries commencing in 2008"480, and also 
to reverse the dependent findings that those subsidi es caused adverse effects to the interests of the 
European Communities within the meaning of Articles 5(c) and 6.3 of the SCM Agreement . 
                                                      
471United States' other appellant's submission, para. 270. (emphasis added) 
472United States' other appellant's submission, para. 271. 
473Panel Report, para. 7.1759. 
474Panel Report, para. 7.1760. 
475Panel Report, para. 7.1760. 
476United States' other appellant's submission, para. 275. (emphasis added) 
477United States' other appellant's submission, para. 275.  
478United States' other appellant's submission, para. 275 (referring to the United States' comment on 
European Communities' response to Panel Question 78, para. 270). (original emphasis) 
479United States' other appellant's submission, para. 276. 
480Panel Report, para. 7.1775.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 89  
 
  (ii) The Panel's finding with respect to the effects of the 
aeronautics R&D subsidies on Airbus' prices and sales 
209. With respect to the second stage of the Panel's analysis of the technology effects
481, the 
United States appeals the Panel's finding that "the effect of the subsidies was significant lost sales, 
{threat of} displacement and impedance, and price suppression with regard to the A330 or Original 
A350".482   
Lost sales and threat of displacement or impedance 
210. The United States notes, first, that the Panel erred in finding that Airbus "lost" sales of the 
A330 and Original A350 in sales campaigns where "t he customer chose the 787 over the Original 
A350".483  It observes that the Qantas, Ethiopian Ai rlines, Icelandair, and Kenya Airways sales 
campaigns "each involved a single transaction", and "{i}n none of these transactions did the customer 
consider buying both an Original A350 and an A330".484  The United States thus contends that, "to the 
extent that any of these transactions resulted in a lo st sale of the {Original} A350, it {could} not also 
be a lost sale of the A330", since Airbus "cannot lose the same sale twice".485 
211. The United States further asserts that, in each of  the lost sales found by the Panel, Airbus 
either "did not bid any aircraft"486, "removed the A330 from consideration in favour of the Original 
A350"487, or "offered only the Original A350 against the 787".488  Therefore, "{n}one of these 
campaigns involved a potential order for the Original A350 and the A330".489  The United States adds 
that, "even assuming arguendo  that the 787 was unavailable at the time of the campaign" or "lacked 
the technological features that swayed the customers", Airbus "could only have expected to obtain 
additional sales of the Original A350", but not of the A330 as well.490  Consequently, the lost sales 
findings regarding the A330 do not meet the requirements of Article 6.3(c) of the SCM Agreement .  
Because the Panel used these "invalid" lost sales findi ngs as the sole basis of its findings of threat of 
                                                      
481The United States clarifies that  it makes this claim "assuming arguendo  the existence of a genuine 
and substantial link between the subsidies and Boeing's ability to reach the level of  technological innovation 
present in the 787". (United States' other appellant's submission, para. 216) 
482United States' other appellant's submission, para. 216. 
483United States' other appellant's submission, para. 281. 
484United States' other appellant's submission, para. 281. (original emphasis) 
485United States' other appellant's submission, para. 281. 
486United States' other appellant's submission, para. 283 (referring to European Communities' 
first written submission to the Panel, Annex D – 787 Campaign Annex (HSBI), para. 42). 
487United States' other appellant's submission, para. 283 (referring to European Communities' 
first written submission to the Panel, Annex D – 787 Campaign Annex (HSBI), para. 22). 
488United States' other appellant's submission, para. 283 (referring to European Communities' 
first written submission to the Panel, Annex D – 787 Campaign Annex (HSBI), paras. 49 and 60). 
489United States' other appellant's submission, para. 283. (original emphasis) 
490United States' other appellant's submission, para. 284. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 90 HSBI omitted, as indicated [[HSBI]]  
 
  displacement and impedance of the A330 in Australia , Ethiopia, Iceland, and Kenya, the United States 
asserts that the latter findings are "similarly inconsistent" with Article 6.3(b) of the 
SCM Agreement .
491 
212. Second, the United States argues that, in findi ng lost sales for the Original A350 and A330 
involving Ethiopian Airlines, Icelandair, and Kenya Ai rways, the Panel erred because it failed to take 
account of "customer-specific situa tions showing that Boeing's victory in the campaign was not the 
effect of the aeronautics R&D subsidies".492  The Panel correctly found that "Boeing's customer 
relationship precluded lost sales findings at Con tinental Airlines, All Nippon Airways, and Japan 
Airlines".493  Yet, the United States submits, "{s}ubstantia lly the same situation" existed for Ethiopian 
Airlines, Icelandair, and Kenya Airways, namely, "{t}hey had all-Boeing fleets, with Ethiopian Airlines and Kenya Airways seeking a replacement for the 767, and Icelandair looking to replace 
its 757s".
494  The Panel's finding was therefore contradictory in that respect. 
213. Third, the United States argues that a "similar in consistency" exists between the Panel's lost 
sales finding with respect to Icelandair and the Panel' s finding of no lost sale for Royal Air Maroc, by 
virtue of Airbus' "failure to submit a formal offer within the time limit specified by the airline (Royal 
Air Maroc)".495  Regarding the Icelandair campaign, the United States observes that, for a sale to be 
"lost" by a Member, "there must have been some  competition in which the Member's producer 'might 
have had' the sale".496  If the Member's producer did not attemp t to get the sale or did not make an 
offer that responded to the customer 's requirements, it could not have expected to gain the sale and, 
therefore, cannot be unders tood to have "lost" it.497  The United States thus contends that "{t}he fact 
that Boeing secured an order does not necessarily mean , as the Panel appeared to presume, that Airbus 
                                                      
491United States' other appellant's submission, para. 281. 
492United States' other appellant's submission, para. 286. 
493United States' other appellant's submission, para. 288 (referring to Panel Report, footnote 3725 to 
para. 7.1786). 
494United States' other appellant's submission, pa ra. 288 (referring to United States' first written 
submission to the Panel, U.S. Campaign Annex (BCI), footnote 2 to para. 10). 
495United States' other appellant's submission, para. 289 (quoting Panel Report, footnote 3725 to 
para. 7.1786). 
496United States' other appellant's submission, para. 290.  The United States notes that Article 6.3(c) of 
the SCM Agreement  provides that serious prejudice may arise where "the effect of the subsidy is … lost sales in 
the same market", and that the relevant meaning of "lost" appears to be to "fail to obtain (something one might 
have had)" or "{b}e deprived of (something) in a contes t or game … be defeated in (a game, battle, a lawsuit)" 
(Ibid. (quoting The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon Press, 1993), 
Vol. 1, p. 1632 (Panel Exhibit US-14);  and referring to United States' first written submission to the Panel, 
para. 892) (underlining added)) 
497United States' other appellant's submission, pa ra. 290 (referring to United States' first written 
submission to the Panel, paras. 892 and 893).  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 91  
 
  lost the order"
498, and notes that there is no evidence concerning the Icelandair sale to demonstrate 
that, "if Boeing had not secured the order,  Airbus would have actually secured it".499 
214. Lastly, the United States argues that, since the Panel's erroneous finding of lost sales was "the 
sole basis"500 for the Panel's finding that there was threat  of displacement or impedance in Ethiopia, 
Iceland, and Kenya, the latter finding lacks any supp ort.  Accordingly, the United States requests the 
Appellate Body to reverse these findings by th e Panel under Articles 5(c) and 6.3(b) of the 
SCM Agreement . 
Threat of displacement or impedance 
215. The United States submits that the Panel erred in finding a threat of displacement and 
impedance of Airbus 200-300 seat LCA under Article 6.3(b) of the SCM Agreement  in Ethiopia, 
Kenya, and Iceland.501  First, the Panel declined to assess whether these countries constituted "third 
country markets" within the meaning of Article 6.3(b).502  Second, the Panel's finding of threat of 
displacement and impedance in Ethiopia, Kenya, and Iceland, based solely on a single sales campaign 
in each country, means that the Panel interpreted and applied Article 6.3(b) in a manner that "reduces 
'market' to a nullity".503  If the drafters had intended such an  interpretation, Article 6.3(b) would 
describe displacement or impedance "from a third c ountry" and omit any reference to "a third country 
market ".504  Therefore, the United States requests the Appella te Body to reverse the Panel's findings of 
threat of displacement and impedance. 
Price suppression 
216. The United States argues that the Panel erroneous ly found that the effect of the aeronautics 
R&D subsidies was significant price suppression in the worldwide market for 200-300 seat LCA.  First, with respect to the A330, the United Stat es asserts that the Pane l failed to satisfy the 
requirements for a finding of significant pri ce suppression, because "it did not conduct a valid 
counterfactual assessment" and "relied on a coincide nce of trends analysis that did not examine 
closely enough the evolution of the trends".
505  The United States explains that the Panel relied on a 
perceived coincidence between the 2004 launch of th e 787 and a decline in A330 prices, instead of 
                                                      
498United States' other appellant's submission, para. 291. (original emphasis) 
499United States' other appellant's submission, para. 292. 
500United States' other appellant's submission, para. 294. 
501United States' other appellant's submission, para. 295 (referring to Panel Report, paras. 7.1791 
and 7.1794). 
502United States' other appellant's submission, para. 295. 
503United States' other appellant's submission, paras. 295 and 296. 
504United States' other appellant's submission, para. 296. (original emphasis) 
505United States' other appellant's submission, para. 298. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 92 HSBI omitted, as indicated [[HSBI]]  
 
  conducting a meaningful counterfactual analysis of A330 prices.
506  Moreover, the Panel drew the 
wrong conclusion from worldwide market share data for 200-300 seat LCA.507  Although 
acknowledging that the arithmetic conclusions draw n by the Panel in comparing 2000-2003 trends 
with 2004-2006 trends were correct, the United St ates nevertheless argues that the Panel erred in 
"failing to look more rigorously at the evolution of these trends", which reveals that "no discernible 
correlation exists between the 787's market presence and A330 prices".508  Thus, the Panel's A330 
price suppression findings are erroneous because the Panel relied on a "temporal coincidence" 
between market share levels and A330 pr ices that "contradicts its inferences".509 
217. Second, with respect to the Original A350, th e United States maintains that the Panel's finding 
of significant price suppression fails because, "wit h no pricing data of any kind and anecdotal 
evidence covering barely 30 per cent of sales", the evidence with respect to  the Original A350 "is 
insufficient to support any conclusi on about overall pricing levels".510  The United States recalls that 
the Panel identified the worldwide market for 200- 300 seat LCA as the "same market" in which it 
would analyze whether the effect of the subsidi es was significant price suppression for the Original 
A350 and for the other Airbus aircraft in that  "product market" (the A330 and A350XWB-800).511  
The United States does not appeal this aspect of th e Panel's reasoning, but contends that, "once the 
Panel selected that market as the frame of refe rence", it was required to assess, in accordance with 
Article 6.3(c) of the SCM Agreement , "whether prices of Airbus 200-300 seat {LCA} in that 
worldwide market , were significantly suppressed".512 
218. The United States further states that, althoug h it was the European Communities' burden to 
present evidence in support of its assertions, the Eu ropean Communities did not provide any evidence 
regarding price trend data for the Original A350.513  Furthermore, because an "evaluation of price 
suppression without prices is a non sequitur ", the United States submits that any conclusion reached 
by the Panel fails, "for that reason alone", to estab lish an inconsistency with Article 6.3(c) of the 
SCM Agreement .514  The United States notes that, in an attempt "to plug the hole" left by the 
                                                      
506United States' other appellant's submission, para. 299 (referring to Panel Report, 
paras. 7.1782-7.1785). 
507United States' other appellant's submission, para. 300 (referring to Panel Report, 
paras. 7.1783-7.1785). 
508United States' other appellant's submission, para. 302. 
509United States' other appellant's submission, para. 303. 
510United States' other appellant's submission, para. 304. 
511United States' other appellant's submission, para. 307 (referring to Panel Report, para. 7.1674;  and 
European Communities' first written submission to the Panel, para. 1186). 
512United States' other appellant's submission, para. 307. (original emphasis) 
513United States' other appellant's submission, para. 309 (referring to United States' comments on the 
European Communities' response to Panel Question 381, para. 337). 
514United States' other appellant's submission, para. 309.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 93  
 
  European Communities, the Panel referred to  "anecdotal evidence on 'certain sales'".
515  However, the 
"sales" in question were "three campaigns that pr ovide{d} an insufficient basis from which to draw 
conclusions" on whether prices in "the same mark et" have been suppressed to a significant degree.516  
The three Original A350 sales campaigns cited by  the European Communities represented 30.4% of 
the total orders for that aircraft  in "the same market", and hen ce there was "simply no way of knowing 
what happened with Original A350 pricing in the majority of sales for that aircraft".517 
219. Therefore, the United States submits that, absent ev idence as to actual prices or price trends 
for the Original A350 in the world market, the Pane l had no way to test whether the actual evolution 
of prices conformed to its theory that "the combin ation of the superior t echnology and lower operating 
costs of the 787 clearly affected the comparative value of Airbus' A330 and {Original} A350, leaving Airbus no other option but to reduce the pri ces of its aircraft in order to compete".
518  An "expectation 
based on economic reasoning"519 is not enough to justify the finding necessary to establish an 
inconsistency with Article 6.3(c) of the SCM Agreement :  that "the effect of the subsidy is … 
significant price suppression … in the same market".520 
220. Finally, as regards Airbus's 200-300 seat LCA market as a whole, the United States submits 
that, in assessing whether the effect of the aeronau tics R&D subsidies to the 787 was significant price 
suppression in the same market within the meaning of Article 6.3(c), the Panel's task was to determine 
whether significant price suppression existed for "the product in question, as a whole, in the relevant 
market, as a whole".521  The Panel chose to examine price suppression on a "model-by-model 
basis"522, despite the fact that the pro duct in question consisted of all three of the 200-300 seat Airbus 
models identified by the European Communitie s:  the A330, the Original A350, and the 
A350XWB-800.  Furthermore, the Panel rejected th e European Communities' assertion of significant 
price suppression of the A350XWB-800523, and, moreover, that it had an insufficient basis from 
which to find significant price suppression for the Original A350.  This, according to the 
United States, "leaves a finding of price suppressi on exclusively with respect to … the A330".524  A 
price suppression finding specific to the A330 cannot be considered as a sufficient basis for the Panel's conclusion as to the effects "with r espect to the 200-300 seat wide-body LCA product 
                                                      
515United States' other appellant's submission, para. 310. 
516United States' other appellant's submission, para. 310. 
517United States' other appellant's submission, para. 310. 
518Panel Report, para. 7.1792. 
519United States' other appellant's submission, para. 311.  
520United States' other appellant's submission, para. 311. (original emphasis) 
521United States' other appellant's submission, para. 312 (quoting Panel Report, Korea – Commercial 
Vessels , para. 7.557). (emphasis added by the United States) 
522United States' other appellant's submission, para. 313. 
523United States' other appellant's submission, para. 313 (referring to Panel Report, para. 7.1793). 
524United States' other appellant's submission, para. 313. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 94 HSBI omitted, as indicated [[HSBI]]  
 
  market".
525  The United States therefore requests the Appe llate Body to reverse the Panel's conclusion 
that an effect of the aeronautics R&D subsidies is  significant price suppression with regard to Airbus 
200-300 seat LCA. 
(iii) Conclusion on technology effects of the aeronautics R&D 
subsidies 
221. In sum, the United States claims that the Pa nel erred in finding that the aeronautics R&D 
subsidies have caused adverse effect s under Articles 5(c) and 6.3 of the SCM Agreement .  The 
United States requests the Appellate Body to re verse the Panel's finding that the aeronautics R&D 
subsidies have caused adverse effects to the inter ests of the European Union by contributing "in a 
genuine and substantial way to Boeing's  development of technologies for the 787".526  In addition, 
because the Panel failed to conduct a proper counte rfactual analysis, the United States requests the 
Appellate Body to reverse the Pa nel's finding that, "absent the ae ronautics R&D subsidies, Boeing 
would not have been able to launch an aircraft  incorporating all of the technologies that are 
incorporated on the 787 in 2004, with promised deliveries commencing in 2008"527, and the dependent 
findings that those subsidies caused adverse effect s to the interests of th e European Communities.  
Finally, the United States requests the Appellate Bo dy to reverse the Panel's findings regarding the 
effects of the aeronautics R&D subsidies on the prices and sales of Airbus LCA competing in the 200-300 seat LCA market. 
(b) Price effects of the tied tax subsidies 
222. The United States raises a number of claims agains t the Panel's analysis of price effects under 
Articles 5 and 6.3 of the SCM Agreement .  Each of these claims arises from the United States' view 
that the Panel "took a number of impe rmissible shortcuts in its analysis  of the tax subsidies"—that is, 
the FSC/ETI subsidies and the B&O tax rate re ductions—"allegedly conferred on Boeing", and 
therefore "did not establish a genuine and substan tial relationship of cause and effect between the 
subsidies and the adverse effects alleged by the {European Communities}".
528  The United States 
requests the Appellate Body to reverse the Panel's finding that the effects of the FSC/ETI subsidies 
and the B&O tax rate reductions  in the 100-200 seat and 300-400 seat LCA markets were significant 
price suppression, significant lost sales, and disp lacement and impedance, within the meaning of 
Articles 5(c) and 6.3(b) and (c) of the SCM Agreement . 
                                                      
525Panel Report, para. 8.3(a)(i). 
526United States' other appellant's submission, paras. 217 and 257.  
527Panel Report, para. 7.1775.  
528United States' other appellant's submission, para. 315.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 95  
 
  (i) The Panel's counterfactual analysis 
223. The United States submits that the Panel erred by  dispensing with considerations highlighted 
by the Appellate Body as important or critical for panels when evaluating cl aims under Articles 5(c) 
and 6.3 of the SCM Agreement .   
224. The United States argues that the Panel's count erfactual analysis failed to address whether 
Boeing's prices would have been higher in the absence of the tax subsidies.  A counterfactual analysis 
of the effect of subsidies on prices should evaluate  whether the subsidized producer's prices "would 
have been higher in the absence of the subsidies (that is, but for, the subsidies)".
529  Instead, the Panel 
stated that it had "no doubt"530 that the availability of the FSC/ETI subsidies, in combination with the 
B&O tax rate reductions, enabled Boeing to lower its prices beyond the level that would otherwise 
have been economically justifiable, and that, in so me cases, this led to Boeing securing sales that it 
would not otherwise have made, while, in other cases , it led to Airbus being able to secure the sale 
only at a reduced price.  The United States contends that "{t}his brief explanation is no substitute for 
a counterfactual analysis", and that the Panel "fai led to establish that, ab sent the tax subsidies, 
Boeing's prices would have been at a highe r, 'economically justifiable' level".531   
225. According to the United States, the parties'  argumentation and evidence narrowed the 
counterfactual question before the Panel to whether,  but for the subsidies, Boeing would have had the 
resources to act in an economically rational manner.  The Panel, however, rejected the 
European Communities' argument that, but for the subsidies, Boeing would have been forced, as a 
matter of economic necessity, to raise its prices .  Accordingly, the Panel erred under Articles 5 
and 6.3 of the SCM Agreement  by finding that the tax subsidies caused Boeing to lower its prices 
beyond an "economically justifiable" level.   
Magnitude of the subsidies 
226. The United States argues that the Panel failed to  conduct a proper analysis of the magnitude 
of the tax subsidies.  The Appellate Body has stated  that the magnitude of a subsidy is an important 
factor in the analysis of whether the effect of the subsidy is significant price suppression.532  In fact, 
when it found that the B&O tax rate reductions were, by themselves, too small to cause serious 
prejudice, the Panel implicitly recognized that the magnitude could be the decisive  factor.  The Panel, 
                                                      
529United States' other appellant's submission, para. 321 (quoting Appellate Body Report, US – Upland  
Cotton  (Article 21.5 – Brazil) , para. 370 (original emphasis)).   
530Panel Report, para. 7.1818. 
531United States' other appellant's submission, para. 321 (quoting Panel Report, para. 7.1818).  
532United States' other appellant's submission, para. 323 (referring to Appellate Body Report, US – 
Upland Cotton , para. 461). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 96 HSBI omitted, as indicated [[HSBI]]  
 
  however, conducted no such analysis in relation to the FSC/ETI measure.  The United States 
maintains that both parties put forward calculations  showing that the amount of the FSC/ETI benefit 
was consistently less than 1% of the value of  Boeing's annual sales from 2001 to 2006.  The Panel 
dismissed this evidence as not "particularly informat ive or illustrative of the capacity for the FSC/ETI 
subsidies to have affected Boeing's prices,  and by extension, Airbus' prices and sales"
533, but failed to 
recognize that this meant the complaining party had fa iled to meet its burden of proof.  In respect of 
its lost sales claims, the European Communities' ow n evidence shows that a counterfactual increase in 
Boeing's prices by less than 1% would not have ch anged the outcome of campaigns won for the 737 
and 777.  As to significant price suppression, the European Communities never asserted or attempted 
to demonstrate that suppression of Airbus' prices by less than 1% ad valorem  would constitute 
significant price suppression.  Because those subsid ies were simply too small during the 2004-2006 
period to have had the effect of causing Boeing to win significant sales and market share from Airbus, 
or to suppress Airbus' prices by a significant de gree, the United States asserts that no causal link 
exists. 
Correlation between the subsidies and their effects 
227. The United States contends that the Panel fa iled to address the absence of any correlation 
between the amount of the tax subsidies and the alle ged lost sales, price suppression, and changes in 
market share.  The Appellate Body has previ ously found that a discernible correlation would be 
expected between significantly suppressed prices a nd the challenged subsidy if the effect of the 
subsidy is significant price suppression, and that this  "is an important factor in any analysis of 
whether the effect of a subsidy is significant price suppression".534  The same reasoning applies in 
evaluating whether the effect of the subsidy is signifi cant lost sales or displacement or impedance.  In 
this dispute, no correlation exists between the level of subsidies and the evol ution of prices and sales 
for LCA in the 2001-2003 and 2004-2006 periods.  The United States argues that these facts show 
that no meaningful relationship exists between the tax subsidies and Boeing's prices for and sales of 
LCA, and yet the Panel never made any findings on this issue.   
Non-attribution factors 
228. The United States argues that the Panel failed to perform an adequate non-attribution analysis, 
as required under Articles 5(c) and 6.3 of the SCM Agreement .  Although the Appellate Body has 
observed that "it is necessary to ensure that the effects of other factors on prices are not improperly 
                                                      
533Panel Report, para. 7.1816.  
534Appellate Body Report, US – Upland Cotton , para. 451.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 97  
 
  attributed to the challenged subsidies"
535, the Panel did not engage in any meaningful analysis of the 
effects of other factors on the prices and sales of either Boeing or Airbus.  The United States had 
argued before the Panel that Airbus A320 and A340  sales and prices were not higher than they were 
because:  (i) Airbus undercut prices for both 100-200 seat and 300-400 seat LCA, which increased its market share dramatically but set customer expectat ions for low prices;  (ii) Boeing decided to price 
the 737 and 777 more competitively following significant market share losses to Airbus;  and 
(iii) prices for Airbus' four-engine A340 fell (as comp ared to the more fuel-efficient 777) when fuel 
prices spiked in 2005 and 2006.  Ye t the Panel failed to explain inc onsistencies between its findings 
and evidence on the record regarding these non-subsidy factors.  In fact, the United States argues, the 
Panel did not mention any  non-subsidy factors in its analysis, other than to state that the United States' 
arguments and evidence "do not reverse or attenuate  the pervasive and consis tent pricing advantage 
that Boeing had in LCA campaigns in the 2001-2003 period due to the availability of the FSC/ETI 
subsidies".
536  The United States considers that the Pane l's statement simply restated the test 
enunciated by the Appellate Body, but did nothing to ensure that the effects of other factors on prices 
were not improperly attributed to the challenged subsidies. 
(ii) Treatment of FSC/ETI as prohibited export subsidies 
229. The United States submits that the Panel erred by presuming that a finding that a subsidy is 
prohibited under Part II of the SCM Agreement  also signifies that the subsidy causes serious prejudice 
under Part III of that Agreement.  In particular, the United States refers to th e Panel's statement that, 
"precisely because the FSC/ETI subsidies are con tingent on Boeing making export sales, we are 
entitled to determine, absent reliable evidence to the co ntrary, that by their very nature, they will have 
trade distortive effects".537  Although the Panel did not use the words "presumption" or "presume", the 
mechanism it described is indistinguishable fro m a rebuttable presumption.  The United States 
considers that the relationship that the Panel posited between findings under Parts II and III is 
contrary to the terms of the SCM Agreement . 
230. The United States contends that there are "many important differences"538 between Parts II 
and III of the SCM Agreement .  Unlike Part III, Part II applies without a finding of specificity, 
requires no finding as to the effect of the subsidy, and has no significance requirement.  In addition, Part II places an absolute prohibition on certain subsidies, whereas Part III allows a Member to 
maintain a subsidy if it can remove any adverse effects.  The flaw in the Panel's reasoning is that 
                                                      
535Appellate Body Report, US – Upland Cotton , para. 437. 
536Panel Report, para. 7.1819.  
537Panel Report, para. 7.1810.  
538United States' other appellant's submission, para. 340.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  Part II prohibits export-contingent  subsidies and import-substitution s ubsidies even if they have no 
adverse effects.  As a result, a finding under Part II cannot be said to "entitle"
539 a panel to assume 
trade-distortive effects in other Parts of the SCM Agreement . 
231. The United States argues that an examination of the context provided by various provisions of 
the SCM Agreement  reveals further flaws in the Panel's re asoning.  When the negotiators meant to 
transpose legal standards from one Part of the SCM Agreement  to another, they created specific 
cross-references.  The absence of such a cross-reference indicates that findings under Part II do not 
create presumptions for purposes of Part III.  Now expired Article 6.1 in Part III provided that 
"serious prejudice in the sense of subparagraph (c) of Article 5 shall be deemed to exist" in specified 
circumstances, but subsidies prohibited under Part II of the SCM Agreement  were not covered.  Part V 
further confirms the Panel is wrong because, a lthough Article 15 sets out detailed conditions under 
which an investigating authority may find that subs idized imports cause material injury, it does not 
contain any language entitling such an authority to  determine that a prohi bited subsidy will have 
trade-distortive effects.  The United States considers that Article 6 requires analysis of "a number of inherently factual issues", and that "{t}he Panel' s analytical short-cut side-steps these issues and, 
therefore, does not provide the type of robust seri ous prejudice analysis the Appellate Body has found 
to be necessary".
540 
232. The United States also considers that the WT O dispute settlement reports relied upon by the 
Panel are of limited relevance, because they di d not involve actionable subsidy claims under 
Articles 5 and 6.3 of the SCM Agreement .  Moreover, these reports do not support the Panel's 
conclusions.  Although the A ppellate Body referred, in Canada – Aircraft , to cases involving 
prohibited export subsidies "for whic h the adverse effects are presumed"541, there is no indication that 
the Appellate Body meant to refer to adverse eff ects for purposes of Article 5.  In any event, the 
Appellate Body's statement was obiter dictum , and is best understood as generally describing the 
situation under Part II, and not as creati ng a presumptive status for Part III of the SCM Agreement .  
Moreover, although the panel in Brazil – Aircraft  stated that prohibited subsidies are "specifically 
designed to affect trade"542, this does not mean that they will necess arily have trade-distortive effects.  
The United States adds that the SCM Agreement  does not focus on the intent of the granting authority 
but, rather, on the actual effects of the subsidy. 
                                                      
539United States' other appellant's submission, para. 341.  
540United States' other appellant's submission, para. 345 (referring to Appellate Body Report, US – 
Upland Cotton , paras. 434, 437, 451, 458, and 461;  and Appellate Body Report, US – Upland Cotton 
(Article 21.5 – Brazil) , para. 351). 
541Appellate Body Report, Canada – Aircraft , para. 202.  
542Panel Report, Brazil – Aircraft , para. 7.26.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  233. The United States contends that the Panel's aggr egation of its analysis of the FSC/ETI and 
B&O tax measures also "exposes a peril"
543 of the Panel's approach.  The Panel found that the B&O 
tax rate reductions, by themselves, were of insu fficient magnitude to cause serious prejudice with 
respect to 200-300 seat LCA.  However, the Panel disregarded evidence that FSC/ETI benefits were 
relatively insignificant in comparison to Boeing's deli very and order values.  Rather than explain why 
this magnitude data was irrelevant, the Panel relie d on the FSC/ETI tax measure's status as an export 
subsidy.  Thus, the United States argues, the Panel's presumption as to the "trade-distortive effects" of 
prohibited subsidies was "outcome-determinative"544 in the finding that the Washington State and City 
of Everett B&O tax rate reductions caused ser ious prejudice in the 100-200 seat and 300-400 seat 
LCA markets. 
234. The United States submits that, without the Panel' s presumption of trade-distortive effects, its 
entire finding that the tax subsidies caused adverse ef fects falls apart.  This is because "{t}he finding 
that subsidies tied to sales will have an impact on those sales is accurate, but meaningless in this 
context, as it indicates nothing about whether the imp acts take the form of displacement, impedance, 
price suppression, or lost sales, or whether any impact has the requisite level of significance".545  The 
observations that subsidies can have a significant im pact or can enable certain behaviour by Boeing 
are also insufficient, as neither establishes that Boeing actually enga ged in the behaviour that these 
subsidies would make possible.  The United States  concludes that, because the Panel's assessment  
was "so dependent on its impr oper reference to FSC's status as an export subsidy"546, the Panel's 
finding with regard to the tax subsidies does not es tablish that they caused adverse effects in the 
100-200 seat and 300-400 seat LCA markets. 
(iii) Additional claims relating to the Panel's analysis of price 
suppression, lost sales, and displacement and impedance 
Price suppression 
235. The United States submits that the Panel f ound significant suppression of prices for Airbus' 
A320 and A340 without undertaking the requisite price analysis for those aircraft and Boeing's 737 
and 777.  The Appellate Body has observed that, under Article 6.3(c) of the SCM Agreement , an 
assessment of general price trends is "clearly re levant to significant price suppression (although, as 
the {p}anel itself recognized, price tr ends alone are not conclusive)".547  With respect to the 737/A320 
                                                      
543United States' other appellant's submission, para. 350.  
544United States' other appellant's submission, para. 350.  
545United States' other appellant's submission, para. 352.  
546United States' other appellant's submission, para. 354.   
547Appellate Body Report, US – Upland Cotton , para. 434. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  and 777/A340 market segments, the Panel:  (i) never referred to the pricing trend data on the record 
for the relevant aircraft;  (ii) never examined othe r relevant factors affecting pricing, such as Airbus' 
price-undercutting and high production le vels or the role of surging fuel costs to evaluate whether the 
pricing data was consistent with  price suppression;  and (iii) never assessed the degree of price 
suppression to determine whether it was "significant " within the meaning of Article 6.3(c).  The 
United States maintains that the Panel's finding is therefore inadequate as a matter of law under 
Article 6.3(c), and that, given that price trends we re "plainly inconsistent with a price suppression 
phenomenon"
548, the Panel had no rational basis for finding that the tax measures suppressed prices to 
a significant degree. 
Lost sales 
236. The United States argues that, contrary to its own findings on the aeronautics R&D subsidies 
and with the reports of other panels, the Panel did not identify the transactions that it found to have 
caused significant lost sales.  Accord ing to the United States, the Pane l's findings are insufficient to 
establish that serious prejudice existed for purposes of  Article 6.3(c).  Moreover, the United States 
contends that "the high degree of vagueness"549 in these findings means that the Panel failed to satisfy 
its obligation under Article 12.7 of the DSU to includ e in its report "the basic rationale behind any 
findings and recommendations that it makes". 
237. The United States maintains that a finding of significant lost sales under Article 6.3(c) 
requires a positive finding as to each of the operative el ements:  (i) significance;  (ii) lost sales;  and 
(iii) a market in which they occur.  The absence of any one of these criteria means that there is no 
serious prejudice under Article 6.3(c).  Furthermore, a panel must specify what facts exist to meet 
each of these elements.  The use of the word  "sales" highlights that the "lost sales" under 
Article 6.3(c) are not generalized levels of market  share or volume, but individual transactions.  The 
United States considers that this is confirme d by the panel's examin ation and findings in EC and 
certain member States – Large Civil Aircraft  as to each of the transactions alleged by the 
United States in that case to be a lost sale. 
238. By contrast, when it came to analyzing sales of 100-200 seat and 300-400 seat LCA, the 
Panel did not indicate what particular sales it conclude d had been lost.  Instead, it stated simply that 
the effects of the subsidies "constitute significant lost  sales … within the meaning of Article 6.3(c) of 
the SCM Agreement".550  The Panel's analysis neither provides the names of the campaigns nor refers 
                                                      
548United States' other appellant's submission, para. 369.   
549United States' other appellant's submission, para. 355.  
550Panel Report, para. 7.1822.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  to other materials that do.  The Panel summarized th e European Communities' allegations of lost sales 
of its 100-200 seat A320 to Ryanair, Japan Airlines,  Singapore Airline Leasing Enterprise, Lion Air, 
and DBA, and of its 300-400 seat A 340 to Singapore Airlines, Air New Zealand, and Cathay Pacific.  
However, the Panel's "vague" finding that there were "significant lost sales" offers no hint as to which 
transactions it considered to be lost sales.
551  The United States considers that "{t}his silence means 
that the Panel's finding failed to meet the minimu m substantive requirements under Article 6.3{(c)} 
for finding that the effect of {the} subsidies is significant lost sales".552 
239. Finally, the United States contends that the Panel also failed to meet the procedural 
requirement under Article 12.7 of the DSU that its re port "set out the findings of fact, the applicability 
of relevant provisions and the basic rationale behind any findings and recommendations that it 
makes".  In Chile – Price Band System (Article 21.5 – Argentina) , the Appellate Body explained that 
the explanations and reasons provided by a panel must suffice "to disclose the essential, or 
fundamental, justification for those findings and recommendations".553  The United States contends 
that the Panel acted inconsistently with this oblig ation because, in failing to identity the lost sales 
transactions, the Panel failed to set out the basic ra tionale behind its finding, and therefore violated 
Article 12.7 of the DSU. 
Displacement and impedance 
240. The United States argues that the Panel also erred by not naming the third countries in which 
it found displacement or impedance, and, accordin gly, did not make findings sufficient to establish 
that serious prejudice existed for purposes of Article 6. 3(b).  The United States also contends that "the 
high degree of vagueness" in these findings means th at the Panel has failed to satisfy its obligation 
under Article 12.7 to include in its report "t he basic rationale behind any findings and 
recommendations that it makes".554 
241. The United States argues that a finding of displacement or impedance under Article 6.3(b) 
requires a positive finding as to each of the operative el ements:  (i) a subsidy;  (ii) a like product;  
(iii) a Member exporting that product;  and (iv) a th ird-country market.  The absence of any one of 
these criteria means that there is no serious prejudi ce under Article 6.3(b).  Moreover, a panel must 
specify what facts exist to meet each of the elemen ts.  The fact that Article 6.3(b) requires that 
displacement or impedance exists with regard to  a "market" further underscores that it requires a 
                                                      
551United States' other appellant's submission, para. 362. 
552United States' other appellant's submission, para. 362.  
553Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina) , para. 243 (quoting 
Appellate Body Report,  Mexico – Corn Syrup (Article 21.5 – US) , para. 106). 
554United States' other appellant's submission, para. 355.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  market-by-market conclusion, and not a generalized finding with regard to multiple markets.  The 
United States points out that, when the panel in EC and certain member States – Large Civil Aircraft  
addressed claims under Article 6.3(b), it identified the third-country markets in which it found that 
displacement had occurred (Australia, Brazil, China, India, Korea, Mexico, Singapore, and 
Chinese Taipei).
555   
242. The United States maintains that, before the Pa nel, the European Communities identified the 
relevant third-country markets—that is, Singapo re, Indonesia, and Japan for 100-200 seat LCA and 
Singapore, New Zealand, and Hong Kong, China fo r 300-400 seat LCA.  The Panel addressed none of 
this evidence, instead making a generalized conc lusion that the effects of the subsidies are 
"displacement and impedance of exports from third country markets, within the meaning of Article 6.3(b)".
556  The Panel referenced the third-country markets by name only in the section of its 
Report summarizing the European Communities' arguments, and did not indicate which of them were 
encompassed in its generalized fi nding.  The United States thus c onsiders that the Panel's silence 
means that it "failed to meet th e minimum substantive requirements under Article 6.3(b) for finding 
that the effect of {the} subsidies is to displ ace or impede exports of a like product in a third 
country".557 
243. The United States raises two additional claims in respect of the Panel's analysis of 
displacement and impedance.  First, the United States  asserts that the Panel omitted critical steps in its 
analysis.  The United States observ es that a necessary component of any displacement or impedance 
analysis under Article 6.3(b) is an assessment of the data concerning the re lationship between exports 
of the subsidized product and the like product in the third-country market at issue.  Although the record in this dispute included data on market shar e and delivery volumes in each of the third-country 
markets identified by the European Communities, the Panel never referred to that data.  The 
United States argues that, as a result, the Panel made  it "impossible to discern in which of the markets 
it found displacement and impedance"
558, and consequently neglected to conduct the analysis needed 
to show that displacement or impedance had occurred. 
244. The United States further maintains that, to  the extent the Panel made a finding of 
displacement and impedance with regard to countries  in which Airbus had 0% or 100% of deliveries, 
a finding of displacement, impedance, or both would be  inconsistent with Article 6.3(b).  This is the 
case for the 737 and A320 aircraft in Singapore,  where Airbus retained a 100% market share 
                                                      
555United States' other appellant's submission, para. 357 (referring to Panel Report, EC and certain 
member States – Large Civil Aircraft , paras. 7.1790 and 7.1791). 
556United States' other appellant's submission, para. 359 (quoting Panel Report, para. 7.1822).  
557United States' other appellant's submission, para. 359.   
558United States' other appellant's submission, para. 365.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  throughout the reference period, and in Indonesia, where Boeing made no deliveries, but where 
Airbus went from making no deliveries in 2004- 2005, to making two deliveries in 2006.  The 
United States maintains that, "{i}n any counterf actual analysis, Airbus' market share would be 
unchanged".
559  For the 777 and A340 aircraft in the Hong Kong, China and New Zealand markets, 
because there were no Airbus deliveries during the re ference period, "there was no basis for the Panel 
to find displacement".560 
245. Second, the United States argues that, because the Panel made no findings that any of the 
countries in which the European Communities allege d displacement or impedance was a "market", the 
Panel erred in applying its "generalized  findings of displacement and impedance"561 in third-country 
markets covering Indonesia, Japan, and Singapo re for the 100-200 seat LCA, and covering 
Hong Kong, China, New Zealand, and Singapore for the 300-400 seat LCA.  The United States 
requests reversal of any findings the Panel is consider ed to have made with regard to displacement or 
impedance of these products in the indicated markets. 
246. In conclusion, the United States submits that the Panel did not satisfy the requirements for 
establishing that the tax subsidies have caused adverse effects to the interests of the European Union, 
and therefore requests the Appellate Body to reverse the Panel's findings under Articles 5(c) 
and 6.3(b) and (c) of the SCM Agreement  in that regard. 
D. Arguments of the European Union – Appellee 
1. NASA Procurement Contracts and USDOD Assistance Instruments 
(a) Financial contribution – Application of the "purchase of services" 
test 
(i) NASA  
247. The European Union argues that the Appellate B ody should reject the United States' appeal of 
the Panel's findings that the payments and ot her support provided to Boeing under the NASA 
procurement contracts constitute  a financial contribution under Article 1.1(a)(1) of the 
SCM Agreement . 
                                                      
559United States' other appellant's submission, para. 365.   
560United States' other appellant's submission, para. 365.  
561United States' other appellant's submission, para. 366.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  248. The European Union recalls its own appeal  of the Panel's legal interpretation of 
Article 1.1(a)(1) as excluding "purchases of services" from the scope of that provision.  The 
European Union asserts that, if the Appellate Body  agrees with the European Union and reverses the 
Panel's interpretation, the United States' appeal of  the Panel's finding would be moot, because NASA's 
payments to Boeing would be "indisputably"
562 financial contributions, irrespective of whether they 
could be properly characterized as "purchases of ser vices".  This, contends the European Union, is 
because "the sole basis"563 of the United States' appeal of the financial contribution finding is that the 
Panel erred by finding that NASA-funded research is not part of a purchase of services. 
249. The European Union argues that, in any event,  the United States' arguments that the Panel 
improperly applied Article 1.1(a )(1) without considering the evidence of what the government 
received is essentially an argument that the Panel improperly weighed the facts.  This type of 
argument is, at best, one that implicates an analys is under Article 11 of the DSU, and not an error of 
application.  In support, the European Union relies on the Appellate Body report in EC and certain 
member States – Large Civil Aircraft , which states that "how the {p}anel reasoned over disputed 
facts"564 properly pertains to Article 11 of the DSU.  As  a consequence of the above, the content of the 
United States' appeal should have been raised, if at  all, as a violation of Article 11 of the DSU and 
under the standard of review appr opriate to such an allegation. 
250. Even assuming arguendo that the United States can bring th is claim under Article 1.1(a)(1), 
the European Union maintains that the United States ' arguments fail on their merits because they rely 
entirely on an erroneous characterization of the Pa nel Report.  In the European Union's view, the 
Panel properly considered the totality of the evidence , and used its discretion as the trier of facts to 
conclude that the NASA R&D contracts are not properly characterized as "purchases of services".  Its finding therefore stands, even though the United States came to a different conclusion as to the principal beneficiary and user of the NASA R&D contracts. 
251. The European Union does not dispute that the Panel did not fully discuss in its Report every 
argument and piece of evidence that the United St ates had put forward, but notes that the Panel 
specifically stated that it had in fact considered the evidence "in its totality".
565  The European Union 
points out that the United States does not criticiz e the Panel for basing its decision on the five 
                                                      
562European Union's appellee's submission, para. 8. 
563European Union's appellee's submission, para. 28. 
564European Union's appellee's submission, para. 33 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 880). 
565European Union's appellee's submission, para. 41.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  particular categories of evidence
566, but, rather, contends that the Pa nel's consideration of each of 
these five categories was entirely one-sided and unba lanced.  In the European Union's view, however, 
"it is clear from the Panel Report"567 that the Panel discussed the limited evidence and arguments on 
the record, and the fact that the United States di sagrees with the Panel's overall weighing of the 
evidence and the Panel's ultimate conclusion does not constitute an erro neous application of 
Article 1.1(a)(1).  
252. With respect to the Panel's alleged failure to  make an "objective assessment" under Article 11 
of the DSU, the European Union disagrees that th e Panel systematically failed to consider the 
evidence submitted by the United States.  The Euro pean Union asserts that the Panel Report shows 
that the Panel did in fact assess the evidence that the United States alle ges the Panel failed to consider.  
Specifically, the Panel considered the evidence re garding NASA's objectives, the alleged benefit and 
use to the government of NASA R&D, and the alleged usefulness of the programmes to the 
government and to unrelated third parties.  Howe ver, the European Union submits, nothing in the 
evidence and arguments cited by the United States demonstrates that the Panel exceeded its discretion 
to weigh the facts in finding that the principal bene fit and use of the NASA R&D contracts accrued to 
Boeing, rather than the government. 
253. At the oral hearing, the European Union recalled that neither of the participants has appealed 
the Panel's "principally for the benefit and use"  test for determining whether the NASA and USDOD 
R&D contracts and agreements at issue were genuine "purchases of services".  Rather, the 
European Union argued that any such test was unn ecessary, since there is no exclusion for purchases 
of services under Article 1.1(a)(1) of the SCM Agreement , and the United States appeals only the 
Panel's application  of the test. 
254. In the European Union's view, the Appellate B ody has no basis to reconsider or reverse the 
Panel's test, given that neither the United States nor the European Union has appealed the test.  
Furthermore, the Appellate Body should recall th at the Panel never indicated that this was the 
exclusive test for determining whether any tran saction is a genuine purchase of services.  If the 
Appellate Body were to reverse the test—contrary  to the wishes of both participants—and formulate 
its own test, the European Union submits that  the Panel's underlying factual findings and the 
                                                      
566The Panel considered: (i) the legislation authorizing the R&D programmes at issue;  (ii) the types of 
instruments entered into between NASA and Boeing;  (iii) whether NASA has any demonstrable use for  
R&D performed under these programm es;  (iv) the allocation of inte llectual property rights under these 
transactions;  and (v) whether the tran sactions at issue have the typical el ements of a "purchase of services". 
(European Union's appellee's submission, para. 43 (referring to Panel Report, para. 7.980))  
567European Union's appellee's submission, para. 51.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  uncontested facts about the NASA R&D contracts at i ssue would be more than sufficient to allow the 
Appellate Body to complete the analysis under any possible test. 
(ii) USDOD  
255. As it did with NASA, the European Union argues,  at the outset, that, if the Appellate Body 
were to reverse the Panel's finding that Article 1.1(a)(1) of the SCM Agreement  excludes from its 
scope transactions properly characterized as "purchase of services", this reversal would render moot 
the United States' appeal relating to the Panel' s conclusion that the payments and other support 
provided through the USDOD assistance instruments are financial contributions. 
256. The European Union submits that, in any event,  the Panel's finding should be upheld.  First, 
the European Union considers the United States' ar guments to be in the nature of claims under 
Article 11 of the DSU, because they are essentially  arguments that the Panel improperly weighed the 
facts.  The European Union points out that the Unite d States has not raised an Article 11 claim in its 
Notice of Other Appeal or other appellant's submissi on.  By failing to lodge an Article 11 claim, the 
United States' allegations, even if true, would not allow for a reversal of the Panel's finding.   
257. Second, the European Union asserts that "the Panel properly consider ed and evaluated the 
{United States'} allegations and evidence regardi ng the nature of the {US}DOD R&D support, ITAR, 
and other factors related to the benefit to the US Government".
568  The European Union notes that 
"{p}resumably", because the Panel found that the R&D conducted pursuant to procurement contracts 
constitutes a purchase of services that is therefore excluded from the scope of the SCM Agreement , the 
United States does not argue that the Panel's anal ysis of the nature of the USDOD R&D programmes 
"is as one-sided as the Panel's NASA analysis".569  Rather, the United States "alleges two discrete 
types of evidence" that it claims the Panel failed to consider, and then "advances an amorphous catch-
all claim about the Panel's weighing of the evidence that it did consider".570  According to the 
European Union, however, neither of the United States' claims can stand.  
258. With respect to the United States' allegation that  the Panel elevated form over substance in its 
assessment of the USDOD assistance instruments by not considering the statements of work in the 
individual instruments, the European Union quotes the Panel's statement that it had "examined, in 
detail, the different substantive features of these cont racts and agreements, as reflected … in U.S. laws 
                                                      
568European Union's appellee's submission, p. 63, subheading II.B.4.c. 
569European Union's appellee's submission, para. 140. 
570European Union's appellee's submission, para. 140.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  and regulations and in the contracts and agreements themselves".
571  The European Union notes that a 
panel has discretion to decide what is discussed in its report.  The European Union further mentions 
the following reasons that may e xplain the absence of a discussion of this evidence in the Panel 
Report.  First, the assistance instruments at issue contain HSBI, and therefore could not be reproduced 
in the Panel Report.  Second, the evidence before the Panel was unreliable b ecause the United States 
provided only summaries of the statements of work  and did not grant access to the majority of the 
USDOD assistance instruments. 
259. The European Union does not consider that th e Panel's discussion of evidence indicating the 
military objectives of the R&D highlighted by the Un ited States would "materially contribute" to the 
Panel's discussion, as the Panel acknowledged that "the purpose of these programmes was to conduct 
R&D aimed at designing more advanced weapons or other defense systems or to reduce the costs of 
such systems".572  The European Union further notes that the summaries of the assistance instruments 
contain not only information about military  objectives, but also commercial aircraft.573 
260. As to the ITAR, the European Union maintain s that the Panel "considered and specifically 
rejected"574 the United States' claims that the ITAR make it "effectively impossible"575 for Boeing to 
benefit from technology developed through the assistan ce instruments.  The Panel specifically noted 
that two of the USDOD programmes had "the explicit objective  of being applied towards civil 
aircraft".576  Moreover, the United States ignores ev idence that Boeing does benefit and use 
technology acquired from USDOD R&D, including  a statement by the United States itself that " some  
{USDOD} RDT&E has applications in the civil sector"577, and statements by the 
European Communities—which were not rebutte d by the United States—that Boeing gained 
knowledge about design and produc tion, which it applied to the design and production processes but 
not to the physical content of the LCA, a nd thus did not breach ITAR restrictions.578  T h e  
European Union also refers to the fact that the training and experience Boeing's employees received 
on USDOD programmes was transferred to the US LCA industry when these employees were 
                                                      
571European Union's appellee's submission, para. 146 (quoting Panel Report, para. 7.1169). 
(underlining added by the European Union) 
572European Union's appellee's submission, para. 150 (quoting Panel Report, para. 7.1147). 
573See European Union's appellee's submission, paras. 151 and 152. 
574European Union's appellee's submission, para. 153. 
575European Union's appellee's submission, para. 153 (quoting Panel Report, para. 7.1160). 
576Panel Report, para. 7.1160. (original emphasis) 
577European Union's appellee's submission, para. 155 (quoting United States' response to Panel 
Question 208(b), para. 294 (original emphasis)). 
578European Union's appellee's submission, para. 156 (referring to European Communities' second 
written submission to the Panel, para. 437). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  transferred to the LCA programme
579, and that Boeing's LCA R&D discoveries were actually 
rehashed USDOD R&D discoveries.  The European Union argues that the Panel's findings on adverse 
effects illustrate that it was well aware of the uses of USDOD R&D-created knowledge and 
technology for Boeing LCA. 
261. The European Union rejects the United States' argument that the Panel improperly weighed 
the five categories of evidence it considered und er its "purchase of services" test.  First, the 
European Union asserts that the United States' argument is a "purely factual"580 argument and is not 
properly brought under Article 1.1(a)(1) of the SCM Agreement .  Second, assuming arguendo  that the 
United States' allegation can be analyzed as a potential  erroneous application of Article 1.1(a)(1), the 
United States' arguments "must fail on their merits".581 
262. Regarding the first and second categories of  evidence—namely, the US legislation 
authorizing the programmes and transactions at issue and the different instruments entered into by the 
USDOD—the United States attempts to "divine" ho w the Panel may have weighed the evidence, and 
"finds error" in what it alleges " may have been  the Panel's approach".582  In particular, the 
United States adduces that the Panel based its conclu sions on "the formal distinction drawn in U.S. 
law between acquisition instruments and assistance instruments".583  However, the European Union 
contends that the Panel was "entirely clear" that it did not base its conclusions on such formalities, 
and hence the United States' claim is "directly  contradicted by the Panel Report, itself".584 
263. With respect to the third and fourth categori es of evidence—namely, the stated objectives of 
the USDOD RDT&E programmes at issue and the a llocation of intellectual property rights—the 
European Union notes that the United States ag rees that the Panel "may have reached the correct  
conclusion".585  Regarding the objectives of the USDOD pr ogrammes, the United States does not take 
issue with the Panel's finding that "at least two … ha d the explicit objective of developing 'dual use' 
R&D"586, which supports the Panel's c onclusions about assistance instruments, given that these two 
programmes are funded through assistance instruments.  As for the allocation of intellectual property 
rights, the Panel understood that Boeing retained pate nt rights to any invention that it conceived in the 
                                                      
579European Union's appellee's submission, para. 157 (referring to European Communities' second 
written submission to the Panel, paras. 440-446). 
580European Union's appellee's submission, para. 159. 
581European Union's appellee's submission, para. 160.  
582European Union's appellee's submission, para. 161 (referring to United States' other appellant's 
submission, para. 102). (original emphasis)  
583United States' other appellant's submission, para. 103.  
584European Union's appellee's submission, para. 162 (referring to Panel Report, para. 7.1169).  
585European Union's appellee's submission, para. 165 (referring to United States' other appellant's 
submission, paras. 107 and 108). (original emphasis)  
586Panel Report, para. 7.1148.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  course of performing the USDOD R&D procurement contracts and assistance instruments.
587  In the 
European Union's view, this factor "again weighs in favour of a finding that assistance instruments are 
not purchases of services".588 
264. The European Union further rejects the United States' assertion that the Panel conducted too 
narrow an analysis of the last category of evidence, that is, whether the transactions at issue involved 
the typical elements of a purchase of services.589  The European Union recalls the Panel's finding that, 
unlike procurement contracts, assistance instrume nts do not provide for any fee or profit for the 
contractor590, and that this "atypical"591 element supports the conclusion that USDOD assistance 
instruments are not purchases of services.  The Un ited States alleges that the Panel should have 
considered other aspects of the assistance instruments that could have explained "why the absence of 
a 'profit' for Boeing did not make a differen ce in the exchange between Boeing and {US}DOD"592;  
however, in the European Union's view, this is precisely what the Panel examined throughout its 
analysis of the five categories of evidence.  Lastly , the European Union submits that the United States 
provides no support whatsoever for its assertions a bout value-for-value exchanges between Boeing 
and the USDOD, and therefore it "is not surprising"593 that the Panel did not discuss them.  
265. As it did with respect to the NASA measures, the European Union argues that the Appellate 
Body has no basis to reconsider or reverse the Panel' s "principally for the benefit and use" test, given 
that neither the United States nor the European Union has appealed it.  If the Appellate Body were to 
reverse the test—contrary to the wishes of both  participants—and formulate its own test, the 
European Union submits that the Panel's underlying  factual findings and the uncontested facts about 
the USDOD assistance instruments at issue would be more than sufficient to allow the Appellate 
Body to complete the analysis under any possible test. 
                                                      
587European Union's appellee's submission, para. 165 (referring to Panel Report, paras. 7.1149 
and 7.1024).  
588European Union's appellee's submission, para. 165.  
589European Union's appellee's submission, para. 166 (referring to United States' other appellant's 
submission, paras. 109-113).  
590European Union's appellee's submission, para. 166 (referring to Panel Report, para. 7.1152).  
591European Union's appellee's submission, para. 166 (referring to Panel Report, para. 7.1166).  
592European Union's appellee's submission, para. 167 (referring to United States' other appellant's 
submission, paras. 111-113).  
593European Union's appellee's submission, para. 168.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  (b) Benefit 
(i) NASA 
266. The European Union notes that the sole basis of the United States' appeal of the Panel's 
finding of "benefit" is the Panel's alleged "erroneous  finding, under Article 1.1(a)(1), that the NASA 
R&D contracts were principally for the benefit and use of Boeing".
594  The European Union 
understands the United States to "implicitly incorporat e{} by reference all the arguments that it has 
raised in alleging errors under Article 1.1(a)(1) of the SCM Agreement ".595  The European Union 
asserts that the United States has fail ed to identify any errors in the Panel's evaluation of the existence 
of financial contributions, either with respect to the application of Article 1.1(a)(1) of the 
SCM Agreement  or consistency with Article 11 of the DSU.  Consequently, in view of the fact that the 
United States' Article 1.1(b) appeal "is en tirely based on its Article 1.1(a)(1) appeal"596, it is the 
European Union's view that the United States ' Article 1.1(b) appeal must likewise fail. 
267. The European Union further asserts that the United States' appeal regarding the Panel's 
finding that the value of the benefit to Boei ng from payments under the NASA R&D contracts was 
$1.05 billion "lacks legal foundation".597  The European adduces two reasons for its assertion. 
268. First, the European Union submits that this cl aim "is not properly within the scope of this 
appeal" because nowhere in the United States' Notic e of Other Appeal does the United States identify 
"any alleged errors by the Pa nel under Article 1.1(b) of the SCM Agreement  in valuing the benefit to 
Boeing from the NASA aeronautics R&D programmes, or reference any of the relevant paragraphs of 
the Panel Report, as required by Rule 23(2)(c)(ii) of the Working Procedures for Appellate 
Review ".598  The European Union recalls that the United States alleged only one error under 
Article 1.1(b) in its Notice of Other Appeal, namely, the Panel's finding that the NASA R&D contracts conferred a benefit.  The European Union notes that the Appellate Body has emphasized that 
"due process requires that a Notice of Appeal place  an appellee on notice of the issues raised on 
appeal"
599, and that a Notice of Appeal "serve{s} to en sure that the appellee also receives notice, 
albeit brief, of the 'nature of the appeal' a nd the 'allegations of errors' by the panel".600  It further notes, 
                                                      
594European Union's appellee's submission, para. 92 (referring to United States' other appellant's 
submission, paras. 64 and 65). 
595European Union's appellee's submission, para. 92. 
596European Union's appellee's submission, para. 93. 
597European Union's appellee's submission, para. 95. 
598European Union's appellee's submission, para. 96 (referring to Panel Report, paras. 7.1055-7.1109).  
599Appellate Body Report, Japan – Apples , para. 126.  
600Appellate Body Report, EC – Bananas III (Article 21.5 – US) , para. 281 (quoting Appellate Body 
Report, US – Countervailing Measures on Certain EC Products , para. 62).   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  however, that the United States has provided " no notice whatsoever  of this alleged {valuation} 
error".
601  
269. Second, the European Union contends that th e United States' claim is not properly brought 
under Article 1.1(b) of the SCM Agreement .  In this respect, the European Union submits that 
Article 1.1(b) "contains no obligations pertaining to  the quantification of the benefit" and thus the 
Panel "could not have committed a ny errors under Article 1.1(b) in valuing the amount of the 
subsidy".602  The European Union agrees with the Panel that "the question of whether a challenged 
measure constitutes a subsidy within the meaning of Article 1 is distinct from the question of what 
amount  of the subsidy is properly allocated to Boeing's LCA division".603  Moreover, in the 
European Union's view, even if Article 1.1(b) cont ained obligations pertaining to the quantification of 
the benefit, the United States' clai m is "an effort to reargue the facts", and merely amounts to "an 
accusation that the Panel insufficiently weighed the evidence submitted by the United States" 
regarding the amount that should be deducted from the $1.05 billion to obtain "what the United States 
considers to be a more appropriate valuation of the payments" at issue.604  The European Union 
considers that such a claim "may be appropria te" under Article 11 of the DSU, "but not under 
Article 1.1(b) of the SCM Agreement ".605  
270. The European Union further asserts that, even assuming arguendo  that the United States' 
claim is properly within the scope of this appeal  and properly brought under Article 1.1(b) of the 
SCM Agreement , "it would also lack merit on the substance".606  The European Union agrees with the 
United States that when a transaction is not part of  the financial contribution it should not be counted 
"in any precise quantification"607 of the benefit conferred.  However, the Panel "did not perform a 
precise quantification of the benefit, because th ere was no obligation for the Panel to do so".608  The 
Panel, thus, properly recognized, in accordan ce with the Appellate Body's guidance in US – Upland 
Cotton , that, "in a case brought under Part III of the SCM Agreement, a pane l is under no obligation 
to 'quantify precisely the amount of the subsidy'".609  
                                                      
601European Union's appellee's submission, para. 97. (original emphasis)  
602European Union's appellee's submission, para. 98.  
603Panel Report, para. 7.35. (original emphasis) 
604European Union's appellee's submission, para. 101.  
605European Union's appellee's submission, para. 101.  
606European Union's appellee's submission, para. 102.  
607European Union's appellee's submission, para. 103.  
608European Union's appellee's submission, para. 103.  
609Panel Report, para. 7.1101 (quoting Appellate Body Report, US – Upland Cotton , para. 467).  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  271. The European Union argues that the Panel, rath er than deriving a precise quantification of the 
benefit, engaged in an exercise to estimate the amou nt of the subsidy to Boeing's LCA division.  In 
doing so, the Panel fully recognized the United States' arguments and evidence concerning the 
$1.05 billion covering all contracts between Boei ng and the four NASA research centres, and the 
$280 million needed to be deducted to arrive at the value of the payments for LCA-related research.  
However, the Panel weighed the ev idence, determined that it had no adequate basis to reduce the 
$1.05 billion figure to $775 million, and accordingly decided that $1.05 billion was the better estimate 
of the amount of the subsidy.
610   
272. The European Union contends that the Panel' s factual determination was based on adequate 
reasoning, which the Appellate Body should not ove rturn.  It asserts that there is "ample 
explanation"611 in the Panel Report showing that the Pane l fully understood and took into account the 
United States' argument, and how th e Panel found "no adequate basis"612 for reducing the 
$1.05 billion figure to $775 million.  According to the European Union, the Panel recognized that the 
United States' derivation of the $1.05 billion figure was an objective exercise based on the search in the Federal Procurement Data Base
613 ("FPDS"/"FPDS-NG")614, but it properly found that the 
reduction from $1.05 billion to $775 million by s ubtracting $280 million in allegedly non-LCA 
related contracts by NASA's aeronautics centres was a " subjective  exercise based on the 'manual{} 
review' by NASA personnel of the subject matter descriptions of each contract".615  
273. The European Union therefore requests the Appe llate Body not to modify the Panel's finding 
as to the value of the benefit to Boeing resu lting from the NASA aeronautics R&D subsidies. 
                                                      
610European Union's appellee's submission, para. 104.  
611European Union's appellee's submission, para. 105.  
612European Union's appellee's submission, para. 106.  
613For the years 2004 to 2006, the relevant database was the Federal Procurement Data Base – Next 
Generation (FPDS-NG), which had superseded the Federal Procurement Data Base (FPDS). (Panel Report, 
para. 7.1058) 
614European Union's appellee's submission, para. 106 (referring to Panel Report, para. 7.1067).  
615European Union's appellee's submission, para. 106 (referring to Panel Report, para. 7.1068). 
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  (ii) USDOD 
274. The European Union submits that the Unite d States' claim that the Panel improperly 
concluded that the USDOD's financial contributions  provided to Boeing confer a benefit within the 
meaning of Article 1.1(b) of the SCM Agreement  is without merit.  The European Union highlights 
that the United States "does not appeal the Panel's analytical framework, namely, that 'if a Panel finds 
that a financial contribution is economically irra tional, it may, absent evidence to the contrary, 
conclude that the transaction confers a benefit'".
616  Rather, the United States argues only that the 
Panel incorrectly characterized the nature of the USDOD assistance instru ments as "payment for 
research principally for the benefit and use of Bo eing without some form of royalty or repayment"617, 
without taking into consideration that the research  carried out by Boeing was also of benefit and use 
to the USDOD and that Boeing was required to c ontribute company resources to the R&D project. 
275. The European Union asserts that the Panel's characterization was correct, and that, 
accordingly, the Panel's conclusion that a benefit exists based on this characterization was also 
proper.618  The European Union notes that the United States presents its benefit argument assuming 
arguendo  that this financial contribution finding by the Panel is correct.  The European Union further 
maintains that "there is no evidence on the record suggesting that anything like royalties or repayment 
was provided by Boeing in exchange for paymen ts and support provided by {US}DOD under its 
aeronautics R&D assistance instruments".619  
276. In this regard, the European Union points out that the United States has provided no 
information whatsoever, neither on the actual re sults of the R&D funded by the USDOD assistance 
instruments, nor on how the income generated from those results may translate into payments from 
Boeing to the USDOD for the contributions made by the USDOD towards that R&D.  In addition, the 
European Union submits that "it is clear that ther e is no transfer of {US}DOD's R&D funding back to 
the US Government, as there was, for example, duri ng the period of time when the US Government 
                                                      
616European Union's appellee's submission, para. 169 (quoting United States' other appellant's 
submission, para. 121 (original emphasis)). 
617European Union's appellee's submission, para. 169 (quoting United States' other appellant's 
submission, para. 116). 
618European Union's appellee's submission, para. 172 (referring to Panel Report, paras. 7.1183-7.1185). 
619European Union's appellee's submission, para. 174. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  had in effect a policy of 'recoupment'".
620  The European Union further notes that this "recoupment" 
policy was cancelled by the USDOD in June 1992 "precisely to move away from a market-based 
approach".621  The European Union contends that neither  of the elements that the United States 
suggests that the Panel failed to take into account (t hat is, the costs contributed by Boeing towards the 
R&D and the benefit obtained by the government  from the R&D) are akin to "royalties" or 
"repayment"622, because neither of these elements entails any payments by Boeing to the USDOD.  
The European Union therefore argues that both the Pa nel's characterization of the transactions at issue 
"as being principally for Boeing's benefit or use without any associated royalties or repayment", and its conclusion that "these were economically irra tional transactions that conferred a benefit upon 
Boeing", were not improper.
623 
277. The European Union maintains that, even exp licitly taking into consideration the cost 
contributions by Boeing and the benefits retained by the USDOD from the res earch, "the record still 
supports the conclusion that a benefit exists  under Article 1.1(b) of the SCM Agreement ".624  T h e  
European Union submits that there is enough evidence  on the record to conclude that the transactions 
at issue were economically irrational, and that  such a conclusion "follows from two important 
                                                      
620European Union's appellee's submission, para. 176.  The European Communities explained before 
the Panel that, "{u}nder this {recoupment} policy, which lasted from 1967 to 1992, the US Government 
required contractors to reimburse {US}DOD for nonrecurring costs when contractors made or intended to make 
commercial sales using dual-use technologies that had been funded with {US}DOD investment." (European Communities' first written submission to the Panel, para. 669 (footnote omitted)) 
The European Communities quoted the following document explaining the reasons behind the 
recoupment policy: 
The {USDOD} recoupment policies recognize that foreign licensed 
production or purchase of a U.S. defense article should not be subsidized by 
the U.S. government.  These policies also recognize the potential for 
crossover into development and production of civilian aircraft of benefits 
that may result from government support of research and development (R&D) on military items.  It is precisely because of the USG's policy 
opposing government support of specific companies that the USG instituted 
procedures to recoup from commercial (non-USG) sales monies which represents costs savings {sic} accruing to civilian production from USG 
investment.  One of the objectives in implementing this policy is to ensure 
that civil aircraft companies remain commercially competitive based on their own investment and technology.  
(U.S. Government Response to the EC-Commissioned Report "U.S. Government Support of the U.S. 
Commercial Aircraft Industry" (March 1992) (Panel  Exhibit EC-413), p. 13 (emphasis added by the 
European Communities))  
621European Union's appellee's submission, para. 176 (referring to USDOD Rules and Regulations, 
"Recoupment of Nonrecurring Costs on Sales of U.S. Items", United States Code of Federal Regulations , 
Title 58, section 16497 (29 March 1993) (Panel Exhibit EC-416)). 
622European Union's appellee's submission, para. 177 (referring to United States' other appellant's 
submission, paras. 118 and 119). 
623European Union's appellee's submission, para. 178 (referring to Panel Report, paras. 7.1183-7.1185). 
624European Union's appellee's submission, para. 179. (original emphasis)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  points".
625  First, the European Union recalls that, in  its financial contribution analysis, the Panel 
reached the factual conclusion that "the work Bo eing performed under its aer onautics R&D 'assistance 
instruments' with {US}DOD was principally  for the benefit and use of Boeing itself"626, and that "the 
focus by the Panel on this 'core' term of the transa ction {did} not ignore other terms, such as the cost 
contributions by Boeing and any benefits retained by {US}DOD".627  Second, the European Union 
notes that the United States highlights that most (but not all) USDOD R&D agreements involved cost 
sharing where "{t}he provision on the private party' s contribution generally called for the government 
and the private party to split costs evenly, alt hough some R&D agreements called for the government 
to pay more than half".628  The European Union further notes that, "in instances where there was no 
cost sharing, it was the government that paid  the full cost, with no contribution from Boeing".629  
Therefore, it is the European Union's contention that "the government always paid at least half of the 
costs under any {US}DOD aeronautic s R&D assistance instrument".630   
278. In the European Union's view, the two points a bove support the existence of a benefit, even 
explicitly taking into account the cost sharing and benefits retained by the USDOD.  Indeed, the 
European Union submits, "{w}hen the R&D perform ed under an instrument is for the principal 
benefit of Boeing, the fact that the government paid  for at least half … of that R&D does not change 
the conclusion that a non-market benefit exists ".631  In other words, if the evidence indicated that 
Boeing obtained more than 50% of the benefit while paying also more than 50% of the costs, then additional benchmark evidence may be required to est ablish the existence of a benefit.  However, 
where the evidence indicates that Boeing obtained more than 50%  of the benefit (that is, the principal 
benefit) while paying only 50% or less  of the costs, the benefit question can be answered affirmatively 
in the abstract. 
279. For these reasons, the European Union asserts that the Panel did not err in concluding that the 
USDOD aeronautics R&D assistance instruments conf erred a benefit on Boeing within the meaning 
of Article 1.1(b) of the SCM Agreement , and maintains that the Panel's finding in this respect should 
be upheld. 
                                                      
625European Union's appellee's submission, para. 179. 
626European Union's appellee's submission, para. 180 (quoting Panel Report, para. 7.1171). 
(underlining added by the European Union)  
627European Union's appellee's submission, para. 180 (referring to Panel Report, para. 7.1183). 
628European Union's appellee's submission, para. 181 (quoting United States' other appellant's 
submission, para. 119). (underlining added by the European Union omitted) 
629European Union's appellee's submission, para. 181 (referring to United States' other appellant's 
submission, footnote 220 to para. 119). (underlining omitted) 
630European Union's appellee's submission, para. 182. (original underlining;  footnote omitted) 
631European Union's appellee's submission, para . 183. (original italics;  underlining omitted) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  280. The European Union submits that, contrary to  what the United States argues, the Panel's 
statement, in paragraph 7.1205 of the Panel Report, that  it "{did} not consider it credible that less than 
1 per cent of the $45 billion in aeronautics R&D f unding that {US}DOD provided to Boeing over the 
period 1991-2005 had any potential relevance to LCA" , is supported by evidence and therefore fully 
consistent with Article 11 of the DSU.  The Europ ean Union asserts that the Panel's statement was of 
no consequence to its "legal findings and conclusions"
632 and thus should not be subject to review by 
the Appellate Body.633  The European Union notes that the Panel did not estimate the value of the 
USDOD RDT&E subsidies634;  rather, when considering the magnit ude of the subsidies in its adverse 
effects analysis, the Panel found that th ey amounted to "at least $2.6 billion".635  This figure would 
have been the same had the Panel accepted the Un ited States' argument that less than 1% of the 
$45 billion in USDOD RDT&E funding to Boeing had any potential relevance to LCA.  Even if such 
a statement were reviewable on appeal, the European  Union considers that "there is ample evidence 
on the record"636 to support it.  The European Union notes that the Panel offered three reasons why it 
found the $308 million figure—argued by the United States to be the maximum amount of dual-use 
USDOD funding to Boeing—to be not credible:  (i) it excluded funding provided under military 
aircraft RDT&E programmes;  (ii) the United St ates failed to provide any evidence as regards the 
maximum value of the USDOD dual-use contracts and agreements, like it did for NASA;  and (iii) the 
United States did not account for the value of access to USDOD facilities.637  Moreover, in the 
European Union's view, there is "m uch additional evidence on the record"638 supporting the Panel's 
conclusion, including:  the detailed expert report by CRA International on which the European Union 
based its estimate639;  the Panel's finding—not appealed under Article 11 of the DSU or otherwise—
that the amount of the subsidy to Boeing's LCA division would not be more than $1.2 billion640;  and 
the Panel's factual finding—equally not appealed unde r Article 11 of the DSU or otherwise—that the 
United States "has failed to substantiate its assertion".641 
                                                      
632Article 17.13 of the DSU provides:  "The Appellate Body may uphold, modify or reverse the legal 
findings and conclusions of the panel". 
633The European Union notes that the Appellate Body has previously declined to review statements by 
a panel that have no bearing on a panel's legal findings or conclusions. (European Union's appellee's submission, 
footnote 360 to para. 186 (referring to Appellate Body Report, US – Wool Shirts and Blouses , p. 17, DSR 
1997:I, 323, at 338)) 
634European Union's appellee's submission, para. 186 (referring to Panel Report, para. 7.1209). 
635European Union's appellee's submission, para. 186 (quoting Panel Report, para. 7.1760). 
636European Union's appellee's submission, para. 187. 
637European Union's appellee's submission, para. 188 (referring to Panel Report, para. 7.1205). 
638European Union's appellee's submission, para. 189. 
639European Union's appellee's submission, para. 189 (referring to Panel Report, para. 7.1203). 
640European Union's appellee's submission, para. 189 (referring to Panel Report, footnote 2800 to 
para. 7.1209). 
641European Union's appellee's submission, para. 189 (referring to Panel Report, para. 7.1159).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  281. In the light of this, it is the European Un ion's contention that the Panel satisfied the 
requirements under Article 11 of the DSU.  In particular, the Panel "considered the evidence 
presented to it, weighed and assessed its credibility, and ensured that its comment had a proper basis 
in that evidence".
642  
2. Washington State B&O Tax Rate Reduction 
(a) Financial contribution – Revenue foregone  
282. The European Union requests the Appellate Body to reject the United States' claim that the 
Panel erred in the interpretation and app lication of Article 1.1(a)(1)(ii) of the SCM Agreement  in 
finding that the Washington State B&O tax rate reduction for manufacturers of commercial airplanes 
and components constitutes a financial contribution under that provision. 
(i) Interpretation of Article 1.1(a)(1)(ii) of the SCM Agreement 
283. The European Union argues that the Panel di d not misinterpret the legal standard under 
Article 1.1(a)(1)(ii) of the SCM Agreement , and that there is nothing in the Panel's exposition that 
conflicts with the Appella te Body's findings in US – FSC  and US – FSC (Article 21.5 – EC) , or with 
the European Union's or the United States' understa ndings of those findings.  In referring to the 
Panel's summary in respect of which the United Stat es charges legal error, th e European Union notes 
that the Panel made clear "that a 'but for' test can be applied, not must  be applied, where it is possible 
to identify a general rule of taxation;  and otherwise, legitimately comparable income should  be 
compared".643  The European Union thus argues that the Pa nel did not elevate the "but for" test to a 
general rule but, rather, understood that such a test is applicable in certain situations in order to 
effectuate a comparison of legitimately comparable income. 
(ii) Application of Article 1.1(a)(1)(ii) of the SCM Agreement 
284. The European Union also disagrees with the Unite d States' claim that the Panel erred in the 
application of Article 1.1(a)(1)(ii) of the SCM Agreement .  First, the European Union rejects the 
United States' argument that the Panel erred in applyi ng a "but for" test in the present dispute.  The 
European Union considers that the Panel conducte d a lengthy examination of the Washington State 
B&O tax system and concluded that, because "it is no t difficult to identify a general rule of taxation 
and exceptions to it, the guidance provided by the Appe llate Body suggests that a 'but for' test can be 
                                                      
642European Union's appellee's submission, para. 190 (referring to Appellate Body Report, Brazil – 
Retreaded Tyres , para. 185). 
643European Union's appellee's submission, para. 214. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  applied".
644  In the European Union's view, the Panel appropriately applied a "but for" test in the 
present dispute and, in doing so, "compare{d} the fiscal treatment of legitimately comparable 
income".645  
285. Second, the European Union argues that the Pane l considered and properly rejected to use the 
"range" of 36 B&O tax rates submitted by the Un ited States as the "defined, normative benchmark" 
for purposes of establishing whether a financial contribution exists.646  As the European Union 
observes, the Panel correctly rejected the United St ates' "range" approach because it would mean that 
the lowest B&O tax rate at any given point in time becomes the general rule for purposes of an 
Article 1.1(a)(1)(ii) analysis.  As the Panel stated, if some category of products is tax exempt, then 
"every tax rate falls within th e range and it is never possible fo r a tax reduction to constitute a 
financial contribution".647  Moreover, the European Union argues,  the Panel correctly recognized that 
the "range" is neither "defined" nor "normative".648  The European Union adds that the United States 
has never provided a "rational basis"649 for treating tax categories as disparate as child care, meat or 
soybean processing, or stevedoring as relevant or comparable to the production and sale of commercial aircraft.  The European Union consider s that, for these reasons, the Panel would have 
erred had it followed the United States' approach of  selecting the "range" of 36 B&O tax rates as the 
defined, normative benchmark. 
286. Third, the European Union contends that the Panel properly excluded from its analysis 
consideration of pyramiding and the average effective B&O tax rate in Washington State.  As the 
European Union observes, the United States conceded that the average effective B&O tax rate is not a 
normative benchmark.  It would have  been inappropriate for the Panel to take the average effective 
B&O tax rate into account in its Ar ticle 1.1(a)(1)(ii) analysis for the same reasons it was inappropriate 
for it to do so in respect of the "range" of 36 B&O tax rates.  To do so would have resulted in "the 
comparison of income that is not legitimately comparable".
650  Moreover, the United States offers no 
evidence or argument to support the notion that combating pyramiding and bringing effective B&O 
tax rates closer to the average effective B&O tax rate  is any stated norm in Washington State tax law.  
Instead, the United States refers only to a study that  has never been associated with the B&O tax rate 
reduction except in these proceedings.  Similarly, the United States has been unable to offer any 
                                                      
644European Union's appellee's submission, para. 218 (quoting Panel Report, para. 7.133).  
645European Union's appellee's submission, para. 218 (quoting Panel Report, para. 7.119, in turn 
quoting Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 91). 
646European Union's appellee's submission, para. 221. 
647Panel Report, footnote 1224 to para. 7.135.   
648European Union's appellee's submission, para. 223 (referring to Panel Report, para. 7.136).   
649European Union's appellee's submission, para. 226 (quoting Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 90).  
650European Union's appellee's submission, para. 230.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  "rational basis" for comparing the income earned by commercial aircraft manufacturers with that 
earned by other activity categories identified in the study.
651  According to the European Union, taking 
the average effective B&O tax rate into acc ount in this case would constitute error under 
Article 1.1(a)(1)(ii). 
287. The European Union requests that, should the Ap pellate Body consider that the legitimately 
comparable income standard must be applied in this case without the use of a "but for" test, there is an 
adequate basis in the Panel record to conclude  that the House Bill 2294 B&O tax rate reduction 
constitutes the foregoing of government reve nue otherwise due within the meaning of 
Article 1.1(a)(1)(ii) of the SCM Agreement .  In the European Union's view, the Panel record 
demonstrates that income generated by Boeing "is legitimately comparable to income generated from 
manufacturing, wholesaling and retailing in general, but not legitimately comparable to any of the 
other categories of income (whether on an indivi dual basis or as an average) identified by the 
United States".652 
(b) Specificity – Article 2.1(a) of the SCM Agreement  
288. According to the European Union, the United States' argument that the Panel erred by 
analyzing only the B&O tax rate reduction for aircra ft manufacturing, instead of the entirety of the 
B&O tax rate exceptions under Washington State tax law, "has no merit".653  The European Union 
submits that the Panel needed to examine only House Bill 2294 to arrive at a finding of de jure  
specificity.  Nevertheless, the Panel proceeded to evaluate the B&O taxation system as a whole.  In 
doing so, the Panel "made a finding of fact that th e multiple B&O tax rate exceptions do not constitute 
a single 'subsidy' programme, but rather may constitu te separate and distinct measures, because there 
was no evidence to justify considering all of the B& O tax rate exceptions together as a single measure 
for purposes of the Article 2.1(a) analysis".654  Indeed, the Panel noted on several occasions the lack 
of evidence submitted by the United States that woul d have allowed the Panel to reach the conclusion 
that the multiple B&O tax rate exceptions in Washington State constitute a single programme.  On this basis, the European Union argues that the Panel properly concluded that the B&O tax rate 
reduction granted to the aerospace industry under House Bill 2294 is a subsidy that is specific within 
the meaning of Article 2.1(a) of the SCM Agreement .  
                                                      
651European Union's appellee's submission, para. 232 (referring to Washington State Tax Structure 
Study Committee Report, Tax Alternatives for Washington State: A Report to the Legislature , Vol. 2 
– Appendices (November 2002) (Panel Exhibit US-183), p. 41, which refers to categories such as "CONSTRUCTION", "MOVIES/AMUSE/REC", "MINING/QUARRY", "AG FOR FISHING", and "SVC 
AUTO REPAIR").   
652European Union's appellee's submission, para. 233. (original emphasis) 
653European Union's appellee's submission, para. 235.  
654European Union's appellee's submission, para. 237 (referring to Panel Report, paras. 7.200-7.205). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  289. The European Union asserts that the United Stat es now seeks to overturn the Panel's factual 
determination that the multiple B&O tax rate ex ceptions in Washington State do not constitute a 
single subsidy programme.  Such a factual dete rmination is not subject to review by the 
Appellate Body.  Nor can the United States appropria tely ask the Appellate Body to re-examine how 
the Panel weighed the evidence.  The Panel examin ed the evidence provided by the United States and 
found that it was "vague" and even "self-contradictory".
655  Thus, in the absence of a claim under 
Article 11 of the DSU, the Appellate Body should reject the United States' appeal. 
290. Even if the Appellate Body could review this determination, the Europ ean Union submits that 
the United States has pointed to no evidence in support  of its argument, and fails to show any error in 
the Panel's analysis.  The European Union observes th at the Appellate Body is being asked to find that 
the multiple B&O tax rate exceptions are part of th e same subsidy programme based solely on the fact 
that multiple B&O tax rates appeared in the Washin gton State tax code as it existed at the time of the 
Panel's specificity analysis.  The European Union argues, however, that  "{t}he simple fact that the 
unified Washington State tax code listed multiple B& O tax rate exceptions at the time of the Panel's 
analysis is not sufficient evidence to demonstrate that those multiple tax breaks should in fact be 
considered a single subsidy programme".656 
291. The European Union considers that the Pane l rightly called for evidence of a connection 
among the multiple tax breaks in order to determin e that they were part of a common subsidy 
programme, and, in particular, evidence as to the timing of the different tax breaks, their purposes, 
and their levels.  The European Union notes the Un ited States' position that evidence regarding factors 
such as timing or purpose are not relevant to determin ing whether there is a single subsidy or multiple 
subsidy programmes for purposes of a specificity analysis under Article 2.1(a).  As the Panel 
observed, the United States, under its own domestic law, considers similar factors in determining 
whether two or more separate subsidy programmes can be treated as one programme for specificity 
purposes.  The European Union thus considers it "disingenuous"657 for the United States to argue that 
such factors are not relevant to the specificity analysis under Article 2.1(a), and adds that the 
United States has failed to demonstrate that the multiple B&O tax rate exceptions in the Washington 
State tax code should be consid ered a single subsidy programme. 
                                                      
655European Union's appellee's submission, para. 239 (referring to Panel Report, paras. 7.204 
and 7.205). 
656European Union's appellee's submission, para. 240.  
657European Union's appellee's submission, para. 243.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  292. The European Union notes that, at the oral hear ing, the United States was able to point to only 
one commonality among the various reduced tax rat es (relative to the manufacturing, wholesaling, or 
retailing rates).  This single commonality was that, even though those rates were initially enacted in 
separate pieces of legislation, they were all summarized in the same legislative act —an act that simply 
repeated all of the various existing tax rates wh ile amending only those tax rates pertaining to the 
manufacturing, wholesaling, or retailing of commercial aircraft and components.
658  The 
European Union responds that, if this were all that  was required to demonstrat e that multiple measures 
enacted at different times and for different reasons constitute a single subsid y or subsidy programme 
for purposes of specificity, it would become very easy for a Member to avoid a specificity finding.  For these reasons, the European Uni on requests the Appellate Body to uphold the Panel's finding that 
the Washington State B&O tax rate reduction for airc raft manufacturing, wholesaling, and retailing is 
a specific subsidy within the meaning of Article 2.1(a) of the SCM Agreement . 
3. City of Wichita Industrial Reve nue Bonds (IRBs) – Specificity 
293. The European Union argues that the United St ates has failed to establish any error with 
respect to the baseline selected by the Panel for its disproportionality analysis.  In the 
European Union's view, the Panel's baseline was deri ved from a careful reading of Article 2.1 of the 
SCM Agreement  and is consistent with the principles of  treaty interpretation.  The European Union 
states that, although Article 2.1(c) does not identif y explicitly the baseline against which a comparison 
must be made to determine whether the amounts of subsidy are "disproportionately large", guidance is 
provided in the chapeau of Article 2.1, and the thir d sentence of Article 2.1(c), both of which refer to 
"within the jurisdiction of the granting authority".659  This supports the view that the 
disproportionality analysis focuses on "the territory  over which the granting authority can extend or 
exercise its powers".660 
294. The European Union considers that the Pane l's conclusions are not undermined by the 
criticisms of the United States.  Even though the United States argues that the Panel failed to take 
several circumstances into account, the United States offered no evidence suggesting that these 
circumstances apply to the evaluation of the IRBs or the Wichita manufacturing sector.  The Panel 
correctly noted that the United States simply failed to "provide{} a convincing rebuttal of {the European Communities'} prima facie case" or to "p resent any statistics to indicate that Boeing and 
Spirit do indeed account for approximately 69 per cent  of the economic activity in Wichita and that an 
                                                      
658European Union's additional memorandum following the first session of the oral hearing, para. 48. 
659European Union's appellee's submission, paras. 272 and 273. 
660European Union's appellee's submission, para. 274. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  examination of the employment levels of Bo eing and Spirit is misleading in this regard".
661  T h e  
European Union adds that "{t}he mere fact that there may be situations in which a baseline or 
economic indicator, other than those used by the Panel here, would be mo re appropriate does not 
undermine the utility of that baseline or the em ployment indicator on the facts presented in this 
dispute".662 
295. The European Union agrees with the Panel's understanding of the term  "disproportionately 
large" as meaning a " significant disparity between the two relevant ratios".663  The European Union 
considers that this interpretation conforms to the text, context, and the object and purpose of 
Article 2.1 of the SCM Agreement .  The Panel correctly understood that "the disparity between the 
relevant ratios must be significant, important, and of enough relevance so as to conclude that the 
subsidy is not sufficiently broadly available throughout an economy and is capable of causing 
distortions and inefficiencies in international trade".664  The European Union moreover considers that 
a panel cannot be said to be adding to or dimini shing the rights and obligations of Members in 
violation of Article 3.2 of the DSU if it engage s in a correct interpretation and application of 
Article 2.1(c). 
296. The European Union further contends that the United States' two alternative baselines provide 
no basis for reversal of the Panel's findings.  Before  the Panel, the United States advocated a baseline 
based on the ratio of Boeing's and Spirit's employ ment levels in relation to the aggregated 
employment levels of the actual  group of recipients of the alleged subsidy.  The European Union 
notes the Panel's conclusion that such a baseline was not  supported by the text or context of Article 2, 
and was difficult to reconcile with this provisi on's purpose of determining whether a subsidy is 
sufficiently broadly available thro ughout an economy so as not to benefit only "certain enterprises".  
The United States "offers no defence to this powerful critique by the Panel".665  Moreover, although 
the United States criticized the Panel for disregarding the extent of diversification of economic 
activities as required by the third sentence of Article  2.1(c), the European Union considers that the 
baseline proposed by the United Stat es does just that, "as it is self-contained within the realm of the 
particular subsidy programme at issue".666 
                                                      
661Panel Report, para. 7.769. 
662European Union's appellee's submission, para. 277. (original emphasis) 
663Panel Report, para. 7.768. (original emphasis) 
664European Union's appellee's submission, para. 279. (footnote omitted) 
665European Union's appellee's submission, para. 284. 
666European Union's appellee's submission, para. 284.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  297. The European Union further considers that th e merits of the United States' second proposed 
baseline, which permits an exam ination of proportionality only among potential  recipients of a 
subsidy, does not implicate the propriety of th e baseline actually adopte d by the Panel.  The 
European Union observes that this  baseline was proposed by Australia before the Panel, and notes 
that, given the absence of evidence on the record  that would allow the Panel to evaluate 
disproportionality on that basis, and give n the legal and evidentiary support for the 
European Communities' proposed baseline, the Panel opted for the European Communities' 
approach.
667  The Panel further considered that, given that  the pool of eligibility for the IRBs is very 
wide, employing the Australian approach was unlikel y to alter its analysis.  In this light, the 
United States has not shown any legal error by th e Panel.  The European Union also rejects the 
United States' argument about the usef ulness of the panel's reasoning in EC and certain member 
States – Large Civil Aircraft , because the panel in that case was addressing whether the subsidy 
amounts provided to an enterprise or industry ought  to be measured against the amounts provided to 
other subsidy recipients, and was not addressing the natu re of the benchmark at issue as in this appeal. 
298. With respect to the United States' contention th at the Panel did not account for the extent of 
diversification of economic activities in the City of Wichita, the European Union argues that the 
Panel's methodology incorporates the element of dive rsification, and that the Panel considered the 
United States' evidence that Wichita  was focused on aircraft production.  The European Union also 
notes that the Panel concluded that the United Stat es had not provided a c onvincing rebuttal of the 
European Communities' prima facie  case, because the United States argued at a relatively high level 
of generality that the degree of diversification in the Wichita economy is low, and otherwise failed to 
present any statistics to indicate that Boeing and Sp irit do indeed account for approximately 69% of 
the economic activity in Wichita and that an exam ination of the employment levels of Boeing and 
Spirit is misleading.  The United States disagrees  with these conclusions, "but has offered no 
reasonable basis for second-guessing them".668  The European Union mainta ins that, to the extent the 
United States objects to the manner in which the Panel weighed the evidence, this could only be 
addressed as a challenge under Article 11 of the DSU, something which the United States has not done in respect of this claim. 
299. The European Union notes that, at the oral hearing, the United States suggested that the 
appropriate benchmark for evaluati on of disproportionality should be th e eligible subsidy recipients 
who actually applied  for a subsidy.  The European Union asser ts that such benchmark would put an 
                                                      
667European Union's appellee's submission, para. 285 (referring to Panel Report, paras. 7.767 
and 7.768). 
668European Union's appellee's submission, para. 295. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  "insurmountable burden"
669 on a complainant.  It would require the complainant to submit a type of 
data that would not generally be publicly availabl e (that is, the actual applications), "which is 
particularly troubling given the {United States'} position on a Member's ability to block the initiation 
of Annex V proceedings".670 
4. Adverse Effects 
(a) Technology effects of the aeronautics R&D subsidies 
300. The European Union submits that the United St ates' appeal is, "in large part, a disguised 
Article 11 appeal".671  It contends that the United States' grounds of appeal "purport to identify errors 
of law" under Articles 5(c) and 6.3 of the SCM Agreement ;  however, by "simply labelling" its claims 
as referring to the application of the law to the f acts, the United States fails to put them "within the 
remit" of Articles 5(c) and 6.3.672  According to the European Union, a close review of the 
United States' appeal reveals nothing more than the United States' disagreement with the Panel's 
weighing of the evidence. 
301. In the European Union's view, the substance of the United States' appeal is "effectively 
re-arguing factual findings"673 by the Panel and, therefore, should be brought under Article 11 of the 
DSU.  The European Union stresses that the United States has failed, in this regard, to "explicitly 
articulate{}"674 an Article 11 claim in its Notice of Other A ppeal or in its other appellant's submission, 
and thus the Appellate Body should reject the Un ited States' appeal "on the basis of that failure 
alone".675 
302. If, nonetheless, "the Appellate Body were to entertain that appeal", the European Union 
recalls that the Appellate Body in EC and certain member States – Large Civil Aircraft  reiterated that 
panels "are not required to accord to factual eviden ce of the parties the same meaning and weight as 
do the parties".676  Consequently, since the United States has not demonstrated that the Panel abused 
its discretion as the trier of facts, the European Union requests the Appellate Body to reject the 
United States' appeal. 
                                                      
669European Union's additional memorandum following the first session of the oral hearing, para. 51. 
670European Union's additional memorandum following the first session of the oral hearing, para. 51. 
671European Union's appellee's submission, p. 144, heading III.A.2. 
672European Union's appellee's submission, para. 324. 
673European Union's appellee's submission, para. 330. 
674European Union's appellee's submission, para. 332 (quoting Appellate Body Report, Mexico – 
Anti-Dumping Measures on Rice , para. 274). 
675European Union's appellee's submission, para. 332. 
676European Union's appellee's submission, para. 334 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1317, in turn quoting Appellate Body Report, Australia – Salmon , 
para. 267). (emphasis added by the European Union omitted)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (i) The Panel's finding that the aeronautics R&D subsidies 
improved Boeing's product offering for the 787 
The Panel's finding that there is a genuine and substantial link between the aeronautics R&D 
subsidies and the 787 
303. The European Union submits that the United States' first group of claims is "baseless"
677, and 
built on "isolated" and "out of cont ext" statements made by the Panel.678  In the European Union's 
view, a "careful review"679 of the Panel's findings reveals no legal error in the Panel's conclusion that 
"the aeronautics R&D subsidies contributed in a ge nuine and substantial way to Boeing's development 
of technologies for the 787".680 
304. The European Union first addresses the United States' argument that "{t}he Panel relied on a 
subset of evidence about three of the eight NASA pr ograms, and extrapolated its conclusions to the 
other programs".681  The European Union asserts, in this rega rd, that the Panel neither erred in the 
application of law, nor exceeded the bound of its discretion as the trier of fact.  Rather, in the 
European Union's view, the Panel recognized th at eight NASA and two USDOD programmes each 
contributed, "albeit to different degrees"682, to the development of technologies used on the 787, and 
thus caused adverse effects.  The Panel "specifi cally discussed" and "objectively assessed" each of the 
programmes " individually  in its analysis"683, and eventually found that the aeronautics R&D 
programmes "taken together contributed to the technologies applied on the 787".684 
305. The European Union explains that the Panel "went into considerable detail" when assessing 
the effects of the aeronautics R&D subsidies, and based its findings on a "careful weighing of the 
evidence" submitted by both parties.685  The Panel analyzed the structure and design of each of the 
eight NASA aeronautics programmes686 and the two USDOD programmes at issue.687  Likewise, the 
                                                      
677European Union's appellee's submission, p. 149, heading III.A.3. 
678European Union's appellee's submission, para. 342. 
679European Union's appellee's submission, para. 342. 
680Panel Report, para. 7.1773. 
681United States' other appellant's submission, para. 203. 
682Panel Report, para. 7.1702. 
683European Union's appellee's submission, para. 348 (referring to Panel Report, paras. 7.1709-7.1740). 
(original emphasis) 
684European Union's appellee's submission, para. 348. (original underlining) 
685European Union's appellee's submission, para. 349 (referring to Panel Report, Appendix VII.F.1 – 
Parties' arguments regarding the links between the U.S. Government funded R&D and the specific technologies 
applied to the 787, p. 729). 
686European Union's appellee's submission, para. 350 (referring to Panel Report, paras. 7.1709-7.1737). 
687European Union's appellee's submission, para. 350 (referring to Panel Report, paras. 7.1738-7.1740). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  Panel addressed the operation of the aeronautics R&D subsidies, "taking particular account of the 
conditions of competition in the LCA industry".
688 
306. The European Union recalls that, based on the evidence on the record, the Panel rejected the 
United States' argument that the "NASA R&D subsidi es were directed to general aeronautics research 
or to research of incidental importance to the development of a product"689, and found that the 
ManTech and DUS&T programmes had the explic it objective of "developing 'dual use' R&D".690  The 
Panel further found that the aeronautics R&D s ubsidies "complemented Boeing's internal product 
development efforts"691 and had a role "in reducing Boeing's R&D risk".692  The European Union also 
notes the Panel's finding that the effects of the aeronautics R&D subsidies cannot be assessed "based 
on the face value of the financial contributions involved, which amount{s} to at least  $2.6 billion".693  
The Panel found, instead, that the aeronautics R&D subsidies "multiply the benefits of any given 
expenditure".694 
307. In addition, the European Union observes that  the Panel "painstakingly" summarized, in a 
27-page appendix to its Report695, evidence submitted by both parties on the relationship between 
NASA/USDOD measures and Boeing's development of 787 technologies.  In the European Union's 
view, rather than "extrapolat{ing}"696 its findings on the links between the ACT, AST, and R&T Base 
programmes and the 787 to the other aeronautics R& D programmes, the Pane l addressed concrete 
evidence of technology spin-offs from the other five NASA programmes and from the two USDOD programmes.
697  In accordance with Article 11 of th e DSU, the Panel was not required to 
refer in its Report to all evidence and arguments submitted by the parties.698 
308. The European Union then turns to "r espond{} to each of the factual assertions"699 raised on 
appeal by the United States.  It first rejects the United States' argument that "{m}uch of the 
NASA research at issue … was not in the causal pa thway of the technologies the Panel considered 
                                                      
688European Union's appellee's submission, para. 351 (referring to Panel Report, paras. 7.1741 7.1773). 
689Panel Report, para. 7.1742. 
690Panel Report, para. 7.1701. 
691Panel Report, para. 7.1746. 
692Panel Report, para. 7.1747. 
693European Union's appellee's submission, para. 355 (referring to Panel Report, para. 7.1433). 
(original emphasis) 
694European Union's appellee's submission, para. 355. 
695European Union's appellee's submission, para. 360 (referring to Panel Report, Appendix VII.F.1.D, 
p. 740). 
696European Union's appellee's submission, para. 362. 
697European Union's appellee's submission, paras. 363 and 364. 
698European Union's appellee's submission, para. 365 (referring to Appellate Body Report, Brazil – 
Retreated Tyres , para. 202). 
699European Union's appellee's submission, para. 367.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  most relevant to the 787".
700  In this respect, the European Uni on notes that it had demonstrated that 
technologies and design solutions found on the 787 "are  rarely 1:1 copies of developments undertaken 
in one research programme".701  Rather, Boeing "chose among the solutions which were best suited" 
to the specific requirements of the 787 through "c herry-picking" from decades of government-funded 
R&D.702  Since the Panel "properly" framed the question under Articles 5(c) and 6.3 of the 
SCM Agreement  as being "whether the subsidies contributed" to the 787 technologies, and not 
"whether there was a 1:1 identity" between them, th e European Union requests the Appellate Body to 
reject the United States' challenge of the Panel's findings.703 
309. The European Union further submits that the United States' assertions about NASA research 
being at a "far lower level … than necess ary for commercial application on the 787"704 does not 
invalidate the Panel's findings of a causal link.  Th e European Union contends that the Panel's alleged 
factual error in reading the evidence related to TR Ls "does not rise to a level that would alter the 
Panel's findings".705  First, even the revised numbers s how that NASA R&D subsidies (focused on 
TRL1 through TRL 6) provided Boeing with a "s ignificant time{} advantage of several years in 
developing the 787".706  Second, the "reduction in risk"707 that the subsidies provided to Boeing 
continues to be important.  And third, the timefram es associated with the TRLs are "merely average 
development times for a broad rang e of 'airframe' technologies".708  The European Union thus 
contends that, "even if the numerical finding at i ssue were in error", the Panel's ultimate conclusion 
"remains fully supported".709 
310. With respect to the United States' argument that, compared to Boeing's own R&D spending, 
the magnitude of the United States' aeronautics R&D subsidies is "too small to create a genuine and 
substantial relationship of cause and effect with the technologies used on the 787"710, the 
European Union notes that the Panel properly recognized  that these kinds of subsidies are "intended to 
                                                      
700United States' other appellant's submission, p. 90, subheading VI.B.1.a. 
701European Union's appellee's submission, para. 373 (referring to Joint Declaration by Dominik Wacht 
and Tim Sommer (2007) (Panel Exhibit EC-1336) (HSBI/BCI)). 
702European Union's appellee's submission, para. 373 (referring to Joint Declaration by Dominik Wacht 
and Tim Sommer (2007) (Panel Exhibit EC-1336) (HSBI/BCI)). 
703European Union's appellee's submission, para. 377.  
704European Union's appellee's submission, para. 379 (referring to United States' other appellant's 
submission, paras. 229-235). 
705European Union's appellee's submission, p. 171, subheading III.A.3.a.iv. 
706European Union's appellee's submission, para. 385. 
707European Union's appellee's submission, para. 386. 
708European Union's appellee's submission, para. 387 (referring to Panel Report, footnote 3668 to 
para. 7.1748). 
709European Union's appellee's submission, para. 388. 
710European Union's appellee's submission, para. 389 (quoting United States' other appellant's 
submission, p. 102, subheading VI.B.1.f). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  multiply the benefit from a given expenditure".
711  The European Union further notes that the Panel 
"was not required to attach particular significance to the amount of the financial contribution in 
comparison to other expenditure".712 
311. The European Union recalls the United States' ch allenge, under Article 11 of the DSU, of the 
Panel's finding that the aeronautics R&D subsidi es enabled Boeing to meet the challenges of 
integrating technologies from a wide variety of suppliers.713  The European Union submits that the 
United States' argument "fails to recognise that sev eral … contracts were precisely focused on making 
Boeing a better integrator"714 and "overlooks the importance of  the knowledge and experience that 
Boeing obtained pursuant to the aeronautics R&D subsidies".715  Simply because the Panel accorded 
the evidence a different weight than does the Unite d States does not mean that the Panel failed to 
conduct an objective assessment under Article 11 of  the DSU.  The European Union therefore 
requests the Appellate Body to reject th e United States' appeal in this respect. 
312. Lastly, the European Union agrees with th e Panel that dissemination of NASA research 
results is limited in view of restrictions that  have the purpose of benefiting the United States' 
LCA manufacturers.716  The technical papers published by NASA have "little value"717 because they 
do not contain "critical research results"718 and are "general and ambiguous".719  In addition, such 
reports are often "subject to limited access ri ghts" and are therefore "published late".720  The 
European Union also notes that Boeing generally hol ds the patents to the developed technologies and 
                                                      
711European Union's appellee's submission, para. 391 (quoting Panel Report, para. 7.1760). 
(underlining added by the European Union) 
712European Union's appellee's submission, para. 394. 
713European Union's appellee's submission, para. 396 (referring to United States' other appellant's 
submission, paras. 214 and 238-249). 
714European Union's appellee's submission, para. 397. 
715European Union's appellee's submission, para. 398 (quoting Panel Report, para. 7.1772).  The 
European Union stresses, in this respect, the Panel's fi nding that "{t}he critical question in developing and 
building LCA is not how to get the different technologies and design and manufacturing tools.  The critical 
question is how to use them." (Panel Report, para. 7.1772 (original emphasis)) 
716European Union's appellee's submission, para. 402 (referring to Panel Report, para. 7.1771 and 
footnote 3699 thereto). 
717European Union's appellee's submission, para. 404. 
718European Union's appellee's submission, para. 404 (referring to Declaration by Ray Kingcombe 
(9 November 2007) (Panel Exhibit EC-1177);  and Statement by Patrick Gavin et al. (8 November 2007) (Panel 
Exhibit EC-1175 (HSBI/BCI))). (emphasis omitted) 
719European Union's appellee's submission, para. 404 (referring to Statement by Patrick Gavin et al. 
(8 November 2007) (Panel Exhibit EC-1175 (HSBI/BCI))). 
720European Union's appellee's submission, para. 404 (referring to European Communities' first written 
submission to the Panel, Annex C – Linking of US Aeronautics Subsidies to the 787, paras. 122-124 
and 135-151).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  processes, and hence the developed technology is "not  available for use by Airbus", or "available only 
at a fee".
721 
The Panel's findings regarding the counterfactual analysis 
313. The European Union contends that the Panel' s counterfactual analysis was "neither of a 
'cursory' nature nor 'insufficien{t}'".722  On the contrary, the Panel's entire analysis demonstrates, in 
the European Union's view, that the Panel properl y completed the first step of its counterfactual 
analysis "of the effects of the subsidies on Boeing 's pricing and product offerings" before addressing 
their effects on " Airbus ' prices and sales".723 
314. Turning to the specific arguments presented by the United States, the European Union notes, 
first, that the United Stat es "points to no evidence"724 substantiating the allegation that Boeing knew 
what research needed to be done.  The Panel prop erly found that "fundamental research constitutes 
high-risk investments that privat e firms are reluctant to incur".725  Based on the evidence before it, the 
Panel concluded that the aeronautics R&D subsidi es are "particularly valuable" to Boeing because 
they contribute to research that the company wo uld not otherwise undertake, "even if it had the 
financial resources to do so".726 
315. The European Union also rejects the United States' assertion that Boeing could have 
conducted the research using its own funds.  It notes that the Panel found that the issue is not whether 
Boeing " could  have funded the research", but whether "it would have done so "727 in the light of "the 
large disincentives for private sector investment in long term, high risk aeronautical {R&D}".728  
Regarding the United States' argument that th e distance from the final operational technology 
diminishes the value of the aeronautics R&D subsidies,  the European Union notes that "it is precisely 
this distance" that made the research too costly a nd risky for Boeing to undertake by itself, and that 
made the NASA and USDOD subsidies "more valuable".729 
                                                      
721European Union's appellee's submission, para. 404 (referring to European Communities' first written 
submission to the Panel, Annex C – Linking of US Aeronautics Subsidies to the 787, paras. 122-134). 
722European Union's appellee's submission, para. 414 (quoting United States' other appellant's 
submission, paras. 258 and 215). 
723European Union's appellee's submission, para. 414 (quoting Panel Report, para. 7.1660 (original 
emphasis)). 
724European Union's appellee's submission, para. 419 (referring to United States' other appellant's 
submission, para. 264). 
725European Union's appellee's submission, para. 420. 
726European Union's appellee's submission, para. 422. 
727European Union's appellee's submission, para. 424. (original emphases) 
728European Union's appellee's submission, para. 424 (quoting Panel Report, para. 7.1747). 
729European Union's appellee's submission, para. 426 (referring to United States' other appellant's 
submission, para. 202). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 130 HSBI omitted, as indicated [[HSBI]]  
 
  316. At the oral hearing, the European Union noted that Article 6.3 of the SCM Agreement  requires 
a panel to find a genuine and subs tantial relationship of cause and e ffect between the subsidy and the 
market phenomenon in question.  The Panel need not  have concluded that, absent the subsidies, the 
world would be in a particular defined alternative st ate.  It was sufficient for the Panel to find that, 
absent the subsidies, the 787 would be a different comp etitor, either with fewer attractive features than 
actually found on the 787, or with identical featur es but launched at a later time.  The Panel properly 
based its counterfactual analysis on a qualitative assessment and properly expl ained the consequences 
of its findings that the United States' aeronautics R&D subsidies contributed to the launch of the 
technologically advanced 787 in 2004, in turn cau sing adverse effects to the European Communities. 
317. The European Union further emphasized that th e Panel posed the correct counterfactual, and 
properly reached the conclusion that, despite havi ng the incentive to launch a product like the 787, 
and the financial resources to do so, Boeing would not have been in the sa me position in terms of 
technological knowledge, experience, and confidence to  launch the 787 in 2004 but for the effects of 
the United States' aeronautics R&D subsidies.  In making such a finding, the Panel carefully weighed 
and considered the non-attribution factors raised by the United States, but eventually found that they 
did not attenuate the genuine and substantia l relationship the Panel had identified.  
318. The European Union therefore asserts that "the  extensive factual findings" support the Panel's 
counterfactual analysis and conclusion that, "absen t the aeronautics R&D subsidies, Boeing would not 
have launched the 787 as and when it did in 2004".
730 
(ii) The Panel's finding with respect to  the effects of the subsidies 
on Airbus' prices and sales 
319. The European Union contends that the United States' assertion that the Panel double-counted 
each 787 sale as two lost sales for Airbus "is devoid of any basis in the Panel's findings".731  T h e  
European Union explains that it never argued that  a single sales campaign, in which both the A330 
and Original A350 were offered,  should count as two lost sales.732  The Panel simply recognized that 
in several of the challenged sales campaigns Airbus  "offered the airline customer a mix of A330s and 
Original A350s"733, and therefore lost sales of a number of both of these aircraft.   
                                                      
730European Union's appellee's submission, para. 428. 
731European Union's appellee's submission, para. 442. 
732European Union's appellee's submission, para. 443 (referring to European Communities' first written 
submission to the Panel, Annex D – 787 Campaign Annex (HSBI), paras. 7-14 and 20-29, and table at para. 77). 
733European Union's appellee's submission, para. 444.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  320. Furthermore, the European Union contends that the Panel "considered" and "properly 
rejected" non-attribution factors.
734  The fact that the Panel found that in six of the ten challenged 
sales campaigns non-attribution factors "pla yed a significant part in the Boeing sale"735 confirms 
"beyond doubt"736 that the Panel took those other factors into  account.  In the European Union's view, 
the United States' challenge is a "challenge  to the Panel's weighing of the evidence"737, which the 
United States failed properly to raise under Article 11 of the DSU. 
321. The European Union additionally rejects the Un ited States' assertion that the Panel erred in 
finding a threat of displacement/impedance of Airbus 200-300 seat LCA in Ethiopia, Kenya, and Iceland because it "erroneously declined to assess whether these countries constituted 'third country 
markets' within the meaning of Article 6.3(b)".
738  The European Union notes that the United States 
does not challenge the Panel's finding of a thr eat of displacement/impedance in Australia.739 
322. The European Union recalls that, in EC certain member States – Large Civil Aircraft , the 
Appellate Body stated that the term "market" refers to both a geographi cal market and a product 
market.740  Because Article 6.3(b) is limited in its scope  of application to "third country market{s}", 
there can only be discussion over "the relevant product  market within third country markets".741  
However, the European Union notes that the Panel "correctly stated" that "there is no disagreement by 
the Parties over the relevant product  markets".742  The European Union therefore submits that, given 
that neither the relevant product markets nor the relevant geographical markets (namely, Ethiopia, 
Kenya, and Iceland) were disputed, the Panel was co rrect in concluding that it was "not required to 
consider"743 whether the European Communities had est ablished the existence of third-country 
markets for the purposes of its displacement and impedance arguments. 
323. The European Union further submits that, "even if the Panel was under an obligation to make 
findings on the extent of the geographic market within a third country, quod non "744, the Panel's 
finding is still correct.  The Panel found, with the e xplicit agreement of both parties, that there existed 
                                                      
734European Union's appellee's submission, para. 446. 
735Panel Report, para. 7.1786. 
736European Union's appellee's submission, para. 447. 
737European Union's appellee's submission, para. 447. 
738United States' other appellant's submission, paras. 295 and 296. 
739European Union's appellee's submission, para. 462 (referring to United States' other appellant's 
submission, para. 295).  
740European Union's appellee's submission, para. 464 (referring to Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , paras. 1117-1123).  
741European Union's appellee's submission, para. 464. (original emphasis) 
742European Union's appellee's submission, para. 464 (referring to Panel Report, para. 7.1670). 
(original emphasis) 
743Panel Report, para. 7.1674. 
744European Union's appellee's submission, para. 465. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 132 HSBI omitted, as indicated [[HSBI]]  
 
  a world market for "wide-body aircraft with a capacity of approximatel y 200 to 300 passengers".
745  
The European Union therefore notes that, factually , there could not be multiple geographic markets 
within each third country, since "{a} wo rld market encompasses the territory of all third countries 
where there is any LCA competition".746 
324. The European Union submits that the Panel also properly found significant price suppression 
in the world market for 200-300 seat LCA.747  It asserts that an examination of the evidence as a 
whole demonstrates that "there is a direct correlation between the 787 launch and the drop in A330 
prices".748  In the European Union's view, the Unite d States attempts to reargue the facts "by 
artificially analysing annual data points, rather than the clear trends over time".749  However, even 
accepting the United States' annual data point co mparison, the United States' argument fails. 
325. The European Union argues that the "level of detailed pricing information"750 the 
United States requests for the Original A350 and the A350XWB is not required in order to find price 
suppression for the 200-300 seat LCA market.  The Panel based its finding on "detailed pricing information for the A330" and had "all necessary info rmation" to assess the impact of the 787 launch 
on A330 prices.
751  Although elaborated information on pr ices for the Original A350 and A350XWB 
was "much less relevant"752, the European Union also presented some pricing information for the 
Original A350. 
326. In sum, the European Union rejects the three gr ounds of appeal presented by the United States 
concerning the effects of the aeronautics R&D subsidies,  and submits that:  (i) the alleged errors in the 
Panel's findings linking the aeronautics R&D subsid ies with technologies applied on the 787 "do not 
exist"753;  (ii) Boeing could not have conducted the same NASA-supported R&D with its own 
funds754;  and (iii) the Panel properly found that the effect of the aeronauti cs R&D subsidies causes 
serious prejudice within the meaning of Articles 5(c) and 6.3 of the SCM Agreement  in the 200-300 
seat LCA market.755 
                                                      
745Panel Report, para. 7.1669. 
746European Union's appellee's submission, para. 465. (original emphasis) 
747European Union's appellee's submission, p. 203, subheading III.A.3.c.v. 
748European Union's appellee's submission, para. 468. (original emphasis) 
749European Union's appellee's submission, para. 469 (referring to United States' other appellant's 
submission, para. 302). 
750European Union's appellee's submission, para. 471 (referring to United States' other appellant's 
submission, paras. 304 and 309-313). 
751European Union's appellee's submission, para. 479. 
752European Union's appellee's submission, para. 479. 
753European Union's appellee's submission, para. 320.  
754European Union's appellee's submission, para. 321.  
755European Union's appellee's submission, para. 322.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 133  
 
  (b) Price effects of the tied tax subsidies 
(i) The Panel's counterfactual analysis 
327. The European Union submits that the United Stat es' arguments that the Panel's counterfactual 
analysis failed to address whether Boeing's prices w ould have been higher in the absence of the tied 
tax subsidies are without merit for three reasons.  Fi rst, contrary to the United States' allegations, the 
Panel engaged in a comprehensive c ounterfactual assessment of the eff ects of the tied tax subsidies at 
issue on prices, taking into consideration:  (i) the nature of the subsidies;  (ii) the magnitude and 
duration of the subsidies;  and (iii) the conditio ns of competition between Airbus and Boeing.   
328. Regarding the nature of the tied tax subsidies,  the European Union maintains that the Panel 
gave a detailed description of the reasons why th ese subsidies, given their direct link to LCA 
production and sales, had price-suppressing effects.   The Panel also noted the United States' 
agreement that, as a matter of economics, "tied" subs idies have an impact on the sales they are tied to, 
and that, consequently, such "product-specifi c subsidies can have a significant impact on prices  and 
output".
756  The Panel further found that the FSC/ETI subsidies "bear a more direct relationship to 
Boeing's LCA prices "757 than other, indirect, types of subsidies.  Finally, the Panel confirmed the 
price-suppressing effects of the tax subs idies by giving "considerable weight"758 to factual evidence 
before it, consisting of statements by Airbus and Boeing executives and the US Trade Representative.   
329. Regarding the magnitude of the subsidies, the European Union considers that the Panel did 
not find the parties' attempts to measure the magnitu de of the FSC/ETI subsidies to be informative or 
illustrative of the capacity for these subsid ies to have affected Boeing's prices because "even relatively 
small amounts of subsidies of this na ture could have significant effects".759  With respect to the 
duration of the tax subsidies, the Panel found that  the FSC/ETI subsidies gave Boeing an important 
advantage over Airbus in subsequent sales of aircra ft of the same family to the same customer.  The 
European Union argues that, in practical terms, th is meant that Airbus had to offer greater price 
discounts to entice Boeing's customer base to switch to Airbus.  This meant that Airbus experienced 
present significant price suppression or lost sales from previous FSC/ETI subsidies that allowed 
Boeing to secure the initial sale with a particular airline. 
                                                      
756European Union's appellee's submission, para. 533 (quoting Panel Report, para. 7.1806). (emphasis 
added by the European Union) 
757European Union's appellee's submission, para. 534 (quoting Panel Report, para. 7.1808). (emphasis 
added by the European Union) 
758European Union's appellee's submission, para. 535.  
759European Union's appellee's submission, para. 539.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 134 HSBI omitted, as indicated [[HSBI]]  
 
  330. With respect to the conditions of competition, the European Union contends that the Panel 
made a series of factual findings regarding key asp ects of the LCA industry, and found that the LCA 
markets at issue are competitive duopolies between Airbus and Boeing, characterized by fierce 
competition over price and product quality.  The Pane l also found that the "price-sensitive nature of 
certain significant LCA sales campaigns"
760 meant that the tax subsidies at issue led Boeing to lower 
its prices over the 2004-2006 period.  In sum, the European Union argues, "the Panel properly found 
that, without {the} subsidies, Boeing would not have been able to secure certain sales that it did make, 
while in other cases Boeing's subsidy-induced prices fo rced Airbus to secure the sales Airbus made at 
reduced prices".761 
331. Second, the European Union contends that, a lthough the United States "e ssentially argues that 
the 'tied' FSC/ETI and B&O tax subsidies had no effects on Boeing's prices whatsoever"762, this is 
contradicted by the United States' own statements re garding the nature of the tax subsidies at issue. 
The Panel noted the United States' agreement that the nature of the subsidies plays an important role 
in an analysis of adverse effects, and that "tied" subsidies have a direct impact on output and prices.  
Coupled with the United States' admission that the ta x subsidies at issue are "specifically designed to 
affect trade"763, this demonstrates that the United States exp licitly recognized that the "tied" nature of 
tax subsidies is a key factor in an assessment of price effects. 
332. Third, the European Union argues that the a lternative counterfactual put forward by the 
United States, in which Boeing would not have pric ed its LCA any differently had it not received the 
tax subsidies, is "profoundly flawed"764 and misrepresents and ignores im portant Panel findings.  The 
United States' counterfactual fails to discuss the impo rtance of the "tied" nature of the tax subsidies 
for the Panel's causation analysis.  The United Stat es also misrepresents findings central to that 
analysis.  Contrary to the United States' claim, the Panel's rejection of the European Communities' 
argument that Boeing would not have been economically  viable without the receipt of subsidies is not 
tantamount to a finding that Boeing had unfettered access to capital and could therefore make its 
pricing decisions independently of the subsidy paym ents.  Moreover, there was no credible evidence 
before the Panel to support the United States' as sertion that Boeing would have enjoyed unfettered 
access to capital in the absence of the subsidies.  To  the contrary, there was considerable evidence 
                                                      
760Panel Report, para. 7.1820. 
761European Union's appellee's submission, para. 541 (referring to Panel Report, para. 7.1822).  
762European Union's appellee's submission, para. 526. (original emphasis) 
763European Union's appellee's submission, para. 529 (quoting United States' other appellant's 
submission, para. 327).  See also United States' other appellant's submission, para. 352: "The finding that 
subsidies tied to sales will have an impact on {LCA prices and} sales is accurate ". (emphasis added by the 
European Union) 
764European Union's appellee's submission, para. 544.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 135  
 
  before the Panel supporting the conclusion that Boeing was unable to take pricing decisions 
unconstrained by variations in its cash flow, and that Boeing sought "to use all available financial 
means, including tax subsidies, to 'out-price' Airbus".
765  The European Union considers that a 
company possessing unfettered access to capital would not  have had to engage in such price-cutting 
strategies.   
333. The European Union further argues that the alternative counterfactual advanced by the 
United States cannot be reconciled with the Panel's findings on the conditions of competition in the 
LCA market.  The European Communities had esta blished before the Panel that, for a market 
characterized by duopoly competition, "economic theory  predicts that there is an inherent incentive 
for each duopolist to 'out-price' its rival, either  by aggressive pricing or by additional R&D".766  The 
European Union maintains that the evidence before the Panel s hows that Boeing was constantly 
experiencing resource constraints that prevented it from pushing Airbus out of the LCA market.  If 
Boeing had unfettered access to capital markets, th e European Union contends, "Boeing would have 
priced its LCA such as to force Airbus out of the market".767 
Magnitude of the subsidies 
334. The European Union rejects the United States' efforts to "reargue the weight and significance 
of the evidence before the Panel"768 regarding the magnitude of the subsidies.  Contrary to the 
United States' position, the Panel did not indicat e that, because it had found the B&O tax rate 
reductions to be, by themselves, too small to cau se serious prejudice, the magnitude of the subsidies 
could be, or in fact was, the decisive factor fo r the Panel's causation analys is.  The Panel did conduct 
an analysis of the magnitude of the tax subsidi es, concluding that, based on the totality of the 
evidence, these subsidies caused pri ce effects in strategic sales campaigns, even where granted in 
relatively small amounts.  The Panel adopted reas oning of a qualitative nature and "explained the 
significance of highly-trade-distorting tax subsidies of relatively small magnitude".769  In so doing, the 
Panel incorporated earlier findings, not appealed by the United States, regarding the specific nature of 
the subsidies at issue, the conditions of competiti on between Airbus and Boeing, and the duration of 
the subsidies.  Following consider ation of the context provided by these other relevant factors, the 
                                                      
765European Union's appellee's submission, para. 551. (emphasis omitted) 
766European Union's appellee's submission, para. 554.  
767European Union's appellee's submission, para. 561.   
768European Union's appellee's submission, para. 565.  
769European Union's appellee's submission, para. 573.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 136 HSBI omitted, as indicated [[HSBI]]  
 
  Panel "rightly concluded that, give n the conditions of competition in the LCA markets at issue, the tax 
subsidies were of a sufficient nature to ca use price effects in strategic sales campaigns".
770 
335. The European Union also rejects the United States' argument that the Panel applied an 
incorrect legal standard.  The European Union asserts  that the Panel correctly identified its obligation 
to establish a "genuine and substan tial relationship of cause and effect" between the subsidies at issue 
and the alleged market effects, and it had a "certain  degree of discretion" in  choosing the appropriate 
methodology to assess causation.  Th e European Union considers that the Panel's decision to discuss 
the magnitude of the subsidies in the context of vari ous factors that accentuated the effects of the tax 
subsidies was "reasonable and appropriate"771 and "well within the bounds of its discretion as the trier 
of fact".772 
Correlation between the subsidies and their effects 
336. The European Union considers that the United St ates' argument that the Panel erred because it 
failed to make any findings on the issue of correlati on between the subsidies and their effects has no 
merit.  The European Union argues that the Panel did address the issue of correlation between market 
effects, prices, and the FSC/ETI subsidies.  The Panel gave considerable weight to, for example, 
evidence of a strategic sales campaign between Airb us and Boeing in which Airbus' negotiation team 
was asked by the potential customer to reduce its  sales offer by the amount of the FSC subsidies 
granted to Boeing.  The Panel also indicated that  it assessed questions of correlation when it explained 
that it could not "ascertain the effects of the subsidies from direct  observation of market share and 
pricing trend data" over the 2000-2006 period b ecause the "FSC/ETI programme was in operation 
prior to 2000".773 
337. The European Union additionally maintains that  there is no legal requirement to establish a 
temporal correlation between the amount of subsid ies and price suppression.  There is no requirement 
to quantify precisely the amount of subsidies, and th e Appellate Body has clarified that the absence of 
a temporal correlation is not a determinative factor.774  As the European Union sees it, the 
United States is effectively asking the Appellate Bo dy to re-weigh evidence and arguments that the 
Panel did not consider persuasive .  The Appellate Body should re ject these arguments because the 
United States has not raised a challenge under Article 11 of the DSU.  Even if the Panel's 
                                                      
770European Union's appellee's submission, para. 584.   
771European Union's appellee's submission, para. 585. 
772European Union's appellee's submission, para. 586. 
773European Union's appellee's submission, para. 590 (quoting Panel Report, para. 7.1819). (emphasis 
added by the European Union)  
774European Union's appellee's submission, para. 592 (referring to Appellate Body Report, US – 
Upland Cotton (Article 21 .5 – Brazil) , para. 414).  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 137  
 
  consideration of the evidence had been properly ra ised on appeal, the United States "has not shown 
any reasons for the Appellate Body to interfere with the Panel's discretion as the finder of fact".
775  
Non-attribution factors 
338. The European Union rejects the United States' ar gument that the Panel failed to engage in a 
meaningful analysis to ensure that the effects of other factors on prices were not improperly attributed 
to the tax subsidies.  The Panel properly consider ed that "there is no requirement for panels to 
undertake a separate analytical step  to evaluate potential non-attribution factors, and that it is 
permissible to adopt an analysis that takes these potential non-attribution factors into account 
simultaneously with the effect of the subsidies and in the context of conditions of competition 
affecting the market".776  The Panel further explained that, in applying its "unitary"777 approach to 
causation, it would assess whether other factors affected Boeing's pricing and product offerings, or attenuated the effects of the subsidies on Airbus' pr ices and sales.  Moreover, the Panel confirmed that 
it had fully considered the United States' arguments  and evidence regarding other factors contributing 
to the prices and performance of Airbus LCA relative to Boeing LCA when it stat ed that this evidence 
does not "reverse or attenuate the pervasive and cons istent pricing advantage that Boeing had in LCA 
campaigns in the 2001-2003 period due to th e availability of the FSC/ETI subsidies".
778  This finding 
was based on the Panel's earlier finding that Boei ng would always have a pricing advantage because 
of the FSC/ETI subsidies, regardless of whether othe r factors may have influenced Airbus' or Boeing's 
prices. 
339. In respect of the non-attribution factors identif ied by the United States, the European Union 
explains that the Panel found that a "per vasive and consistent pricing advantage"779 existed regardless 
of the pricing pressures these factors brought to  bear on Boeing and Airbus.  The Panel's non-
attribution findings must be read together with th e Panel's extensive findings that "point quite clearly 
to the significance of the FSC/ETI subsidies to  Boeing's ability to compete on price against 
Airbus".780  The Panel thus properly found that Boeing' s pervasive and consiste nt pricing advantage 
existed in strategic sales campaigns regardless of n on-attribution factors, and this finding is fully 
supported by the evidence and properly explained in  the Panel's reasoning.  The Appellate Body 
stated in EC and certain member States – Large Civil Aircraft  that the panel in that case should have 
indicated that it would ensure that the effects of other factors were not impr operly attributed to the 
                                                      
775European Union's appellee's submission, para. 596.  
776Panel Report, para. 7.1660.  
777European Union's appellee's submission, para. 601.  
778Panel Report, para. 7.1819.   
779Panel Report, para. 7.1819.  
780Panel Report, para. 7.1818.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 138 HSBI omitted, as indicated [[HSBI]]  
 
  challenged subsidies.
781  The European Union argues that this is precisely what the Panel did in this 
case when it found that the non-attribution factors raised by the United States did not reverse or 
attenuate the pricing advantage enjoyed by Boeing. 
(ii) Treatment of FSC/ETI subsidies as prohibited export 
subsidies 
340. The European Union submits that the Panel did not, as the United States claims, assess the 
FSC/ETI subsidies independent of their nature, magnit ude, or other characteristics.  Rather, the "tied" 
nature of the FSC/ETI subsidies was a central elemen t to the Panel's causation analysis.  The Panel's 
statement that it was entitled to determine that th e FSC/ETI subsidies have trade-distortive effects 
"precisely  because the FSC/ETI subsidies {were} contingent on  {i.e., 'tied to'} Boeing making export 
sales"782 must be read in the context of the Panel's other finding that the FSC/ETI subsidies were 
realized on the delivery of every LCA that Boeing exporte d.  It is this "tied", or "contingent", nature 
that provides a direct link between the prohibited ex port subsidies finding and their actual effects on 
the LCA markets.  Where such a direct link, or "tie",  exists, the effect of the subsidies is not at all 
remote;  rather, it is immediate, direct, and con sequential.  The Panel therefore agreed with the 
conclusion of the panel in Brazil – Aircraft that "subsidies contingent upon exportation … are 
specifically designed to affect trade".783  The European Union considers that there is therefore no legal 
or logical basis for the United States to challenge th e Panel's findings that the status of the FSC/ETI 
subsidies as prohibited export subsidies was "one of a number of relevant facts in assessing the 
capacity of these subsidies to cause various forms of serious prejudice".784  The European Union adds 
that "the United States itself … exp licitly agreed that the FSC/ETI export subsidies, due to their 'tied' 
nature, lead to an increase in Boeing re venues after the export sale of a Boeing LCA"785, and 
acknowledged that the tax subsidies at issue we re "specifically designed to affect trade".786 
341. The European Union also argues that the Panel did not, as the United States claims, make its 
adverse effects findings "without any other evidence or reasoning".787  To the extent the Panel 
determined that the FSC/ETI subsidies had trade-di stortive effects because of their status as export 
subsidies that were directly "tied to" particular aircraft sales, it coupled that determination with 
                                                      
781European Union's appellee's submission, para. 610 (referring to Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , para. 1234).  
782European Union's appellee's submission, para. 613 (quoting Panel Report, para. 7.1810). (emphasis 
and bracketed language added by the European Union)  
783Panel Report, para. 7.1809 (quoting Panel Report, Brazil – Aircraft , para. 7.26).   
784European Union's appellee's submission, para. 616. (original emphasis)  
785European Union's appellee's submission, para. 617 (referring to Panel Report, paras. 7.1806 
and 7.1635).   
786United States' other appellant's submission, para. 327.  
787United States' other appellant's submission, para. 339.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  references to what it termed "reliable evid ence which confirms that determination".
788  According to 
the European Union, the paragraphs referred to by the Panel reflect the considerable evidence it relied 
on in finding that the tax subsidies "contingent upon" or "tied to" Boeing's export sales cause serious 
prejudice to the interests of the European Communities. 
342. The European Union contends that, in view of  the extensive evidence that the Panel found to 
confirm its determination that the FSC/ETI subsidies had trade-distortive effects, there is no basis for 
the United States to assert that the allege d presumption was "outcome-determinative".789  The Panel's 
qualification in footnote 3763 of the Panel Report, together with the additional analysis that it 
undertook, make clear that the Panel did not stop with what the United States describes as a presumption of trade-distortive effects.  Instead, the Panel confirmed its finding based on an objective assessment of the evidence before it.  By challenging the Panel's factual findings as "not enough", 
"insufficient", "irrelevant", "meaningless", and "s imply inadequate to support a finding of serious 
prejudice"
790, the United States' arguments "boil down to an attack on the weight that the Panel 
attached to evidence in arriving at its factual finding of the effects of the tax subsidies at issue on 
Boeing's … commercial behaviour, and by  extension Airbus' sales and prices".791  T h e  
European Union maintains that the United States has not challenged these findings under Article 11 of 
the DSU, rendering its arguments inadmissible.  In any event, the European Union adds, the Panel's 
findings were proper and provide no basis for a reversal under Articles 5(c) and 6.3 of the 
SCM Agreement , nor do they exceed the bounds of the Panel's discretion as the trier of facts under 
Article 11 of the DSU. 
(iii) Additional claims relating to the Panel's analysis of price 
suppression, lost sales, and displacement or impedance 
Price suppression 
343. The European Union rejects the United States' cl aims that the Panel:  (i) failed to refer to 
pricing trend data;  (ii) failed to examine other fact ors affecting pricing;  and (iii) failed to assess the 
degree of price suppression to determine if it was "si gnificant".  With regard to pricing trend data, the 
European Union argues that this is an attempt by  the United States to re-introduce its "correlation" 
argument.  There is no requirement for a panel examining price suppression to conduct an assessment 
of general price trends.  The European Union explai ns that the alleged relevance of price trends in 
US – Upland Cotton originated from the panel's confusion of price suppression with price depression, 
                                                      
788Panel Report, footnote 3763 to para. 7.1810.  
789United States' other appellant's submission, para. 350.  
790United States' other appellant's submission, para. 352.  
791European Union's appellee's submission, para. 625. (original emphasis)  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 140 HSBI omitted, as indicated [[HSBI]]  
 
  for which the Appellate Body criticized that panel, and for its bifurcated approach to first finding the 
existence of price suppression by reference to pric e movements.  The European Union adds that, in 
US – Upland Cotton (Article 21.5 – Brazil) , the Appellate Body explained why, for a case involving 
price suppression (as opposed to price depression), no speci fic analysis of pricing trends is required.  
Because the Panel in this case adopted a unitary approach to assessing causation, the relevant issue 
was whether, " irrespective  of the particular trends in prices in the LCA markets at issue, prices would 
have been higher".
792  Although the United States maintains that price trends witnessed in the 
2004-2006 reference period for the A340 and 777 aircraft are incons istent with a price suppression 
finding, such a finding is "not dependent"793 upon observations about the actual pricing for these 
aircraft. 
344. The European Union also argues that the Panel took into consideration pricing and price trend 
data, but that these considerations "were neither  central nor decisive for the Panel's findings".794  The 
European Union considers that the factors selecte d by a panel in its causation analysis are highly 
context-dependent, and that, "{i}n the context of  the FSC/ETI and B&O tax subsidies, a closer 
examination of price trends was not warranted".795  The tax subsidies at issue were not linked to the 
world market prices for LCA but, rather, tied to the production, sale, and export  of LCA.  Moreover, 
these subsidies had affected market prices for such a long time that an assessment of price trends 
would not have revealed relevant information.  Th e European Union considers that this is to be 
contrasted with the situation in US – Upland Cotton , where an examination of price trends was 
undertaken because that case involved counter-cyclical, price-contingent subsidies, and where, in any 
event, the Appellate Body did not attribute much weight to the issue of price trends.  The European Union underscores that the Appellate Body confirmed that "Article 6.3(c) does not set forth 
any specific methodology for determining whether the effect of a subsidy is significant price suppression" and that "{t}here may well be diffe rent ways to make this determination".
796 
345. With respect to the Panel's treatment of non-attr ibution factors, the European Union contends 
that the United States "errs fundamentally when it asser ts that the Panel did not consider non-subsidy 
factors in the 'unitary' causation analysis of significant price suppression".797  The European Union 
maintains that the Panel considered the United St ates' arguments regarding various non-attribution 
                                                      
792European Union's appellee's submission, para. 634. (original emphasis) 
793European Union's appellee's submission, para. 640.   
794European Union's appellee's submission, para. 635.   
795European Union's appellee's submission, para. 635.  
796European Union's appellee's submission, para. 638 (quoting Appellate Body Report, US – Upland 
Cotton , para. 427).  
797European Union's appellee's submission, para. 641 (referring to United States' other appellant's 
submission, para. 368).    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 141  
 
  factors as part of its causation analysis, but that it did not find that these factors reversed or attenuated 
the pervasive and consistent pricing advantage enjoyed by Boeing. 
346. Regarding the Panel's treatment of the degr ee of price suppression, the European Union 
maintains that the United States is wrong to assert th at the Panel was under an obligation to quantify 
the level of price suppression to determine its si gnificance.  The Panel based its "significance" 
findings on various qualitative factors, including th e nature, design, and operation of the tied tax 
subsidies, the particularities of the LCA markets, the duopoly competition between Airbus and 
Boeing, the price-sensitive nature of certain stra tegic sales campaigns, the pervasive and consistent 
pricing advantage enjoyed by Boeing, and the exis tence of buyer switching cost advantages.  The 
European Union maintains that these findings, as we ll as their explanation and evidentiary basis, 
comply fully with the requirements of Articles 5 and 6.3(c) of the SCM Agreement . 
Lost sales 
347. The European Union also disagrees with the Un ited States' claims that the Panel failed to 
identify which particular sales campaigns were lost by Airbus, or otherwise discuss what facts existed 
to support its findings of lost sales.  The European  Union submits that there is no requirement for a 
panel to identify, address, and discuss specifically  individual sales campaigns in order to make a 
finding of significant lost sales.  The European Un ion refers to the Appellate Body's statement in EC 
and certain member States – Large Civil Aircraft  that an examination of specific sales campaigns 
"may be appropriate given the particular characteristi cs of a market", but that an aggregation of such 
information "is also permissible".
798  Consistent with this statem ent, the Panel conducted a unitary 
counterfactual analysis and "made its significant lost sales finding on the basis of its earlier finding 
regarding the existence of such LCA world markets".799  The Panel focused its counterfactual analysis 
on what it termed "strategic", "price-se nsitive", or "significant" sales campaigns.800  The Panel thus 
properly concluded that lost sales could occur wh ere the price advantage provided by the tied tax 
subsidies caused Boeing to win certain strategi c and highly price-sensitive sales that it would 
otherwise not have been able to secure.  According to the European Union, this was a permissible and 
appropriate approach to the Panel's findings of significant lost sales. 
348. The European Union also argues that the United States' claim should be rejected in the light 
of the manner in which the European Communities structured its claim before the Panel.  If a 
complaining Member structures its case based on a series of individual claims of serious prejudice 
                                                      
798Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1217.  
799European Union's appellee's submission, para. 650.  
800European Union's appellee's submission, para. 651 (quoting Panel Report, paras. 7.1820, 7.1822, 
and 7.1823).   WT/DS353/AB/R BCI deleted, as indicated [***] 
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  relating to individual significant lost sales, then it may be necessary for a panel to make findings on 
each asserted lost sale.  In this dispute, however , the European Communities "brought a single claim 
of serious prejudice, and illustrated  its claim presenting evidence of, inter alia , lost sales, by 
providing details regarding various sales campaigns".801  The Panel was within its discretion to 
consider these sales campaigns as evidence within  its overall assessment of the existence of 
significant lost sales.  The European Union main tains that, "much as panels are not required to 
quantify price suppression, they may, but are not required to, precisely identify lost sales".802  The 
European Union adds that, even if the Panel were re quired to have identified individual lost sales, the 
Panel cited the particular sales campaign eviden ce introduced by the European Communities, and 
confirmed that its assessment of the European Co mmunities' serious prejudice claim was based on all 
of the evidence before it. 
349. The European Union further submits that the United States' claim under Article 12.7 of the 
DSU "is entirely dependent on its claims under Article 6.3(c)"803 of the SCM Agreement .  Consistent 
with guidance by the Appellate Body, the Panel set out the necessary findings of fact, the applicability 
of relevant provisions, and the basic rationale behi nd its findings.  Although the United States argues 
that the Panel did not set out a basic rationale by failing to disclose the essential or fundamental 
justification for its findings and recomm endations, Articles 5 and 6.3(c) of the SCM Agreement  do not 
require panels to identify specifically each lost sale at issue.  In the European Union's view, there is no 
reason to find that the Panel failed to meet the requirements of Article 12.7 of the DSU. 
Displacement and impedance 
350. With respect to the United States' argument that  the Panel failed to establish that any of the 
countries in which the European Communities allege d displacement or impedance was a "market", the 
European Union contends that the Panel properly co ncluded that it was not required to do so.  The 
Appellate Body has stated that the term "market"  refers to both a geogra phical market and a product 
market.  Given that Article 6.3(b) is limited in its  scope to "third country market{s}", and therefore 
"indisputable"804, and that there was no disagreement by the parties over the relevant product market, 
the Panel was correct that it did not need to determ ine the existence of third-country markets for the 
purposes of its displacement and impedance assessment .  Even if the Panel was under an obligation to 
make findings on the extent of the geographic market within a third country, the Panel was still correct in finding that there was a world market for 100-200 seat and 300-400 seat LCA because, 
                                                      
801European Union's appellee's submission, para. 655. (original italics and underlining) 
802European Union's appellee's submission, para. 657.  
803European Union's appellee's submission, para. 661.   
804European Union's appellee's submission, para. 675.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 143  
 
  "{w}here such an integrated world market exists , it logically includes the individual sub-markets 
within that world market".
805  Thus, the Panel correctly determined  that it was not required to consider 
whether the European Communities had established th e existence of third-country markets in the 
100-200 seat and 300-400 seat LCA markets. 
351. With regard to the United States' claim that  the Panel failed to identify specifically the 
particular third-country markets in which it had fo und displacement and impedance had occurred, the 
European Union responds with similar arguments to  those it makes in relation to the United States' 
appeal of the Panel's finding of significant lost sales.   The European Union asserts that panels are not 
required to identify, address, or discuss specifically individual third-country markets in order to make 
a finding of displacement or impedance.  The Pane l properly framed the issue before it as "whether, 
based on evidence of sales occurring in those countries , {it was} satisfied that there has been 
displacement and impedance of impor ts or exports within the meani ng of Article 6.3(a) and 6.3(b), 
respectively in any of the three LCA product markets in the particular country market".806  With 
respect to the 100-200 seat and 300-400 seat LC A markets, the Panel made its findings of 
displacement and impedance for EC exports "fro m third country markets in that product market".807  
Accordingly, the Panel's ultimate displacement a nd impedance findings are directly linked to, and 
follow from, its broader causation findings involving the effects of the FSC/ETI subsidies and the 
B&O tax rate reductions. 
352. The European Union moreover argues that, because it "presented its displacement or 
impedance case as being linked to, a nd dependent on, Airbus' lost sales"808, there was no need for the 
Panel to take an additional step and identify the specific third-country markets where displacement or 
impedance would automatically flow from the existence of a lost sale in the global market.  The Panel 
properly explained that its displacement and impedance findings were based on "strategic" 
(or "significant") sales campaigns809, and that it was within its discretion to find that, in strategic sales 
campaigns, the availability of an additional prici ng advantage from the tied tax subsidies to Boeing 
resulted in lost sales and, consequently, in displace ment or impedance in third-country markets.  The 
Panel's displacement and impedance findings are also  fully supported by that evidence.  Thus, in the 
European Union's view, the Panel's overall causa tion analysis was supported by a considerable 
evidentiary basis and provided a logical and legally  sound causation analysis linking:  (i) the pricing 
                                                      
805European Union's appellee's submission, para. 676.  
806European Union's appellee's submission, para. 682 (quoting Panel Report, para. 7.1674). (emphasis 
added by the European Union)  
807Panel Report, para. 7.1823.  
808European Union's appellee's submission, para. 684. (footnote omitted) 
809European Union's appellee's submission, para. 685 (quoting Panel Report, paras. 7.1820, 7.1822, 
and 7.1823).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 144 HSBI omitted, as indicated [[HSBI]]  
 
  advantage provided by the tax subsidies;  (ii) lowe r prices being offered in strategic sales campaigns;  
(iii) sales being lost by Airbus in such strategic sales campaigns as a result of price concessions;  and 
(iv) the resulting displacement or impedance of mark et share in the particular third-country markets 
where the lost sale took place. 
353. The European Union considers that the Panel' s unitary causation analysis also provided a 
basis for the Panel to have refrained from making speci fic third-country market findings.  In addition, 
because the conditions of competition in each  of the sales campaigns presented by the 
European Communities involved a particular airlin e from an individual third-country market, this 
meant that, when Boeing secured some sales through the pricing advantages of the tax subsidies, this 
necessarily resulted in its duopoly competitor, Air bus, losing market share in the corresponding 
third-country market.  Given those particular c onditions of competition, a subsidized sale would 
always result in displacement or impedance in  the related third-country market under a unitary 
analysis.  The European Union considers that th e United States' arguments "ignore the logical and 
necessary connection between every  lost sale and the existence of displacement or impedance in the 
particular third-country market linked to that sale".
810  The European Union adds that, even if the 
Panel were required to identify individual lost sal es, the Panel cited the sales campaign evidence 
introduced by the European Communities, a nd confirmed that its assessment of the 
European Communities' serious prejudice claim was based on all of the evidence before it.  
354. With regard to the United States' claim under Article 12.7 of the DSU, the European Union 
refers to its arguments made in the context of the lost sales discussion.  Consistent with guidance by 
the Appellate Body, the Panel set out the necessary findings of fact, the a pplicability of relevant 
provisions, and the basic rationale behind its  findings.  Articles 5 and 6.3(c) of the SCM Agreement  do 
not require panels to identify specifically each third-country market in which displacement or 
impedance occurs.  In the European Union's view, there is no reason to find that the Panel failed to 
meet the requirements of Article 12.7 of the DSU. 
355. The European Union further main tains that the United States' arguments regarding particular 
findings of the Panel also fail.  The European Union observes that, although it made no deliveries of the 737 during the reference period, Boeing seized 100%  of the market in 2007.  Because the Panel 
confirmed that it would not limit the temporal scope of the evidence that it co nsidered in undertaking 
its serious prejudice analysis, the evidence in its totality supported a finding of displacement.  In 
addition, although the fact that there were no A340 deliveries during the reference period in 
New Zealand may not have supported a finding of displacement, the European Union argues that it 
                                                      
810European Union's appellee's submission, para. 699. (original emphasis)   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 145  
 
  still provided ample evidence in support of a finding of  impedance.  The European Union also argues 
that Airbus had a 100% market share between 2001 and 2002 in Hong Kong, China and that the fact 
that there were no Airbus deliveries between 2004 and 2006 therefore does not undermine the Panel's 
findings of displacement and impedance with respect  to that market.  Finally, although the Boeing 737 
aircraft may not have been delivered to a leasi ng company in Singapore duri ng the reference period, 
the aircraft were delivered, and hence displaced or  impeded sales of the A320 in other third-country 
markets. 
356. Accordingly, the European Union asserts that  the Panel properly f ound that the FSC/ETI 
subsidies and the B&O tax rate reductions caused adve rse effects within the meaning of Article 6.3(b) 
and (c) of the SCM Agreement  in the 100-200 seat and 300-400 seat LCA markets, and requests the 
Appellate Body to uphold the Panel's finding. 
E. Arguments of the Third Participants 
1. Australia 
(a) Financial contribution 
(i) Scope of Article 1.1(a)(1) of the SCM Agreement 
357. Australia disagrees with the Panel's finding th at transactions properly characterized as 
"purchases of services" fall outside the scope of Article 1.1(a)(1) of the SCM Agreement .  In 
Australia's view, a purchase of services that relates to a particular good  would fall within the scope of 
Article 1.1(a)(1).  Australia's interpretation is based on the facts that:  (i) the term "financial 
contribution" has a broad meaning;   (ii) the omission of text is  not necessarily dispositive;  and 
(iii) the SCM Agreement  disciplines subsidies to goods, includ ing a range of activities related to 
production of those goods (for example, the kinds of  assistance for research activities covered by the 
now-expired Article 8 of the SCM Agreement ).811   
358. First, Australia notes that the concept of "finan cial contribution" has been interpreted broadly 
in previous WTO disputes.812  The panel in US – Export Restraints  stated that subparagraphs (i) 
to (iii) of Article 1.1(a)(1) encompass the tran sfer of economic resources from a government to a 
private entity "by directly providing something of  value—either money, goods, or services—to a 
                                                      
811See Australia's third participant's submission, paras. 3-19. 
812Australia's third participant's submission, para . 10 (referring to Appellate Body Report, US – 
Softwood Lumber IV , para. 52). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 146 HSBI omitted, as indicated [[HSBI]]  
 
  private entity".
813  In a similar vein, the panel in US – Softwood Lumber III  described 
subparagraphs (i) to (iv) as covering "a wide variety of circumstances"814 in which a financial 
contribution can exist, and explained that th e provision of goods and services covers "the full 
spectrum  of in-kind transfers the government may undertake by providing resources to an 
enterprise".815  Accordingly, the term "purchase of goods " could be considered "an example of the 
'multiple government actions' that fall within the 'categories of behaviour' in subparagraph (iii)"816, 
and "purchase of services" (while not expressly identif ied) could be considered to fall within this 
category of behaviour.  Lastly, Australia notes th at the Panel relied on the removal of the words 
"purchases of services" from the final text of the SCM Agreement  in support for its finding.  However, 
the language "purchases goods or services" was introduced  in the third draft of Article 1.1(a)(1)(iii), 
whereas earlier drafts contained no reference to such language.817  Therefore, the proper question "is 
not why the final version of the SCM Agreement contains no explicit reference to services in 
subparagraph (iii) but rather why the 'purchase of goods' text was included".818 
359. Second, Australia is of the view that mean ing should not necessarily be attributed to the 
absence of text, especially when doing so woul d be contrary to the object and purpose of the 
SCM Agreement  and would enable Members to circumvent th eir obligations.  In this regard, Australia 
points to the Appellate Body's statement in Canada – Autos  that "omissions in different contexts may 
have different meanings, and omission, in and of itself, is not necessarily dispositive".819 
360. Third, Australia submits that relevant guidan ce can be extracted from now-expired Article 8 
of the SCM Agreement .  When Article 8.2(a) deemed assi stance for research activities to be a 
non-actionable subsidy, it was necessarily presuppos ing that government actions related to services 
could constitute a financial contribu tion and could confer a benefit.  Therefore, Australia argues, the 
SCM  Agreement  is "intended to capture transac tions related to goods, which could include  actions 
                                                      
813Panel Report, US – Export Restraints , para. 8.73. 
814Panel Report, US – Softwood Lumber III , para. 7.24.  
815Australia's third participant's submission, para. 12 (quoting Panel Report, US – Softwood Lumber III , 
para. 7.28). (emphasis added by Australia)  
816Australia's third participant's submission, para. 13 (quoting Panel Report, US – Export Restraints , 
para. 8.54). (emphasis omitted) 
817Australia's third participant's submission, para. 14 (referring to Panel Report, para. 7.962;  and 
GATT Documents MTN.GNG/NG10/W/38 (18 July 1990), MTN.GNG/NG10/W/38/Rev.1 (4 September 1990), 
and MTN.GNG/NG10/W/38/Rev.2 (2 November 1990).  
818Australia's third participant's submission, para. 14.  
819Appellate Body Report, Canada – Autos , para. 138.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 147  
 
  related to services"
820, and Article 1 of the SCM Agreement  "should not be read as necessarily  
excluding government actions related to services".821 
361. Australia further contends that whether a partic ular government action can be characterized as 
a particular type of transaction is irrelevant to the question of whether it constitutes a financial 
contribution under Article 1.1(a)(1).  Rather, the focus should be on the "nature"822 of the government 
action.  To support its view, Australia refe rs to the Appellate Body's statement in US – Softwood 
Lumber IV  that "{a}n evaluation of the existence of a financial contribution involves consideration of 
the nature of the transaction through which so mething of economic value is transferred by a 
government".823  Australia disagrees with the Panel's find ing that "properly characterised purchases of 
services"824 are excluded from the scope of Article 1.1(a)(1) of the SCM Agreement . 
362. Australia criticizes the Panel for importing consid erations of "benefit" into the analysis of 
whether a government action constitutes a financial c ontribution.  There is nothing in the text or 
context of the SCM Agreement  to support the view that a financial contribution must be " principally  
for the benefit"825 of the recipient.  The implication of the Panel's approach is that "financial 
contributions that confer a benefit on the recipient, ... but not necessarily the ' principal  benefit', do not 
meet the definition of a subsidy under Article 1.1 of the SCM Agreement ."826  Australia further 
submits that the benefit or use of the service pr ovided, although necessary, is not sufficient to 
determine whether a purchase of services is "principa lly for the benefit" of the purchaser or of the 
service provider.  Other relevant factors—such as the amount of remunerati on provided in exchange 
for the service—should be considered in order to assess which party is the "principal beneficiary".827  
Moreover, the Panel's "principally for the benefit" test did not " explicitly  consider whether the benefit 
conferred by a purchase of services relates to, or  passes through to, the production of goods", but 
rather " implicitly " touched on the question of whether the aeronautics R&D contracts relate to 
Boeing's production of LCA.828  Since a "purchase of services" ex clusively directed at a service per se  
would not be covered by the SCM Agreement , Australia is of the view that, in evaluating whether such 
                                                      
820Australia's third participant's submission, para. 18. (original emphasis)  
821Australia's third participant's submission, para. 19. (original emphasis)  
822Australia's third participant's submission, para. 20. (underlining omitted) 
823Appellate Body Report, US – Softwood Lumber IV , para. 52.  
824Australia's third participant's submission, para. 22 (referring to Panel Report, para. 7.970).  
825Australia's third participant's submission, para. 29. (original emphasis)  
826Australia's third participant's submission, para. 31. (original emphasis) 
827Australia's third participant's submission, paras. 34 and 35.  
828Australia's third participant's submission, para. 37. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 148 HSBI omitted, as indicated [[HSBI]]  
 
  a purchase principally benefits a recipient, it would be important to "critically examine"
829 whether 
and to what extent the benefit relates to a particular good. 
363. Australia acknowledges that, having found that purchases of services are excluded from 
Article 1.1(a)(1) of the SCM Agreement , the Panel needed to "limit its finding" to only those 
transactions " properly characterised "830 as purchases of services so as to avoid creating loopholes in 
the coverage of the Agreement.  However, had th e Panel focused its analysis on the nature of the 
government action involved in the aeronautics R&D contracts and whether this fell within the 
meaning of "financial contribution" for purposes of Article 1.1(a)(1), it would have been able to 
undertake the separate analysis of whether such an action confers a benefit under Article 1.1(b). 
(ii) B&O tax rate reduction  
364. With respect to the Washington State B&O tax rate reduction, Australia notes that it appears 
that the United States provided no evidence that the range of tax rates for the 36 categories of business 
activities, and more specifically the tax rate reducti on for aircraft manufacturing, was in fact intended 
to address the effects of "pyramiding".831  Rather, the evidence that was before the Panel indicates that 
the purpose of the tax rate reduction is in fact to  encourage the continued presence of the aerospace 
industry in Washington State.  In the absence of evidence establishing a common rationale for the different tax rates, there was no basis for the Pane l to find that the income generated by aircraft 
manufacturing is "legitimately comparable" to the in come generated by the 36 categories of business 
activities "taken together".
832  Likewise, the United States failed to provide any evidence of the tax 
rates that apply to "business activities of a similar  complexity to/stage in the production process as 
aircraft manufacturing".833  Thus, the United States did not provide a "defined, normative 
benchmark"834 as an alternative to the general B&O tax rates against which the Panel could compare 
the revenue raised and the revenue that  would have otherwise been raised. 
365. Australia is of the view that, in these circ umstances, the Panel correctly found that the 
"defined, normative benchmark" was the general ra te of taxation applicable to manufacturing 
activities in Washington State, and that the B&O tax rate reduction in respect of aircraft 
manufacturers was a "preferential rate"835 that constituted the foregoing of revenue that was otherwise 
                                                      
829Australia's third participant's submission, para. 38.  
830Australia's third participant's submission, para. 26. (original emphasis) 
831Australia's third participant's submission, para. 51. 
832Australia's third participant's submission, para. 52.  
833Australia's third participant's submission, para. 53. (original emphasis) 
834Australia's third participant's submission, para. 53.  
835Australia's third participant's submission, para. 56.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 149  
 
  due.  Australia thus shares the Panel's view that "it is not difficult to identify a general rule of taxation 
and exceptions to it … {and} a 'but  for' test can be applied".
836 
(b) Specificity 
(i) NASA/USDOD allocation of patent rights 
366. Australia disagrees with the European Union th at the Panel erred in the interpretation and 
application of Article 2.1 of the SCM Agreement  by having regard to the US Government's general 
policy with respect to patent rights.  Australia notes that a proper interpretation of "granting authority" 
is not necessarily restricted to the specific en tity that directly provides the subsidy under 
consideration.  Further, the context of Article 2.1( a) clearly establishes that the provision is concerned 
with determining the specificity of a particul ar measure, the focus being, according to WTO 
jurisprudence, on whether a subsidy is sufficiently  broadly available throughout an economy so as not 
to be "specific".  Having regard to all relevant  factors that may assist in determining whether a 
subsidy is specific " fosters , rather than frustrates, the object  and purpose of the SCM Agreement".837  
In the circumstances of this case, the United States' general policy of granting  all contractors patent 
rights over any invention they produce under federally  funded R&D contracts was directly relevant to 
the Panel's determination of wh ether the patent right provisions of the NASA and USDOD contracts 
and agreements with Boeing are "specific". 
367. In addition, Australia considers that, having  reached the preliminary conclusion that the 
NASA and USDOD patent waivers were not specific within the meaning of Article 2.1(a) of the 
SCM Agreement , the Panel should have further considered  whether the patent waivers nevertheless 
fell within the scope of Article 2.1(c) of the SCM Agreement .  In Australia's view, the fact that the 
European Union had presented arguments under Article 2.1(c) "provided the Panel with a '{reason} to 
believe that the subsidy may in fact be specific' , notwithstanding that the patent 'waivers' were 
apparently widely available".838 
(ii) City of Wichita IRBs 
368. With respect to the City of Wichita IRBs, Aust ralia agrees with the Panel that there are two 
factors that together constitute the "second ratio"839 for determining whether a recipient of a subsidy 
has received a "disproportionately large amount" of  the subsidy.  These are, first, the relevant 
                                                      
836Panel Report, para. 7.133.  
837Australia's third participant's submission, para. 71. (original emphasis) 
838Australia's third participant's submission, para. 79.  
839Panel Report, para. 7.759.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  "baseline" group (which the Panel considered to be  all other entities in the Wichita manufacturing 
sector
840) and, second, the relevant "indicator" (which the Panel considered to be Boeing's proportion 
of employment within the Wichita manufacturing sector841).  Australia further submits that Boeing's 
and Spirit's relative shares of employment with in the Wichita manufacturing sector was not an 
appropriate measure for determining whether the am ount of the subsidy received by Boeing and Spirit 
was disproportionate under Article 2.1(c) of the SCM Agreement .  The LCA industry is capital-
intensive, and the use of employee levels alone as th e relevant indicator therefore skews the analysis 
towards a finding of disproportionality.  Instead of this mechanistic approach, there should be 
consideration of all relevant factors that indicat e a subsidy recipient's share of economic activity 
within the relevant jurisdiction, including the recipient's share of employment, output, and revenue.  In Australia's view, "such an analysis would more ac curately determine a recipient's 'place' within the 
relevant economy and would therefore provide a more appropriate measure for determining 
disproportionality".
842 
(c) Adverse effects 
(i) Causation  
369. At the oral hearing, Australia expressed two concerns with respect to the United States' 
argument that a proper counterfactual would have cons idered that, in the absence of the subsidies, 
Boeing would have funded the research itself.  Firs t, such an argument detracts from the proper focus 
of adjudicating claims under Articles 5 and 6.3 of the SCM Agreement , which is on whether or not a 
subsidy has caused adverse effects to the interests of another Member.  In Australia's view, the 
analysis does not require consideration of the effect  that a hypothetical factor may have had in the 
place of the subsidy, and it is incorrect to concl ude that such speculation displaces a finding that the 
subsidy in fact has caused the alleged market phe nomena.  Second, the United States misconstrues the 
proper role and scope of a counterfactual analysis .  Australia considers that the only relevant 
hypothetical factor in a counterfactual analysis is the assumption that the subsidy was not granted and, 
therefore, a panel should examine what the market  would have looked like in the absence of the 
subsidy, holding all else equal.  
                                                      
840Australia's third participant's submission, para. 87.  
841Australia's third participant's submission, para. 88 (quoting Panel Report, para. 7.769).  
842Australia's third participant's submission, para. 95.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (ii) Collective assessment of the subsidies and their effects 
370. Australia urges the Appellate Body to consid er carefully whether, in the particular 
circumstances of this dispute, the Panel was or was not required  to aggregate the effects of the 
aeronautics R&D subsidies with the effects of the B&O tax rate reductions, as well as whether the 
effects of the remaining subsidies could be found to complement and supplement the effects of the 
tied tax subsidies, notwithstanding that the Pane l was unable to establish the requisite causal link 
between the remaining subsidies and Boeing's pricing of its LCA.  Australia recalls that, before the 
Panel, it expressed the view that, while an assessment  of the cumulative effects of subsidies may be 
relevant, this should be done only where appropriate for a particular adverse effects claim, ensuring 
that an appropriate nexus exists between the subsidies, based on the nature of those subsidies, to 
warrant their aggregation.
843 
 The Aeronautics R&D subsidies and the B&O tax rate reduction 
371. With respect to the Panel's decision not to aggr egate the "technology effects" of the subsidies 
benefiting the 787 with the "price effects" of the s ubsidies benefiting that same Boeing aircraft family, 
Australia does not agree with the European Union th at a proper interpretation of Articles 5 and 6.3 of 
the SCM Agreement leads to the conclusion that aggregation is required in this dispute.  Although 
these provisions do not differentiate between different  subsidies that operate through distinct causal 
mechanisms, neither do they indicate that it is impe rmissible to do so.  Referring to the approach of 
the Appellate Body in EC and certain member States – Large Civil Aircraft and to the discretion 
enjoyed by panels to determine on a case-specific b asis whether the effects of subsidies should be 
aggregated, Australia contends that, for the Pane l to have erred in declining to aggregate the 
technology effects and the price effects, the Euro pean Union would need to have established that, 
having regard to each of the three criteria identif ied by the Appellate Body—that is:  (i) the nature, 
design, and operation of the subsidies at issue;  (ii)  the alleged market phenomena;  and (iii) the extent 
to which the subsidies are provided in relation to a particular product or pr oducts—the two groups of 
subsidies should have been aggregated.844   
                                                      
843Australia's third participant's submission, para. 104 (referring to Australia's written submission to the 
Panel, para. 66).   
844Australia's third participant's submission, paras. 108 and 109 (referring to Appellate Body Report,  
EC and certain member States – Large Civil Aircraft , para. 1376).  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  372. Australia also points to the approach of the panel in US – Upland Cotton , which was endorsed 
by the Appellate Body in that dispute.
845  Australia emphasizes that the panel in that case did not 
suggest that subsidies should  be aggregated in particular circum stances, but instead considered that a 
textual interpretation of Articles 5 and 6.3(c) of the SCM Agreement  permits  an integrated 
examination of the effects of va rious subsidies, and "a panel ' may legitimately treat them as a 
"subsidy" and group them and their effects together ' … 'to the extent a sufficient nexus with these 
exists among the subsidies at issue so that their effects manifest themselves collectively '".846  
Accordingly, it is not only the existence of some nexus between the subsidy,  the subsidized product, 
and the effects-based variable under consideration th at is relevant:  the panel must also consider 
whether such a nexus is sufficiently close so that  it can be said that the effects of the subsidies 
manifest themselves collectively. 
 The tied tax subsidies and the remaining subsidies 
373. Australia observes that the same approach should be applied in reviewing the Panel's decision 
not to aggregate the effects of the tied tax subsidies with the effects of the remaining subsidies, and in 
assessing whether a sufficient nexus exists between the particular subsidy, each of the Boeing aircraft 
alleged to have benefited from the subsidy, and the prices obtained for that aircraft by Boeing.  The 
Panel found that the remaining subsidies "are not directly related to Boeing's production or sale of 
LCA".847  In this regard, Australia notes that, in orde r to show that the nexus between the tied tax 
subsidies and the remaining subsidies is "sufficiently close that their effects manifest themselves 
collectively "848, the Panel needed to be satisfied that the remaining subsidies, like the tied tax 
subsidies, enabled Boeing to lower its pri ces by increasing Boeing's profits from LCA sales. 
374. Australia understands that, in accordance w ith the Appellate Body's reasoning in EC and 
certain member States – Large Civil Aircraft , it is appropriate to assess whether the remaining 
subsidies complemented and supplemented the effects of the tied tax subsidies, as long as a genuine 
causal link can be found between each of the re maining subsidies and the relevant market 
phenomenon.849  Australia recalls the Appellate Body's fi nding that the panel lacked a sufficient basis 
                                                      
845Australia's third participant's submission, para. 111 (referring to Panel Report, US – Upland Cotton , 
para. 7.1192;  and Appellate Body Report, US – Upland Cotton , para. 484). 
846Australia's third participant's submission, paras. 111 and 112 (quoting Panel Report, US – Upland 
Cotton , para. 7.1192). (emphasis added by Australia) 
847Panel Report, para. 7.1827.  
848Australia's third participant's submission, para. 118. (original emphasis)  
849Australia's third participant's submission, para. 121 (referring to Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , paras. 1370 and 1378).   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  to conclude that the R&D subsidies in that ca se "complemented and supplemented" the "product 
effect" of the LA/MSF subsidies.
850 
375. Australia asserts that it may be difficult to show that the nexus betw een these two groups of 
subsidies is sufficiently close that their effects manifest themselves collectively , or that the remaining 
subsidies complemented and supplemented the effect s of the tied tax subsidies so as to increase the 
profitability of LCA sales and enable Boeing to price its LCA at a level that would not otherwise have 
been commercially justified.  For Australia, this is  because the Panel was unable to find the requisite 
causal link between the remaining subsidies and the serious prejudice alleged to have occurred, given 
that the remaining subsidies were not linked to th e production of particular LCA, and given also the 
small total amount of the remaining subsidies.  
2. Brazil 
(a) Annex V to the SCM Agreement  
376. Brazil submits that the Panel erroneous ly applied a "formalistic approach"851 when concluding 
that the failure of the DSB to initiate an Annex V procedure and to designate a facilitator precluded 
the Panel from making any findings of  violation of Annex V or from drawing adverse inferences from 
an alleged refusal to cooperate in the informati on-gathering process.  The text of paragraph 1 of 
Annex V "clearly imposes a coope ration obligation on Members" that  applies irrespective of any 
action of the DSB, and thus provided an "ind ependent basis" for determining whether the 
United States had complied with  its obligations under the SCM Agreement .852  I n  a d d i t i o n ,  t h e  
"overarching obligation"853 under paragraph 1 of Annex V requir es cooperation in the organization of 
an Annex V procedure as outlined in pa ragraphs 1 through 4 of Annex V. 
377. In Brazil's view, paragraph 2 of Annex V to the SCM Agreement  is clear and requires the 
DSB to initiate the procedure upon request.  By usi ng the term "shall", the drafters clearly intended 
the initiation of Annex V procedures to be mandatory  upon such request.  Brazil highlights the "clear 
textual parallel"854 between the wording of paragraph 1 of Annex V and the provisions concerning the 
establishment of panels (Article 6.1 of the DSU) a nd the adoption of panel repor ts (Article 16.4 of the 
DSU).  Pursuant to these provisions, once a request  has been made, a panel shall be established, a 
report shall be adopted, and, under Annex V, an info rmation-gathering procedure "shall" be initiated.  
                                                      
850Australia's third participant's submission, para. 124 (referring to Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , para. 1407).  
851Brazil's third participant' s submission, para. 14.  
852Brazil's third participant' s submission, para. 15.  
853Brazil's third participant' s submission, para. 16.  
854Brazil's third participant' s submission, para. 19.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  However, the DSB may decide by consensus not to  establish a panel or not to adopt a report.  
Annex V does not even allow for that option.  In th at sense, it is an automatic process.  Interpreting 
the relevant provisions as allowing the subsidizing Member to block unilaterally the initiation of an 
Annex V procedure would contradict the text and undermine the ability of Members to bring 
complaints under the SCM Agreement , in particular in cases where mu ch of the evidence relating to 
subsidization rests with the govern ment of the subsidizing Member. 
378. Brazil considers that the Panel's conclu sion that the DSB had not initiated the 
information-gathering process foreseen in paragra ph 2 of Annex V was correct;  however, this does 
not mean that the Panel "was impotent in the face of such a failure to cooperate".
855  In accordance 
with Article 11 of the DSU, the function of a panel is "to assist the DSB in discharging its responsibilities under the covered Agreements".  As an "assistant" to the DSB, the Panel should have 
interpreted the obligations of Members under Annex V so as to clarify matters for the future.  
Therefore, the Panel should have issued a prelim inary ruling urging the United States to cooperate 
and, given its non-cooperation, the Panel should ha ve made a finding that it would draw adverse 
inferences.  In this regard, Brazil points out that a panel may apply adverse inferences in the event of 
lack of cooperation generally without relyi ng on paragraphs 6 and 7 of Annex V to the 
SCM Agreement . 
(b) Financial contribution 
(i) Scope of Article 1.1(a)(1) of the SCM Agreement 
379. At the oral hearing, Brazil argued that the Pa nel erred by finding that transactions properly 
characterized as "purchases of services" are exclud ed from the scope of Article 1.1(a)(1) of the 
SCM Agreement .  The SCM Agreement  applies only to subsidies for goods and goods producers, not 
to subsidies for services or service providers.  However, where there is a transfer of money that 
directly benefits a product or a producer of goods (rega rdless of whether it occurs in the context of the 
purchase of a service), there is no reason to ex clude it from the subsidies disciplines of the 
SCM Agreement .  This holds true even if the service is ge nuinely purchased by and for the benefit of 
the government.  Brazil cautioned that the test em ployed by the Panel does not close the large 
loophole created by the exclusion of purchases of services from the scope of the SCM Agreement , and 
further stated that the general category of a "direct transfer of funds" already covers payments made in 
the context of a service contract that benefits a particular goods producer. 
                                                      
855Brazil's third participant' s submission, para. 20.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (c) Specificity 
(i) City of Wichita IRBs 
380. With respect to the City of Wichita IRBs, Br azil noted at the oral hearing that the Panel 
correctly compared the amount of subsidy granted to Boeing and Spirit with the relevant importance 
of the companies in the economy as a whole.  What  is "disproportionate" under Article 2.1(c) of the 
SCM Agreement  depends on the importance of the recipi ent companies in the economy, and not, as 
argued by the United States, on the importance of these companies in comparison with other subsidy 
recipients.  The "predominant use" factor in Article  2.1(c) is the criterion that is concerned with 
intra-subsidy comparisons.  Alt hough employment is an acceptable indicator, the factors to be 
considered in determining the importance of certain  enterprises in a country's economy are to be 
determined on a case-by-case basis.  Some of the problems identified by the Panel when addressing 
specificity could have been avoided had the Pa nel employed a more integrated approach to 
Article 2.1.  A proper specificity analysis, as th e Appellate Body has noted, must allow for the 
concurrent application of the principles set out in Ar ticle 2.1 to the various legal and factual aspects of 
a subsidy in a given case.
856  In Brazil's view, Article 2.1 of the SCM Agreement  must be interpreted 
in a holistic manner, taking account of the specific facts of each case that determine which factors may or may not be revealing of the de facto  specific nature of a subsidy.  
(d) Adverse effects  
(i) Technology effects of the aeronautics R&D subsidies 
381. Brazil takes no view on whether the Panel's c hosen methodology for its causation analysis 
was correct.  Brazil's arguments relate to the n ecessity of conducting a counterfactual analysis once a 
panel has made certain findings.  Specifically, Brazil argues that, if a panel determines that certain 
subsidies, like R&D subsidies, have created a co mpetitive advantage by significantly contributing to 
the development of a new aircraft model that woul d not have been developed in the same timeframe 
and for the same low cost "but for" the subsidies,  "no further counterfactual analysis is required".
857  
A "qualitative assessment" of the actual effect of  the subsidy suffices to establish a "genuine and 
substantial relationship of cause and effect".858  Moreover, a "but for" approach does not require the 
development of detailed alternative realities, but seeks to determine whethe r the same or similar 
effects would also have occurred absent the subsid ies and keeping all other factors equal.  Brazil 
therefore agrees with the European Union that "{a} 'but for' analysis can be performed quantitatively , 
                                                      
856See Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 371. 
857Brazil's third participant's submission, para. 47. 
858Brazil's third participant's submission, para. 51. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  … or conducted in a qualitative  manner" and that the Panel, "within the bounds of its discretion", 
chose the latter route.
859 
(ii) Price effects of the tied tax subsidies 
382. Brazil considers that, although counterfactuals may be useful tools to determine whether a 
genuine and substantial relations hip of cause and effect exists, nothing in the text of the 
SCM Agreement  requires the use of economic models or th e "detailed construction of an alternative 
reality".860  Once the market has been properly determin ed in assessing the price effects of subsidies, 
it suffices for a panel to examine general price trends  and market share trends in order to establish 
whether the subsidies cause market  impedance, lost sales, or price suppression.  Although it refrains 
from expressing a view as to whether the Panel's u ltimate conclusions are sufficiently supported by 
the facts in this dispute, Brazil agrees with the Eu ropean Union that "{a} 'b ut for' analysis can be 
performed quantitatively , using formal modelling techniques, or conducted in a qualitative  
manner".861  The Panel chose the latter route, and this c hoice was within the bounds of its discretion.  
In Brazil's view, the SCM Agreement  does not, and should not, be interpreted so as to require a 
complainant to use economic models or methodolog ies tracing cash flows in a company's financial 
statements in order to demonstrate causation.  
383. Brazil asserts that the Panel correctly concluded that the trade-distorting nature of prohibited 
export subsidies is an important factor supporting a conclusion of adverse effects, absent reliable 
evidence to the contrary.  When subsidies are found to  affect directly the price of the product and are 
found to be contingent on exportati on and thus inherently trade distorti ng, it is legitimate to consider 
that such subsidies have caused sales and price-re lated adverse effects.  The Panel did not apply a 
presumption that the export subsidies caused the ad verse effects found to exist.  Instead, the Panel 
first looked at the operation of the subsidies and the manner in which they were directly tied to sales 
and prices of Boeing LCA.  It then looked at the trade-distorting nature of the subsidies that were found to be prohibited export subsidies.  Even tho ugh the particular impact of export subsidies on 
trade may depend on many factors, export subsidies are designed to affect trade and, by their nature 
are likely to affect adversely competitors and thus to cause adverse effects on the market.  Brazil 
considers that it was therefore appropriate for the Panel to give considerable weight to the trade 
distorting nature of these subsidies. 
                                                      
859European Union's appellee's submission, para. 492. (original emphasis;  footnote omitted) 
860Brazil's third participant's submission, para. 41. 
861European Union's appellee's submission, para. 492. (original emphasis;  footnote omitted)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (iii) Collective assessment of the subsidies and their effects 
384. Brazil submits that, in a proper serious prejudice analysis under Article 6.3 of the 
SCM Agreement , the effects of subsidies can be assessed  in a cumulative manner as long as they 
manifest themselves collectively, in the sense that they have a sufficient nexus with the product and 
the specific effects-related variable, irrespective of  the "causal mechanism" through which they cause 
this effect.
862 
385. In Brazil's view, the Panel erroneously concl uded that it could cumulatively assess the effects 
of subsidies only when the subsidies operate on th e basis of the same causal mechanism.  Brazil 
stresses that the SCM Agreement  requires an assessment of the effects of "the subsidy" and not of each 
separate subsidy measure in isolation.  Accordingly,  Brazil requests the Appellate Body to clarify that 
there was no basis for the Panel's additional "causal mechanism" test, and that the approach of the 
panel in US – Upland Cotton  is an appropriate basis for conducting a cumulative assessment of the 
effects of subsidies in a serious prejudice analysis .  Under this approach, the effects of subsidies 
should, if requested by the complainant, be asses sed in a cumulative manner as long as they manifest 
themselves collectively, in the sense that they have  a sufficient nexus with the product and the specific 
effects-related variable.  The likely effects of a subsidy are to be discerned by examining the nature, 
structure, design, and operation of the subsidy.  Brazil cautions that there exists a risk of 
underestimating the joint effect of subsidies if th e Panel's additional "causal mechanism" test is 
accepted, and shares the European Union's concern ove r the manner in which the Panel artificially 
distinguished the effects of the aeronautics R&D subsidies for the Boeing 787 model from those of 
the tax subsidies benefiting the 787, as both were ac knowledged to have a similar effect on prices and 
sales of Airbus.   
386. Brazil takes issue with the Panel's view that differences in the type of subsidies and the 
allegedly different way in which they impact on the subsidized product implies that there is a 
difference in the "nature"863 of the subsidies that would prevent a cumulative assessment of their 
effects.  The relevant question was the particular re lationship of the subsidy with the product and with 
the effects-related variable.  In this dispute, bot h the aeronautics R&D subsidies and the tax subsidies 
benefit a specific product model, the Boeing 787, and both types of subsidies have a direct impact on Boeing's costs and thus on LCA prices and sales.  Ev en if a sales-related tax credit may have a more 
direct and immediate link with prices than an R& D subsidy, the existence of an established nexus 
between both sets of the subsidies and the effects-related variable means that their cumulative 
                                                      
862Brazil's third participant's submission, para. 28. 
863Brazil's third participant' s submission, para. 34.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  assessment is permitted—in fact required, if the co mplainant so requests—in order to reflect properly 
the effects of the subsidy.  Brazil agrees with th e European Union that the discretion that a panel 
enjoys in adopting a methodology is "not unlimited"
864, and emphasizes the case-specific nature of the 
relevant analysis.   
387. Brazil distinguishes, in this regard, the situa tion in this dispute from the situation in  
US – Upland Cotton .  In the context of that dispute, wh ere the question was whether the subsidies 
impacted world market prices, it may have been  appropriate to examine price-contingent and 
non-price-contingent subsidies separately.  But when the claim is, as in this case, a more general one 
of lost sales and market displacement or im pedance through the presence of a technologically 
advanced product at a low price that would not have  been present in the market  absent the subsidies, it 
is appropriate to examine all subsidies that imp act on the production, sale, and price of the specific 
product in an aggregate manner.   
3. Canada 
(a) Annex V to the SCM Agreement  
388. At the oral hearing, Canada stated its view that the Panel was correct to limit its finding to 
whether the Annex V procedure had been initiated, a nd not on how the procedure is to be initiated.  
According to Canada, panel and A ppellate Body proceedings are not the proper fora to discuss how 
the DSB is to initiate an Annex V procedure:  this discussion should take place within the DSB itself.   
(b) Financial contribution 
(i) Scope of Article 1.1(a)(1) of the SCM Agreement 
389. At the oral hearing, Canada agreed with th e Panel's conclusion that transactions properly 
characterized as "purchases of services" are exclud ed from the scope of Article 1.1(a)(1) of the 
SCM Agreement .  Article 1.1(a)(1) sets out an exhaustiv e list of government practices that may 
constitute a "financial contribution", and the omissi on of "purchase of services" must be given some 
meaning, especially taking into account that the te rm was expressly included in earlier negotiating 
drafts of this provision.  The proper characterization of  a transaction is a question of fact that must be 
assessed on a case-by-case basis.  In Canada's view, the Panel's approach in  this case afforded the 
flexibility required to identify transactions that take  the form of services contracts, but are more 
accurately characterized as one of the other cate gories of "financial contributions" listed in 
Article 1.1(a)(1). 
                                                      
864European Union's appellee's submission, para. 725.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (c) Specificity 
(i) B&O tax rate reduction 
390. At the oral hearing, Canada expressed its view  that, in conducting its specificity analysis 
under Article 2.1(a) of the SCM Agreement , the Panel properly examined the full context in which the 
Washington State B&O tax rate reduction was provid ed in order to determine whether they formed 
part of a larger programme.  The requirement to co nsider the full context is found in the analytical 
framework, containing a number of principles, set out in  Article 2.1.  With respect to Article 2.1(a), it 
is only by examining the totality of the larger po licy and legal framework that a panel can properly 
determine whether access to a subsidy is limited by th e granting authority, or the legislation pursuant 
to which it operates.  Likewise, under Article 2.1(b), the requirement to consider "objective criteria or 
conditions" implies that a panel should determine whet her the subsidy at issue is provided pursuant to 
a subsidy programme.  As for Article 2.1(c), Canada  noted that this provision expressly refers to the 
subsidy programme  for purposes of de facto  specificity. 
(ii) NASA/USDOD allocation of patent rights 
391. As regards the Panel's analysis of the a llocation of patent rights under NASA/USDOD 
contracts and agreements, Canada is  of the view that the assessment of which government entity is the 
"granting authority" for purposes of Article 2 of the SCM Agreement  must begin with a correct 
identification of the subsidy at issue.  Under the ch apeau of Article 2.1, the "subsidy" is the "starting 
point"
865 for the analysis of specificity.  After fully  assessing all the relevant facts surrounding the 
granting of a subsidy, and hence properly identifying  the subsidy in question, a panel may find that 
the subsidy is provided pursuant to  a broader programme.  The panel must then assess the limitations 
on access and use of the subsidy programme as a whol e in order to determine whether the subsidy is 
"specific".  In such cases, Canada submits, the result of the analysis of the limitations of the subsidy 
programme should be the same irrespective of whether the "granting authority" is considered to be the 
government as a whole or the particular administrative agency within that government. 
(iii) City of Wichita IRBs 
392. With respect to the City of Wichita IRBs, Cana da argues that the Panel erred in adopting an 
approach that compares a given recipient's portion of  the subsidy against the baseline of its relative 
economic importance in the economy as a whole.  In Canada's view, "such an approach would always 
                                                      
865Canada's third participant's submission, para. 40.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  allow disproportionality, and by extension, specificity to be found".
866  Instead, the Panel should have 
compared Boeing's and Spirit's shares of the tota l subsidy programme with some measure of their 
relative economic importance among the subsidy recipients. 
393. Canada further submits that there are deficien cies resulting from the Panel's approach, which 
would not arise if a baseline containing data rega rding only the subsidy recipients were adopted.  
Although a focus on the subsidy recipients may no t indicate disproportionality where each recipient 
receives a share of the subsidy proportionate to its  economic importance relative to other recipients, 
these amounts may be disproportionate under the Pane l's approach.  The Panel sought to overcome 
these deficiencies by requiring a "significant" disp arity between the ratios it compared.  However, 
Canada argues, this simply created further problems by providing no guidance about how to 
determine whether a given disparity is "significant". 
(d) Adverse effects 
(i) Technology effects of the aeronautics R&D subsidies 
394. Canada submits that the Panel did not make a proper assessment of whether Boeing:  
(i) would have been willing to fund the R&D conduc ted through the aeronautics R&D subsidies in the 
absence of the subsidies;  (ii) had the financial cap acity to fund the R&D without the subsidies;  and 
(iii) could have conducted the R&D at issue with in the same timeframe in the absence of the 
subsidies.867  In Canada's view, as a result of these analytical deficiencies in its counterfactual 
analysis, the Panel improperly applied Articles 5(c) and 6.3 of the SCM Agreement  and violated 
Article 11 of the DSU.868 
395. First, Canada recalls the Panel's statement th at "NASA's role in aeronautical research has 
been explained precisely on the basis of, among other things, the large disincen tives for private sector 
investment in long term, high risk aeronautical R&D".869  This statement directly contradicts the 
Panel's subsequent observation that "the nature of th is kind of subsidy is that it is intended to multiply 
the benefit from a given expenditure".870  While the first statement s uggests that an investor would 
receive limited direct benefits from investing its ow n funds in the type of R&D that was conducted by 
Boeing using the aeronautics R&D subsidies, the s ubsequent observation implies that the investor 
would capture the benefits of such an investment and that those benefits would be a multiple of the 
                                                      
866Canada's third participant's submission, para. 44. 
867Canada's third participant's submission, para. 11. 
868Canada's third participant's submission, para. 24.  
869Panel Report, para. 7.1759. 
870Panel Report, para. 7.1760.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  amount invested.  The Panel, therefore, failed to  resolve the inconsistency in its reasoning and 
consequently failed to determine properly whet her Boeing would have b een willing, absent the 
subsidies, to use its own resources in the R&D th at it conducted using the aeronautics R&D subsidies. 
396.  Second, Canada contends that the Pane l improperly assessed whether Boeing had the 
financial capacity to fund the R&D without the  subs idies.  Canada notes that the Panel "seem{ed} to 
discount its own observation that the amount of the R&D subsidies is not significant as compared to 
Boeing's financial resour ces and {R&D} expenditures"
871 when it stated that "this sort of numerical 
comparison presupposes that the effects of the R&D s ubsidies can essentially be reduced to their cash 
value, a proposition that we do not accept".872  However, this statement concerns "the effects  of the 
R&D subsidies, not their amount ".873  Moreover, the multiplied benefit that may result from R&D 
expenditures does not increase the cost to Boeing of that R&D, and therefore "does not say anything 
about Boeing's capacity to fund it itself".874 
397. Third, Canada asserts that the Panel failed to  provide a reasoned and adequate explanation for 
its conclusion that "Boeing could not  have conducted the {R&D} at issue within the same time frame  
in the absence of the subsidies".875  Such a conclusion is not apparent in the light of the following:  
(i) the research conducted with R&D subsidies wa s necessary for the launch of the 787, as found by 
the Panel876;  (ii) it was established that Boeing wa nted to launch the 787 at the time it did877;  and 
(iii) it can be assumed, as the Panel seems to ha ve done, that Boeing had the financial means to 
conduct the necessary R&D. 
(ii) Price effects of the tied tax subsidies 
398. Canada asserts that the Panel conducted an im proper counterfactual analysis when finding 
serious prejudice due to price effects.  The Panel di d not appropriately consider the magnitude of the 
tax subsidies and their impact, and that vitiated the Panel's entire causation analysis.  The evidence put 
forward by both the United States and the Europ ean Communities indicates that the amount of annual 
subsidies during the reference period never exceeded 1 per cent of annual orders or sales revenue.  
However, that evidence seems entirely at odds with the Panel's conclusion that the subsidies enabled 
Boeing to lower its prices "beyond the level that would otherwise have been economically 
                                                      
871Canada's third participant's submission, para. 17. 
872Panel Report, para. 7.1760. 
873Canada's third participant's submission, para. 18. (original emphasis) 
874Canada's third participant's submission, para. 18. 
875Canada's third participant's submission, para. 21. (original emphasis) 
876Canada's third participant's submission, para. 21 (referring to Panel Report, para. 7.1775). 
877Canada's third participant's submission, para. 21 (referring to Panel Report, para. 7.1774 and 
footnote 3704 thereto). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  justifiable".
878  The fact that the Panel was unable to determine with mathematical certitude the 
precise degree to which the subsidies had affected  Boeing's pricing did not excuse the Panel from its 
responsibility to establish clearly a causal link before finding serious prejudice.  Despite saying that it 
would resort to "commonsense reasoning"  and "the drawing of inferences"879, the Panel failed, even 
on a qualitative basis, to consider properly the magn itude of the tax subsidies and thus to establish a 
causal link between those subsidies and Boeing's ability to lower its prices. 
(iii) Collective assessment of the subsidies and their effects 
399. At the oral hearing, Canada recalled that, in EC and certain member States – Large Civil 
Aircraft , the Appellate Body indicated that, once a ge nuine and substantial relationship of cause and 
effect has been established between one subsidy an d a listed market phenomenon, there need only be 
a genuine causal link between the second subsidy and serious prejudice.  It is not clear, however, whether that link should be between the effects of the second subsidy and the effects of the first 
subsidy (such as the launch of a new product), or  between the second subsidy and a listed market 
phenomenon (such as price suppression).  In Canada's view , the first interpretation is preferred.  Since 
the Panel properly concluded that there was no genuine causal link between the B&O tax rate 
reductions and the launch of the 787 in 2004, the Panel was justified in excluding the B&O tax rate 
reductions from its serious prejudice finding as regard s the aeronautics R&D subsidies.  However, in 
Canada's opinion, the Panel failed to analyze pr operly whether there was a genuine causal link 
between the effects of the remaining subsidies and the effects of the tied tax subsidies. 
4. China 
(a) Annex V to the SCM Agreement  
400. China agrees with the Panel that the initia tion of an Annex V procedure does not "occur 
automatically"880 upon request in the absence of any action take n by the DSB to initiate the procedure.  
Paragraph 2 of Annex V makes clear that it is the DS B that must initiate the procedure and designate a 
representative to facilitate the information-gather ing process.  China, however, does not express a 
view as to whether an Annex V procedure is initia ted by the DSB by negative or positive consensus. 
                                                      
878Panel Report, para. 7.1818. 
879Panel Report, para. 7.1820. 
880China's third participant' s submission, para. 4.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (b) Specificity 
(i) NASA/USDOD allocation of patent rights 
401. China submits that, if multiple pieces of legisla tion are applicable to an alleged subsidy, the 
broader legislation should be considered for the purpose of the de jure  specificity analysis under 
Article 2.1(a) of the SCM Agreement .  There may well be cases where legislation provides a broadly 
available measure, and agency-specific regulations implement the broader legislation.  Nothing in 
Article 2.1(a) precludes a panel from considering th e broader legislation since it is part of "the 
legislation pursuant to which the granting authority operates".
881  China also believes that problems 
may arise if a specific regulation is analyzed in  isolation from the broader legislation, because 
determinations of specificity will vary in respect of the same regime depending on how the legislation 
is structured. 
(ii) City of Wichita IRBs 
402. As regards the City of Wichita IRBs, China submits that an effective disproportionality 
comparison must be based on appropriate standards,  which may include sales, output, investment, and 
employment.  China maintains that "the appropriate standards for each case may vary", and that it is 
likely that "more than one standard should be considered in a single case".882  In this case, China 
disagrees with the benchmark advocated by the Europ ean Union, and considers that it "may result in a 
finding of disproportionality where a subsidy is sufficiently and broadly available throughout an 
economy".883  The term "disproportionately large amounts" must be read in the context of the entire 
analytical framework of subparagraphs (a) through (c) of Article 2.1 of the SCM Agreement .  The 
European Union's approach would nullify Article 2. 1(b) by favouring a finding of specificity even 
when objective criteria or conditions are applied.   China asserts that the Panel's "significant 
disparity"884 standard cannot resolve such a contradiction.   By contrast, the approach advocated by 
Australia before the Panel could properly serve as the basis for the disproportionality analysis.885 
403. China considers that, irrespective of the standa rd and baseline chosen, the two circumstantial 
factors identified in the third sentence of Article 2.1(c)—namely, the extent of diversification of 
economic activities and the length of time duri ng which the subsidy programme has been in 
operation—are critical to a disproportionality analysis, and therefore must be taken into account.  In 
                                                      
881China's third participant' s submission, para. 6.  
882China's third participant' s submission, para. 10.  
883China's third participant's submission, para. 12.   
884China's third participant' s submission, para. 16. 
885China's third participant's submission, paras. 13-15. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  addition to these two factors, other factors may need to be considered in certain circumstances.  For 
example, if the number of employees is selected as the benchmark indicator, the labour intensiveness 
of the relevant industry should also be take n into account in a disproportionality analysis. 
(c) Adverse effects 
404. At the oral hearing, China noted that, in line with the Appellate Body's approach in US – 
Upland Cotton , the Panel should have addressed the magn itude of the subsidy when evaluating 
whether it caused serious prejudice.  The term "significant" in Article 6.3(c) of the SCM Agreement  
likewise implies an obligation for a panel to c onsider the magnitude of the subject subsidy 
programme.  Therefore, although China did not have a view as to whether, in this case, a subsidy of 
approximately 1 per cent of the sales is enough to cause serious prejudice to Airbus, it did assert that the magnitude of the tax subsidies needed to be addressed and considered by the Panel when 
analyzing whether such subsidi es have caused serious prejudice. 
5. Japan 
(a) Specificity 
(i) NASA/USDOD allocation of patent rights 
405. At the oral hearing, Japan disagreed with the European Union's contention that the Panel erred 
when finding that the allocation of patent ri ghts under NASA/USDOD contracts and agreements is 
not "specific" within the meaning of Article 2.1 of the SCM Agreement .  Japan sees no reason why a 
Member "as a whole" should be necessarily excluded from the scope of a "granting authority".  Such 
an approach risks limiting the scope of "granting au thority" to only the immediate entity granting the 
subsidy, and runs counter to the broader objective of the SCM Agreement  to identify and discipline 
subsidization as it arises at each and every stage of  government.  Furthermore, the Panel correctly 
determined that the legislation pursuant to whic h the granting authority operates extends beyond 
NASA and USDOD internal regulations to the level of executive and federal laws and regulations.886  
In this regard, Japan recalled that the Appellate Body in US – Anti-Dumping and Countervailing 
Duties  endorsed that panel's specificity analysis base d on the totality of the evidence.  Japan also 
noted that the European Union's concerns that the usage of "policy statements" would circumvent 
                                                      
886Japan's oral statement at the oral hearing (referring to Panel Report, para. 7.1293).   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  disciplines of the SCM Agreement  overlooks the possibility that the subsidy may still be found 
de facto  "specific".
887 
(b) Adverse effects 
(i) Technology effects of the aeronautics R&D subsidies 
406. Japan first recalls that an evaluation of the nature, design, and operation of a subsidy is 
"critical"888 towards establishing a "genuine and substan tial relationship of cause and effect" between 
subsidization and alleged serious prejudice.  Japan expresses concern in this regard about the manner 
in which the Panel framed its adverse effects analys is of the aeronautics R&D subsidies—that is, by 
focusing "narrowly" on the conceptu al issue of whether or not, "but for" the subsidies, Boeing would 
have been able to launch the 787 with in the same timeframe that it did.889  As a result, the Panel 
ignored the "nature" of R&D subsidies, which "nor mally help recipients achieve their full potential 
competitiveness" rather than "enable them to gain artificial price advantages".890  According to Japan, 
"it was by no means established in the Panel proceed ings that Boeing had in fact charged a lower 
price than it would have"891 absent the aeronautics R&D subsidies. 
407. Second, assuming arguendo  that the aeronautics R&D subsid ies can cause "serious prejudice" 
to a WTO Member's trade interests, Japan submits that it is "unclear"892 what exact portion of an R&D 
subsidy effectively passes thro ugh the production cycle of a Boeing LCA and causes the serious 
prejudice phenomena alleged by the European Commun ities.  Had the Panel meaningfully engaged in 
the non-attribution arguments put forward by the United States, it would not have found a "genuine 
relationship of cause and effect" between the aerona utics R&D subsidies and the alleged technology 
effects.893  In Japan's view, the Panel's approach "r isks wrongfully criticizing WTO Members for the 
productivity of their successful enterprises".894 
408. Japan notes that the permissive wording of Article 6.3 of the SCM Agreement  ("serious 
prejudice … may arise") suggests that the effects of subsidies with a non-trade distortive nature, 
design, and operation could be excluded from the assessment of serious prejudice.  Japan urges the 
                                                      
887Japan's oral statement at the oral hearing (referring to European Union's appellant's submission, 
para. 76).  
888Japan's third participant's submission, para. 55. 
889Japan's third participant's submission, para. 56. 
890Japans' third participant's submission, para. 57. 
891Japan's third participant's submission, para. 58. 
892Japan's third participant's submission, para. 71. 
893Japans' third participant's submission, para. 72 (referring to United States' other appellant's 
submission, paras. 202, 222, 215, 229, and 236). 
894Japan's third participant's submission, para. 73. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  Appellate Body to exercise caution in determining wh ether such subsidies are inconsistent with the 
SCM Agreement  due to their incidental price effects, partic ularly in situations where the subsidies, in 
the long run, will lead to the development of safer  technologies and, ultimately, the optimal use of 
world resources. 
(ii) Price effects of the tied tax subsidies 
409. Japan maintains that the Panel failed to draw any meaningful link between the relevant tax 
subsidies and their alleged price-suppressive effects.   While recognizing that the particularities of this 
case may have prevented the Panel from constructing a counterfactual scenario to evaluate the impact 
of the subsidies, Japan considers that the Pa nel could and should have  provided a convincing 
indication of the degree of significant price suppression in the affected LCA markets.  In addition, if 
the Panel presumed that the FSC/ETI subsidies cause serious prejudice because they are prohibited export subsidies, then Japan agrees with the United States that this was an impermissible "shortcut"
895 
by the Panel that is not supported by either the text or structure of the SCM Agreement . 
410. According to Japan, a proper causal relationship cannot be established on the basis of the 
nature of the subsidies, the possibility of pr ice and sales fluctuations, economic assumptions, and 
policy statements by public officials.  Despite th e challenges involved in conducting a price effects 
analysis, the Panel erred by not indicating the degree  or magnitude of the price-suppressive effects, or 
providing a more tangible indication of the meaning of the qualifier "significant" in this case.  The 
Panel relied too heavily on "commonsense" in concl uding that increased sales to Boeing translated to 
lost or "significantly suppressed" sales for Airbus, without tying the "significance" of the effect of the subsidies to any indicative numerical threshold.
896  The nature of global LCA markets does not justify 
the lack of any finding on the degree of price s uppression in the markets.  Japan expresses support for 
the United States' argument that the tax subsidies were "too small relative to Boeing's order revenues 
to have affected Boeing's pricing to a degree that would lead to it winning sales that it would not have 
won"897 absent the subsidies. 
                                                      
895Japan's third participant's submission, para. 82 (referring to United States' other appellant's 
submission, paras. 338 ff). 
896Japan's third participant's submission, para. 86. 
897Panel Report, para. 7.1814 (referring to United States' first written submission to the Panel, 
para. 815).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (iii) Collective assessment of the subsidies and their effects 
411. Japan underscores the importance of the nature of  a subsidy for the determination of whether 
the effects of various types of subsidies can be aggregated in a serious prejudice analysis.  Japan 
expresses concern that the approach to aggregation advanced by the European Union would result in a 
dilution of the "genuine and subs tantial relationship" causal standard, and to a potentially infinite 
range of subsidies being too easily foun d to have caused "serious prejudice". 
412. For Japan, the nature of a subsidy is fundament al in evaluating whether a subsidy is capable 
of causing the alleged serious prejudice phenomen a and in determining whether the effects of 
different subsidies should be assessed on a cumulative basi s.  Prior panels have referred to the need to 
establish a "sufficient nexus" between the subsidized pr oduct and the alleged effects, or to ensure that 
the subsidies at issue "complemented and supplemente d" another category of subsidies found to have 
caused a relevant effect when the subsidies at i ssue had a genuine causal connection with such an 
effect.
898  Both standards are articulations of the sa me overarching principle, that panels must 
establish a "genuine causal connection" between the particular subsidized product and the relevant 
effects-related variable.  Thus, the Panel in this case  was under an obligation to ensure that the alleged 
serious prejudice "result{ed} from a chain of cau sation that is linked to the impugned subsidy"899 in 
respect of the tied tax subsidies, the aeronautics R& D subsidies, and the remaining subsidies.  Japan 
considers that the Panel discharged this obligation correctly in some respects, but failed to conduct a 
proper causal analysis in others. 
413. Japan asserts that the Panel was correct to decide not to aggregate the effects of the 
aeronautics R&D subsidies and the tax subsidies, gi ven the Panel's finding that these subsidies operate 
through entirely distinct causal mechanisms.  Jap an disagrees with the European Union's argument 
that a panel "must assess—quantitatively or qualita tively—whether the collective competitive impact 
of the different (groups of) subsidies at issue amounts to adverse effects"900, and is concerned that an 
endorsement by the Appellate Body of this position would result in the aggregation of the effects of 
subsidies that are fundamentally different in nature , and in the near-automatic inference of a causal 
link between different subsidies and an alleged "serious prejudice" phenomenon. 
                                                      
898Respectively, Panel Report, US – Upland Cotton , para. 7.1192 and Panel Report, EC and certain 
member States – Large Civil Aircraft , para. 7.1956. 
899Japan's third participant's submission, para. 17 (quoting Appellate Body Report, US – Upland Cotton 
(Article 21.5 – Brazil) , para. 372). 
900Japan's third participant's submission, para. 22 (quoting European Union's appellant's submission, 
para. 202). WT/DS353/AB/R BCI deleted, as indicated [***] 
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  414. Japan disagrees with the Eur opean Union's understanding of previous WTO rulings on the 
issue of aggregation.  It notes that the panel in US – Upland Cotton  explicitly stated that, in the light 
of the facts and circumstances of a given case, an  integrated examination of the effects of any 
subsidies is permissible only when there is a "su fficient nexus" between the subsidized product and 
the particular effects-relate d variable under examination.
901  That panel added that it did not 
understand the panel in Indonesia – Autos  to have suggested that the effects of all challenged 
subsidies in existence more or less contemporane ously and with any connection whatsoever with a 
subsidized product must  be aggregated in a serious prejudice analysis.902  Moreover, the Appellate 
Body in US – Upland Cotton did not, as the European Union claims , suggest that it was important to 
aggregate the effects of the price-contingent and the non-price-contingent subsidies.  Rather, the 
Appellate Body merely reiterated that the particular facts and circumstances of the case determine 
whether there is a "sufficient nexus" with the subsid ized product and the effects-related variable being 
examined, and stressed that "the nature of the subsidy plays an important role  in any analysis of 
whether the effect of the subsidy is significant price suppression".903 
415. Japan further notes that, in EC and certain member States – Large Civil Aircraft , the 
Appellate Body allowed for the possibility of aggr egation insofar as there is a "genuine causal 
connection" between the subsidies and the alle ged serious prejudice, and that the subsidies 
complement and supplement the effect of other subs idies for the product.  Japan also points out that 
all of the subsidies that were aggregated in that dispute were considered to have the same effects—
effects that were analogous to the "technology eff ects" claimed by the Eur opean Communities in this 
dispute.  Indeed, before the Panel, the Eur opean Communities premised its arguments on the 
differences in the nature and effect of the subsid ies, arguing that the tax subsidies provide Boeing 
"with the ability to charge very low prices", wh ereas the aeronautics R&D subsidies "helped Boeing 
develop, launch and produce a technologically-advanced 200-300 seat LCA much more quickly than 
it could have on its own".904  Furthermore, the Panel made factual findings that the aeronautics R&D 
subsidies have "technology effects", whereas the tax subsidies have only "price effects".  Given these 
findings on the different nature and effects of th e aeronautics R&D subsidie s and the tax subsidies, 
Japan submits that the Panel correctly determined that the effects of these two groups of subsidies 
cannot be aggregated. 
                                                      
901Japan's third participant's submission, para. 26 (referring to Panel Report, US – Upland Cotton , 
para. 7.1192 and footnote 1308 thereto). 
902Japan's third participant's submission, para. 26 (referring to Panel Report, US – Upland Cotton , 
footnote 1308 to para. 7.1192, in turn referring to Panel Report, Indonesia – Autos , para. 14.206). 
903Japan's third participant's submission, para. 28 (quoting Appellate Body Report, US – Upland 
Cotton , para. 450). (emphasis added by Japan) 
904Japan's third participant's submission, para. 31 (quoting Panel Report, para. 7.1697).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  416. Japan observes that the issue of the aggregation of the effects of the tied tax subsidies and the 
effects of the remaining subsidies is very different from the issue of the aggregation of the effects of 
the aeronautics R&D subsidies with the effects of the tax subsidies.  The reason for this is that the 
European Communities argued that both the remaini ng subsidies and the tied tax subsidies contribute 
to "price effects".  Japan invites the Appellate Body  to re-examine carefully, in accordance with the 
approach taken in EC and certain member States – Large Civil Aircraft , whether there is a "genuine 
causal connection" between the effects of the remain ing subsidies and the price effects caused by the 
tied tax subsidies.  In doing so, the Appellate B ody should take account of the following three points. 
417. First, any subsidy has, by nature, the effect of lowering the prices of the subsidized products, 
indirectly or directly, to a greater or lesser extent.  The Appellate Body's refusal in US – Upland 
Cotton  to reverse the panel's finding that the effects of  the non-price-contingent subsidies could not be 
aggregated with the price-contingent subsidies should be understood as a re jection of the proposition 
that "price effects" alone are sufficient to satisfy th e requirement of a "genuine causal connection" or a 
"sufficient nexus" between the subsidy at issue and th e particular effects-related variable.  Second, the 
Appellate Body has repeatedly emphasized, and bo th the parties and the Panel in this dispute 
recognized, the importance of the nature of the subsid ies for the analysis of causation.  Third, Japan 
contrasts the strict requirement for aggrega tion advocated by the European Union in the EC and 
certain member States – Large Civil Aircraft dispute (only subsidies that were "necessary" to enable 
the launch of a particular product could be aggregated with other subsidies enabling or facilitating 
such a product launch) with the European Union's pos ition in this dispute, which "seeks to effectively 
reduce the standard for aggregating the effect s of various subsidies to the lowest common 
denominator, i.e. price".
905  Noting that the European Union seems  to have "dramatically shifted gears 
on the issue of aggregation"906, Japan submits that neither extreme reflects the proper standard, 
namely, that the effects of differe nt subsidies may be aggregated when they both involve a "genuine 
and substantial relationship of cause and effect", as demonstrated through a rigorous examination of 
the nature, design, and operation of the subsidies at issue in a given dispute. 
                                                      
905Japan's third participant's submission, para. 52 (referring to Panel Report, para. 7.1697). 
906Japan's third participant's submission, para. 53. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  6. Korea 
(a) Annex V to the SCM Agreement  
418. Although Korea does not express a view as to how  an information-gathering procedure under 
Annex V to the SCM Agreement  must be initiated, it makes two observations regarding the claim 
presented by the European Union.  First, Korea cons iders that a determination of lack of cooperation 
should be made "with reality and practicality in mind".907  Paragraph 8 of Annex V requires a panel to 
consider "the reasonableness of any requests for information and the efforts made by parties to 
comply with these requests in a cooperative and timely manner".  In Korea's view, this means that the 
determination of non-cooperation cannot be made in a "vacuum".908  The SCM Agreement  "does not 
provide a carte blanche "909 to a panel whenever it encounters less than optimal information from a 
responding Member.  Korea also considers that it may be unrealistic for a party to pose hundreds of 
questions and make hundreds of requests and ex pect the other party to respond and provide 
information in due course.  In sum, Korea agrees wi th the Panel's conclusion that it did not need to 
rule on the question of whether the United States c ooperated with the Annex V procedure to resolve 
the substantive questions before it.910 
419. Second, Korea contends that the provisions in A nnex V should not be interpreted to mean that 
a panel or a facilitator somehow "effectively ca rries the burden of proof for the complainant".911  
Although Annex V provides an important tool for developing information concerning serious 
prejudice, it is the complaining Member that must provide the legal and factual bases for the claims it 
makes.  Annex V should not be construed "to li ghten the burden of proof for the complainant".912  
Otherwise, Korea cautions, a panel proceeding ma y become a "fishing expedition in which the 
claimant brings a case first and then develops the factual and legal bases of the case as it goes along".
913 
420. At the oral hearing, Korea expressed the view that the initiation of an Annex V procedure and 
the appointment of a DSB representative as facilitator require at least some positive action on the part 
of the DSB.  In this vein, and setting aside the controversy between negative and positive consensus, 
Korea submits that the absence of any action on the part of the DSB to initiate the Annex V procedure 
would lead to the only plausible conclusion that the procedure was never initiated.  Korea adds that an 
                                                      
907Korea's third participant' s submission, para. 26.  
908Korea's third participant' s submission, para. 26.  
909Korea's third participant' s submission, para. 28.  
910Korea's third participant's submission, para. 29 (referring to Panel Report, para. 7.38).  
911Korea's third participant' s submission, para. 32.  
912Korea's third participant' s submission, para. 35.  
913Korea's third participant' s submission, para. 36.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Annex V procedure does not have the formalistic stat us of the panel procedure and, thus, it does not 
seem proper to transfer the rules found in the panel procedure to the fact-gathering process. 
(b) Specificity 
(i) NASA/USDOD allocation of patent rights 
421. At the oral hearing, Korea argued that the mere  fact that a programme is administered by 
an agency, in and of itself, does not necessarily m ean that the specificity test should be conducted 
at the agency level.  It is not uncommon for g overnmental programmes to have multiple agencies 
implementing the governmental scheme adopted at the national level.  Article 2 of the 
SCM Agreement  requires an inquiry into the genuine nature  of the subsidy programme at issue.  In 
this regard, the way in which a particular progra mme actually operates in the country at issue is 
perhaps a critical criterion that should guide a pane l's specificity analysis.  The evidence on the record 
in this case seems to support the conclusion that th e US patent allocation programme is administered 
at the national level and, therefore, the Panel's fi nding is correct in the circumstances of this case.  
Korea further notes that the Panel's conclusions regarding the operation of the programme arguably 
constitute a factual finding that was with in the bounds of the Panel's discretion. 
(c) Adverse effects 
(i) Technology effects of the aeronautics R&D subsidies 
422. Korea shares the view of the United Stat es that the causal relationship between the 
aeronautics R&D programmes at issue and the alle ged market phenomenon must be confirmed to 
exist, and that the relationship should rise to "the level of a genuine and s ubstantial relationship of 
cause and effect".
914  The mere existence of causal relations hip is not sufficient.  The relationship 
must be "direct rather than remote, and the impa ct should be substantial rather than incidental".915 
423. Korea asserts that R&D programme s play a central role in th e economic development and/or 
academic enhancement of many Members, and are therefore likely to be closely related to the pursuit of legitimate public policies.  The dividing line be tween a government's legitimate function and R&D 
subsidies that may be WTO-inconsistent is often not  entirely clear.  In this regard, Korea points out 
that the Doha Development Agenda includes the re surrection of non-actionable subsidies, including 
R&D programmes.  Korea recognizes that sometimes R&D programmes constitute subsidies that fall 
                                                      
914Korea's third participant's submission, para. 22 (quoting United States' other appellant's submission, 
para. 217).  
915Korea's third participant' s submission, para. 22.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  within Articles 1 and 2 of the SCM Agreement .  Nevertheless, it cons iders that genuine R&D 
programmes deserve and require careful scrutiny by  the reviewing panel and the Appellate Body. 
(ii) Collective assessment of the subsidies and their effects 
424. At the oral hearing, Korea stated its view th at, in an adverse effects analysis, it is not 
appropriate to aggregate the effects of two subsid ies that have caused different effects and which do 
not share a close nexus in terms of their effects.  Th e Panel's decision not to aggregate the effect of the 
B&O tax rate reduction and the effects of the aeronau tics R&D subsidies is consistent with its finding 
that these subsidies are distinct and separate in term s of their effects, as they operate through entirely 
distinct causal mechanisms. 
III. Issues Raised in This Appeal 
425. The following issues are raised by the European Union in its appeal: 
(a) Whether the Panel erred in denying the Eu ropean Communities' request for certain 
preliminary rulings with respect to the ab sence of an information-gathering procedure 
under Annex V to the SCM Agreement in this dispute, and, if so, whether the 
Appellate Body should rule on how the DSB is  to initiate such procedures, and should 
make findings in connection with the alle ged non-cooperation of the United States in 
the information-gathering procedure, and the United States' alleged withholding of 
information from the European Communities and the Panel;  
(b) Whether the Panel erred in finding that tran sactions that are properly characterized as 
"purchases of services" are excluded from the scope of Article 1.1(a)(1)(i) of the 
SCM Agreement ;   
(c) Whether, on the assumption that the allocation of patent rights under NASA and 
USDOD R&D procurement contracts and agre ements constitutes a subsidy, the Panel 
erred in finding that such allocation is not specific within the meaning of Article 2 of 
the SCM Agreement ;   
(d) Whether the Panel erred in its interpretati on and application of Articles 5(c) and 6.3 
of the SCM Agreement  by: 
(i) failing to assess collectively the effects of the B&O tax rate reductions and 
the effects of the NASA and USDOD aeronautics R&D subsidies in the 
200-300 seat LCA market;  and  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 173  
 
  (ii) failing to assess collectively the effects of the tied tax subsidies (the FSC/ETI 
subsidies and the B&O tax rate reduc tions) and the effects of the eight 
remaining subsidies in the 100-200 seat and the 300-400 seat LCA markets;  
and  
(e) Whether, in finding that there was insufficie nt evidence on the record of the effects of 
the USDOD assistance instruments funded by the 21 USDOD RDT&E programmes 
other than the ManTech and DUS&T programme s, and in failing to take account of 
the effects of those 21 programmes in its a dverse effects analysis, the Panel failed to 
make an objective assessment of the matter as required under Article 11 of the DSU.   
426. The following issues are raised by th e United States in its other appeal: 
(a) With respect to the NASA R&D measures: 
(i) whether, in the application of its test for determining whether a transaction 
constitutes a purchase of services, the Panel erred in finding that the payments provided to Boeing pursuant to the NASA R&D procurement contracts at issue constitute direct transfers of funds, and thus financial 
contributions, within the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement ;  and whether, in so proceedi ng, the Panel failed to make an 
objective assessment of the matter as required under Article 11 of the DSU;  
(ii) whether the Panel erred in finding that the access to faciliti es, equipment, and 
employees provided to Boeing under th e NASA R&D procurement contracts 
at issue constitutes a provision of goods  or services, and thus a financial 
contribution, within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ; 
(iii) whether the Panel erred in finding that  the payments and access to facilities, 
equipment, and employees provided to Boeing under the NASA R&D 
procurement contracts at issue conferred a benefit on Boeing within the meaning of Article 1.1(b) of the SCM Agreement ;  and 
(iv) whether, by not excluding $280 million of payments for research that NASA 
had determined was unrelated to the European Communities' claims from its 
valuation of benefit, the Panel erred in its application of Article 1.1(b) of the 
SCM Agreement ; WT/DS353/AB/R BCI deleted, as indicated [***] 
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  (b) With respect to the USDOD R&D measures: 
(i) whether, in the application of its test for determining whether a transaction 
constitutes a purchase of services, the Panel erred in finding that the 
payments provided to Boeing pursuant to the USDOD RDT&E assistance instruments at issue constitute direct transfers of funds, and thus financial 
contributions, within the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement ;   
(ii) whether the Panel erred in finding that the access to facilities provided to 
Boeing under the USDOD RDT&E assistan ce instruments at issue constitutes 
a provision of goods or services, and thus  a financial contribution, within the 
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ;   
(iii) whether the Panel erred in finding that  the payments and access to facilities 
provided to Boeing under the USDOD RDT&E assistance instruments conferred a benefit on Boeing within th e meaning of Article 1.1(b) of the 
SCM Agreement ;  and 
(iv) whether the Panel failed to make an objective assessment of the matter, as 
required under Article 11 of the DSU, when it stated in paragraph 7.1205 of its Report that it did "not consider it credible that less than 1 per cent of the $45 billion in aeronautics R&D funding that {US}DOD provided to Boeing 
over the period 1991-2005 had any potential relevance to LCA";  
(c) With respect to the Washington State B&O tax rate reduction: 
(i) whether the Panel erred in finding that this tax rate reduction constitutes the 
foregoing of government revenue othe rwise due, and t hus a financial 
contribution, within the meaning of Article 1.1(a)(1)(ii) of the 
SCM Agreement ;  and 
(ii) whether the Panel erred in finding that  this tax rate reduction is specific 
within the meaning of Article 2.1(a) of the SCM Agreement ;   
(d) Whether the Panel erred in finding that ta x abatements associated with industrial 
revenue bonds granted by the City of Wichita are specific within the meaning of 
Article 2.1(c) of the SCM Agreement ;    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 175  
 
  (e) Whether the Panel erred in finding that the NASA and USDOD aeronautics R&D 
subsidies caused, through their technology effect s, serious prejudice to the interests of 
the European Communities, within the meaning of Articles 5(c) and 6.3(b) and (c) of 
the SCM Agreement , in the 200-300 seat LCA market in the form of significant price 
suppression, significant lost sales, and a thre at of displacement and impedance of 
exports of Airbus LCA in third-c ountry markets.  In particular: 
(i) whether the Panel erred  in its interpretation and application of these 
provisions by:   
- finding that the NASA and USDOD aeronautics R&D subsidies contributed 
in a "genuine and substantial" way to  Boeing's development of technologies 
for the Boeing 787 by 2004;   
- failing to conduct a proper counterfactua l analysis and finding that, absent the 
NASA and USDOD subsidies, Boeing would not have developed the 
technologies for the Boeing 787 by 2004 and Airbus would not have suffered 
a threat of displacement and impedance, significant lost sales, and significant 
price suppression; 
- "double-counting" lost sales, and fa iling to conduct a proper non-attribution 
analysis, with respect to its finding of significant lost sales;  
- failing to establish the existence of relevant third-country markets with 
respect to its finding of threat of displacement and impedance;  and 
- failing to conduct a proper price suppression analysis with respect to the 
A330,  the Original A350, and the Airbus 200-300 seat LCA market;  and 
(ii) whether in referring, in paragraph 7. 1772 of the Panel Report, to "the 
importance of the knowledge and experience that Boeing obtained pursuant 
to the aeronautics R&D subsidies as an integrator of the various 
technologies", the Panel failed to make an objective assessment of the matter 
as required under Article 11 of the DSU;  and WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 176 HSBI omitted, as indicated [[HSBI]]  
 
  (f) Whether the Panel erred in finding that th e FSC/ETI subsidies and the B&O tax rate 
reductions caused, through their price effects,  serious prejudice to the interests of the 
European Communities, within the meaning of  Articles 5(c) and 6.3(b) and (c) of the 
SCM Agreement , in the 100-200 seat and 300-400 seat LCA markets in the form of 
significant price suppression, significant lost sales, and displacement and impedance of exports of Airbus LCA in third-country markets.  In particular:   
(i) whether the Panel erred  in its interpretation and application of Articles 5(c) 
and 6.3(b) and (c) by: 
- relying on a presumption that prohibited subsidies cause serious prejudice;   - failing to assess properly the magnitude of the subsidies; - failing to conduct a proper counterfactual analysis; 
- failing to assess other factors potentially causing serious prejudice;  
- failing to consider price trend data with respect to its finding of significant 
price suppression; 
- failing to identify sales with respect to its finding of significant lost sales;  
and 
- failing to establish and identify relevant third-country markets with respect to 
its finding of displacement and impedance;  and 
(ii) whether, in failing to identify either the sales campaigns in which the 
FSC/ETI subsidies and B&O tax rate reductions caused significant lost sales 
or the third-country markets in whic h those subsidies caused displacement 
and impedance, the Panel failed to se t out the basic rationale behind its 
finding as required under Article 12.7 of the DSU .  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 177  
 
  IV. The Measures at Issue 
A. Introduction 
427. This dispute concerns a challenge brought by the European Communities against a broad 
array of subsidies allegedly provided by the Unite d States to The Boeing Company in relation to the 
manufacture of large civil aircraft ("LCA").  In  particular, the European Communities challenged 
subsidies allegedly provided by th e US Federal Government;  the States of Washington, Kansas, and 
Illinois;  the counties of Snohomish (Washington) and Cook (Illinois);  and the cities of Everett 
(Washington), Wichita (Kansas), and Chicago (Illinois).   
428. The European Communities claimed before th e Panel that each challenged measure is a 
specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement , and that the 
United States, through the use of these subs idies, has caused adverse effects to the 
European Communities' interests within the meaning of Articles 5 and 6 of the SCM Agreement .  In 
addition, the European Communities claimed that some of the Washington State tax incentives and 
the Foreign Sales Corporation ("FSC")/extraterritori al income ("ETI") tax exemptions are prohibited 
export subsidies within the meaning of Article 3 of the SCM Agreement . 
429. Because of the large number of claims made a nd measures challenged, and in order to provide 
some background to and context for our findings in this  appeal, we consider it useful to provide an 
overview of the measures at issue in this appeal.  For a more detailed account of  the measures at issue, 
direct reference should be had to the Panel Report. 
B. US Federal Government Measures 
430. Before the Panel, the European Communitie s challenged certain support for aeronautics 
research and development ("R&D") provided to Bo eing by the US National Aeronautics and Space 
Administration ("NASA"), the US Department of Defence ("USDOD"), and the US Department of Commerce ("USDOC"), as well as certain support fo r training provided by the US Department of 
Labor ("USDOL").  The Panel found that the payments provided to Boeing by the USDOC 
constituted subsidies within the meaning of Article 1.1 of the SCM Agreement .
916  Nevertheless, the 
Panel concluded that the European Communities had failed to demonstrate that these subsidies were 
specific within the meaning of Article 2 of the SCM Agreement .917  Similarly, the Panel found that the 
training funds provided by the USDOL were a subsidy, but that the European Communities had not 
                                                      
916Panel Report, para. 7.1230. 
917Panel Report, paras. 7.1256 and 7.1257. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 178 HSBI omitted, as indicated [[HSBI]]  
 
  established that such subsidy was specific within the meaning of Article 2 of the SCM Agreement .
918  
Neither participant has appealed the Panel's findings with respect to the support provided by either the 
USDOC or the USDOL, and thus the USDOC's and USDOL's programmes are not further addressed 
in this Report.  Before the Panel, the European  Communities also challenged funds provided by both 
NASA and the USDOD to reimburse Boeing for inde pendent research and development ("IR&D") 
expenditures and bid and proposal ("B&P") costs.  The Panel found that the European Communities 
had failed to establish the existence of such measures.919  This finding has not been appealed, and we 
therefore do not further discuss these measures. 
431. We describe below the NASA and USDOD measures that  are at issue in this appeal.  We also 
address the allocation of patent rights under the NASA and USDOD measures and the tax exemptions 
under the FSC and successor legislation, which are also implicated in this appeal.   
1. Aeronautics R&D Measures 
(a)  NASA  
432. The Panel understood that the measures cha llenged by the European Communities are 
"payments" and "free access to NASA facilities, eq uipment and employees" that NASA provided to 
Boeing through R&D contracts and agreements920 entered into with Boeing under the following eight 
aeronautics R&D programmes:  (i) Advanced Com posites Technology ("ACT");  (ii) High Speed 
Research ("HSR");  (iii) A dvanced Subsonic Technology ("AST");  (iv) High Performance 
Computing and Communications ("HPCC");  (v) Av iation Safety ("AS");  (vi) Quiet Aircraft 
Technology ("QAT");  (vii) Vehicle Systems ("VS ");  and (viii) Research and Technology Base 
("R&T Base").921  
                                                      
918Panel Report, paras. 7.1374 and 7.1375.  
919Panel Report, paras. 7.1352 and 7.1353. 
920With respect to payments, the European Communities noted that "NASA … generally provide{s} 
funding for LCA-related R&D through what {it} call{s} ' contracts ,' but what are in reality grants to 
Boeing/{McDonnell Do uglas} for LCA-related R&D expenses".  With  respect to access to facilities, equipment, 
and employees, the European Communities submitted th at "NASA provides these 'goods and services' in 
conjunction with the various contractual instruments (i.e. Space Act Agreements  and other contracts ) it enters 
into with Boeing under the eight NASA aeronautics R&D programs challenged in this dispute". (Panel Report, 
footnote 2406 to para. 7.944 (quoting European Communitie s' first written submission to  the Panel, para. 457;  
and European Communities' response to Panel Question 148, para. 171, respectively) (emphasis added))  
921Panel Report, para. 7.944 (referrin g to European Communities' first written submission to the Panel, 
para. 476).   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 179  
 
  433. The Panel further observed that the R&D cont racts and agreements entered into between 
NASA and Boeing under these eight programmes fall in to two categories.  The first category is 
"procurement contracts"
922, which, under US law and regulations, are used "only where the 'principal 
purpose' of the activity is the 'acquisition of goods or services' for the 'direct benefit or use' of the 
U.S. Government".923  The second category is instruments undertaken by NASA pursuant to its 
authority under the National Ae ronautics and Space Act of 1958924 (the "Space Act"), which 
authorizes NASA "to enter into and perform such contracts, leases, and cooperative agreements or 
other transactions as may be necessary in the conduct of its work".925  The Panel referred to 
agreements between NASA and Boeing undertaken  pursuant to this authority as "Space Act 
Agreements".926   
434. The Panel concluded that the payments and access to facilities, equipment, and employees 
that NASA provided to Boeing through the eight aeronautics R&D programmes at issue constitute 
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement .927  The Panel 
estimated the total amount of the subsidies over the 1989-2006 period to be $2.6 billion, of which 
$1.05 billion corresponds to payments under R&D c ontracts, and $1.55 billion corresponds to access 
to facilities, equipment, and employees under R&D contracts and agreements.928 
                                                      
922The Panel noted that the majority of the trans actions between NASA and Boeing under the eight 
aeronautics R&D programmes at issue are "procurement cont racts".  However, in a few cases, the transactions 
between NASA and Boeing under these programmes have been in the form of wh at are termed "assistance 
instruments" under US law, and more specifically "cooperative agreements". (Panel Report, footnote 2408 to 
para. 7.945 (referring to Panel Exhibit US-1245, containing a list of NASA contracts with Boeing))  
923Panel Report, para. 7.945. 
924Supra , footnote 46.  
925The NASA policy regarding the Space Act Agreements  is set out in NASA Policy Directive 1050.1H 
(Panel Exhibit US-108).  The Space Act authorizes NASA "to enter into an d perform such contracts, leases, 
cooperative agreements, or other transactions as may be necessary in the conduct of its work and on such terms 
as it may deem appropriate, with any agency or instrumentality of the United States, or with any State, territory, 
or possession, or with any political subdivision thereof, or  with any person, firm, association, corporation, or 
educational institution".  The term "Space Act Agreemen ts" refers to agreements that NASA enters into 
pursuant to the "other transactions " authority provided by the Space Ac t.  NASA's policy directive governing 
Space Act Agreements explains:   
Under its Space Act authority, NASA has entered into a great number of agreements with diverse groups of people and organizations, both in the 
private and public sector, in order to meet wide-ranging NASA mission and 
program requirements and objectives . It is NASA's policy to utilize the 
broad authority granted to the Agen cy in the Space Act to further the 
Agency's missions. 
(Panel Report, footnote 2410 to para. 7.945 (emphasis added by the Panel)) 
926Panel Report, para. 7.976.  The European Commun ities did not challenge the supply of goods and 
services under the Space Act Agreements  to the extent that Boeing paid ca sh in exchange for those goods and 
services. ( Ibid., footnote 2624 to para. 7.1082) 
927Panel Report, para. 7.1110.  
928Panel Report, para. 7.1109.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 180 HSBI omitted, as indicated [[HSBI]]  
 
  (b) USDOD  
435. The European Communiti es also challenged funding and ac cess to facilities provided by the 
USDOD to Boeing to perform R&D related to "dual- use" technologies—that is, research applicable to 
both military and commercial airc raft—through contracts and other instruments under the USDOD 
Research, Development, Test, and Evalua tion Program (the "RDT&E programme"). 
436. The Panel explained that the scope of the Eu ropean Communities' challenge was "relatively 
narrow in several respects".
929  First, it noted that the European Communities did not challenge the 
RDT&E programme "as a whole", but rather cha llenged "only certain funding" provided to Boeing 
under the 23 USDOD RDT&E programmes930 at issue and, within these programmes, only the subset 
of funding that was, in the European Communities' view, related to dual-use technologies.931  Second, 
the Panel observed that the European Co mmunities' challenge was limited to the payments  that the 
USDOD provided to Boeing for the purpose of pe rforming R&D and did not include the USDOD's 
purchase  of military aircraft from Boeing.932  Finally, the Panel pointed out that, as with the NASA 
aeronautics R&D measures, the European Comm unities challenged both USDOD payments and 
access to facilities under the 23 USDOD RDT&E progra mmes.  However, the Panel observed that, 
whereas the European Communities' panel request refers, in the case of NASA, to access to "facilities, 
equipment and employees", in the case of the USDOD, it refers only to access to "facilities".933  
                                                      
929Panel Report, para. 7.1116. 
930In particular, the European Communities challenged funding pursuant to 13 "general aircraft" 
programmes and 10 "military aircraft" programmes. (Panel Report, footnote 2660 to para. 7.1114) 
931Panel Report, para. 7.1117. 
932Panel Report, para. 7.1118.  The Panel stated that  "the European Communities' claim {was} clearly 
limited to payments … provided to Boeing—as distinguished from a broader challenge to the {US}DOD 
{RDT&E} programmes per se , and as distinguished from a challenge to a subsidy provided to a broader 
industry, e.g. the U.S. military aircraft industry." ( Ibid., para. 7.1119 (original underlining)) 
933Panel Report, para. 7.1120.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 181  
 
  437. The Panel distinguished two types of arrangements between the USDOD and Boeing.
934  Like 
NASA, the USDOD entered into "pro curement contracts" with Boeing.935  The other category of 
instruments was referred to by the Panel as "assistance instruments"936, which comprised "cooperative 
agreements"937, "technology investment agreements"938, and "certain other transactions".939  The Panel 
noted that, under US law, "assistance" is defined as "{ t}he transfer of a thing of value to a recipient to 
carry out a public purpose of support or stimulation authorized by a law of the United States".940   
438. The Panel concluded that payments and acces s to USDOD facilities provided to Boeing under 
USDOD procurement contracts are not financial contri butions within the meaning of Article 1.1(a)(1) 
of the SCM Agreement .941  However, the Panel found that  the payments and access to USDOD 
facilities provided to Boeing under USDOD assist ance instruments through the 23 aeronautics 
                                                      
934Panel Report, para. 7.1140.  The general statutory authority for all R&D activities engaged by the 
USDOD by "contract", "grant", or "c ooperative agreement" is found in United States Code , Title 10, 
section 2358(a) (Panel Exhibit US-1205), which provides: 
The Secretary of Defense or the Secr etary of a military department may 
engage in basic research, applied research, advanced research, and 
development projects that-- 
(1) are necessary to the re sponsibilities of such Secret ary's department in the 
field of research  and development; and 
(2) either-- 
 (A) relate to weapon systems and other military needs; or  (B) are of potential interest to the Department of Defense. 
935Panel Report, para. 7.1142.  See United States Code of Federal Regulations , Title 32, section 21.605 
(Acquisition):  "The acquiring (by purchase, lease,  or barter) of property  or services for the direct benefit or use  
of the United States Government … In  accordance with 31 U.S.C. 6303, procurement contracts  are the 
appropriate legal instruments for acquiring such property or services." (emphasis added by the Panel)   
See also United States Code of Federal Regulations , Title 32, section 21.670 (Procurement contract) (Panel 
Exhibit US-22).  
936Panel Report, para. 7.1142.  See United States Code of Federal Regulations , Title 32, section 21.615 
(Assistance) (Panel Exhibit US-22):  "The transfer of a thing of value  to a recipient to carry out a public purpose 
of support or stimulation authorized  by a law of the United States … Grants, cooperative agreements, and 
technology investment agreements  are examples of legal instruments us ed to provide assistance." (emphasis 
added by the Panel) 
937Panel Report, para. 7.1142.  See United States Code of Federal Regulations , Title 32, section 21.640 
(Cooperative agreement) (Panel Exhibit US-22):  "A legal instrument which, consistent with 31 U.S.C. 6305, is 
used to enter into the same kind of relationship as a grant  …, except that substantial involvement is expected 
between the Department of Defense and the recipient when carrying out the activity contemplated by the 
cooperative agreement." (emphasis added by the Panel) 
938United States Code of Federal Regulations , Title 32, part 37 is entitled "Technology investment 
agreements".  Section 37.205 provides that a technology investment agreement may be used where the "grants 
officer" concludes: "… that the principal purpose  of the project is stimulati on or support of research ( i.e., 
assistance ), rather than acquiring goods or services for the benefit  of the Government ( i.e., acquisition)". (Panel 
Report, para. 7.1143 (emphasis added by the Panel)) 
939The Panel noted the United States' explanation that United States Code , Title 10, section 2371 is the 
authority for R&D projects using "other transactions", th at is, transactions other than contracts, cooperative 
agreements, and grants. (Panel Report, footnote 2698 to para. 7.1140) 
940Panel Report, para. 7.1142 (quoting United States Code of Federal Regulations , Title 32, 
section 21.615 (Panel Exhibit US-22)). 
941Panel Report, para. 7.1171.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 182 HSBI omitted, as indicated [[HSBI]]  
 
  RDT&E programmes constitute specific subsidies w ithin the meaning of Articles 1 and 2 of the 
SCM Agreement .
942  
439. The European Communities estimated that the am ount of subsidy provided by the USDOD to 
Boeing's LCA division was $2.4 billion.943  The Panel did not accept the European Communities' 
estimate because it was based on a methodology and an alysis that did not distinguish payments and 
access to facilities provided to Boeing under proc urement contracts from payments and access to 
facilities provided to Boeing through assistance instruments.944  Nor did the Panel accept the 
United States' estimate that the total amount of  any USDOD subsidy to Boeing for dual-use R&D was 
significantly less than $308 million.945  Ultimately, however, the Panel was unable to arrive at its own 
estimate of the amount of the subsidy provided to Boeing under the relevant USDOD assistance 
instruments.946   
2. Allocation of Patent Rights 
440. The European Communities also challenged th e allocation of intellectual property rights 
under procurement contracts and agreements en tered into between NASA/USDOD and Boeing for 
aeronautics R&D.947 
441. US patent rights generally authorize the patent  holder, during the term of the patent, to 
prevent all other entities from exploiting the technologi es covered by the patent, and allow the patent 
holder to license the technology to others in excha nge for compensation.  Specifically, a US patent 
accords the right to "exclude others from making, usi ng, offering for sale, or selling" the invention in 
the United States or from "importing" the invention into the United States, for a specific period of 
time (a minimum of 20 years from the date of application).948   
442. Prior to 1980, the US Government had a gene ral policy of assuming all rights to patents over 
inventions developed by contractors under fede rally funded R&D contracts (and then granting 
non-exclusive licenses to any applicant, including the contractor, who wished to use the subject 
                                                      
942Panel Report, paras. 7.1196-7.1198.  
943Panel Report, para. 7.1199. 
944Panel Report, para. 7.1206. 
945Panel Report, paras. 7.1200, 7.1205, 7.1209, and 7.1210. 
946Panel Report, para. 7.1210.   
947The European Communities additionally challenged the allocation of data rights and trade secrets.  
However, this appeal concerns only the allocation of patent rights.  
948Panel Report, para. 7.1285 (referring to European Communities' first written submission to the 
Panel, para. 812, in turn quoting United States Code , Title 35, section 154(a)(2) (Panel Exhibit EC-562) and 
section 271(a) (Panel Exhibit EC-563)).    BCI deleted, as indicated [***] WT/DS353/AB/R 
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  invention).
949  In 1980, the US Government changed its  policy so that government contractors 
obtained ownership of patents ove r any invention that they deve loped with federal funding under 
R&D contracts (with the government receiving a limite d "government use" license to use the subject 
invention without having to pay the contractor ro yalties).  Originally, the new policy applied only to 
non-profit organizations and small business firms.  The policy was subsequently extended to all 
government contractors, regardless of size and profit/non-profit status950,  and implemented through a 
number of different legal instruments.   
443. The Panel identified the following fi ve US legal instruments as relevant951:   
(i) the Patent and Trademark Law Amendments Act of 1980952 (the "Bayh-Dole Act");  
(ii) a 1983 Presidential Memorandum to the heads of Executive departments and agencies 
(entitled "Government Patent Policy") that extended the scope of the policy enacted 
under the Bayh-Dole Act to encompass all govern ment contractors, regardless of size 
and profit/non-profit status953 (the "1983 Presidential Memorandum");  
(iii) a 1987 Executive Order (entitled "Facilitating Access to Science and Technology") 
into which the terms of the 1983 Presi dential Memorandum were eventually 
incorporated954 (the "1987 Executive Order");  
(iv) the corresponding general fede ral regulations implementing the Bayh-Dole Act, the 
1983 Presidential Memorandum, and the 1987 Executive Order (Title 48, Subpart 27.3, entitled "Patent Rights Under Government Contracts")
955;  and 
(v) the NASA-specific federal regulations (e ntitled "Patents and Other Intellectual 
Property Rights", with Subpart 1 en titled "Patent Waiver Regulations").956 
                                                      
949Panel Report, para. 7.1277 (referring to European Communities' first written submission to the 
Panel, para. 806;  and United States' first written submission to the Panel, para. 314). 
950Panel Report, para. 7.1277. 
951Panel Report, para. 7.1278. 
952Supra , footnote 243. 
953Supra , footnote 244. 
954Supra , footnote 245. 
955United States Code of Federal Regulations , Title 48, sections 27.300-27.306 (Panel Exhibit 
EC-559). 
956United States Code of Federal Regulations , Title 14, Part 1245 (Panel Exhibit EC-572).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 184 HSBI omitted, as indicated [[HSBI]]  
 
  444. Under this policy, the US Government receiv es "a nonexclusive, nontransferable, irrevocable 
paid-up license to practice or have practiced fo r or on behalf of the United States any subject 
invention throughout the world".
957  The US Government also obtains certain "march-in" rights, which 
empower the relevant federal agency to compel th e contractor, in certain limited circumstances, to 
grant a license to applicants on reasonable terms, or  to grant the license itself.  No US Government 
department or agency has ever exercised these ma rch-in rights for any patent under any contract.958 
445. The Space Act provides that any invention de veloped pursuant to a contract with NASA 
"shall be the exclusive property of the United States , and if such invention is patentable a patent 
therefore shall be issued to the United States", unless waived by NASA.959  To comply with the 1983 
Presidential Memorandum, NASA formulated regulati ons under which it generally waives its patent 
rights to large companies, such as Boeing, fo r inventions developed pursuant to NASA-funded 
research.960  NASA waives such rights in order to, in part, "promote early utilization, expeditious 
development and contin ued availability of the new technology for commercial purposes".961  The 
NASA patent waiver regulations permit requests for wa ivers at two points in time:  (i) in advance of 
the invention, as to any and all inventions made under a contract;  and (ii) afte r reporting an invention, 
subsequent to the inve ntion being developed.962   
446. Unlike NASA, the USDOD does not have its ow n detailed regulations  regarding patent 
allocation.  Instead, the USDOD generally relies on  the relevant portion of the Bayh-Dole Act and 
the 1983 Presidential Memorandum963, as well as the correspondi ng general federal regulations 
                                                      
957Panel Report, para. 7.1286 (referring to European Communities' first written submission to the 
Panel, para. 813, in turn quoting United States Code , Title 35, section 202(c)(4) (Panel Exhibit EC-558) and 
United States Code of Federal Regulations , Title 48, section 27.302(c) (Panel Exhibit EC-559)).   
958Panel Report, para. 7.1286. 
959Panel Report, para. 7.1287 (referring to United States Code , Title 42, section 2457(a) (Panel Exhibit 
EC-571)). 
960Panel Report, para. 7.1287 (referring to United States Code of Federal Regulations , Title 14, 
sections 1245.100-1245.103 (Panel Exhibit EC-572)).  The regulations do not apply to small business firms or 
non-profit organizations, which are governed by the US patent law provisions. ( Ibid., footnote 2913 to 
para. 7.1287 (referring to United States Code , Title 35, sections 200-212 (Panel Exhibit EC-558))  See also, 
United States Code of Federal Regulations , Title 14, section 1245.101 (Panel Exhibit EC-572). 
961Panel Report, para. 7.1287 (referring to United States Code of Federal Regulations , Title 14, 
section 1245.103(a) (Panel Exhibit EC-572)).  The patent rights waived by NASA pursuant to their regulations 
are not unlimited, as NASA retains the right to use the patented technology for itself, or to issue compulsory 
licenses through "march-in" rights. ( Ibid., footnote 2914 to para. 7.1287)   
962Panel Report, para. 7.1287 (referring to United States Code of Federal Regulations , Title 14, 
sections 1245.104 and 1245.105 (Panel Exhibit EC-572)).  
963See Panel Report, para. 7.1291.  The US patent law provisions regarding "patent rights in inventions 
made with federal assistance", codified at United States Code , Title 35, sections 200-212, apply to any "Federal 
agency". ( United States Code , Title 35, section 201(a) (Panel Exhibit EC -558))  "Federal agency" is defined as 
"any executive agency as defined in section 105 of title 5, and the military departments as defined by 
section 102 of title 5". ( Ibid.)  In turn, section 102 of Title 5 provides that the military departments consist of the 
Army, Navy, and Air Force. ( United States Code , Title 5, section 102 (Panel Exhibit EC-581))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 185  
 
  implementing these instruments.
964  This aspect of US law, along with the terms of the 
1983 Presidential Memorandum, is generally implem ented by the USDOD by incorporating certain 
clauses into R&D contracts.965  
3. FSC/ETI and Successor Legislation  
447. The European Communities challenged the tax ex emption enjoyed by Boeing in relation to 
certain income under the FSC legislation and under successor legislation, namely:  the FSC Repeal 
and Extraterritorial Income Exclusion Act of 2000966 (the "ETI Act");  the American Jobs Creation 
Act of 2004967 (the "AJCA");  and the Tax Increase Prevention and Reconciliation Act of 2005968 (the 
"TIPRA").969  These tax exemptions were the subject of a previous WTO dispute between the 
European Communities and the United States, which included two compliance proceedings.970  The  
tax exemption under the FSC legislation, and the exclusion of certain income under the ETI Act, 
which replaced the FSC regime, were found to be export subsidies prohibited under Articles 3.1(a) 
and 3.2 of the SCM Agreement .971  
                                                      
964See Panel Report, para. 7.1291 (referring to United States Code of Federal Regulations , Title 48, 
sections 27.300-27.306 (Panel Exhibit EC-559)).  Thes e provisions, which are part of the Federal Acquisition 
Regulation ("FAR") System, apply to "all executive agencies", which is defined to include the USDOD.  
(United States Code of Federal Regulations , Title 48, section 1.101 (purpose of  FAR) (Panel Exhibit EC-582);  
United States Code of Federal Regulations , Title 48 , section 2.101 (defining "executive agency") (Panel 
Exhibit EC-583))   
965Panel Report, para. 7.1292.  The Panel noted that, in R&D contracts with medium or large 
businesses, the USDOD uses the standard clause provided in section 52.227-12 of the FAR. ( Ibid.) 
966Supra , footnote 18, item (ii). 
967Supra , footnote 18, item (iii). 
968Supra , footnote 18, item (iv).  Although its title refers to 2005, the legislation was enacted on 
17 May 2006.  
969See Request for the Establishment of a Panel by th e European Communities, originally circulated as 
document WT/DS317/5 (amended by WT/DS353/2/Corr.1, WT/DS317/5/Add.1/Corr.1), para. 6. 
970The Panel recalled the findings made by the panels and the Appellate Body in US – FSC , US – FSC 
(Article 21.5 – EC) , and US – FSC (Article 21.5 – EC II)  with respect to, for instance, the existence of a subsidy 
under Article 1 of the SCM Agreement . (Panel Report, para. 7.1401)  
971The Panel in this case referred to the previous WTO dispute settlement proceedings and also found 
that the FSC/ETI subsidies constituted export subsidies. (P anel Report, paras. 7.1452 and 7.1463)  However, the 
Panel refrained from making recommendations that the US Government "withdraw" these export subsidies, 
pursuant to Article 4.7 of SCM Agreement , on the ground that "the FSC/ETI m easure in force at the time of the 
Panel's establishment ha{d} been substantially changed dur ing the course of the {Pan el} proceedings and indeed 
it appear{ed} that the measure {was} no  longer in force with respect to Bo eing".  The Panel considered it "well 
established in WTO dispute settlement practice that when a measure has expired, it is appropriate for a panel to 
refrain from making a recommendation with respect to such  a measure".  In any event, the Panel reasoned that 
"to the extent that FSC/ETI tax benefits remained applicable to Boeing at the time of the establishment of this Panel … the panel and Appellate Body reports in US – FSC (Article 21.5 – EC II)  concluded that the 
recommendation made by the panel in US – FSC  remained operative". ( Ibid., para. 8.6;  see also para. 8.7) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 186 HSBI omitted, as indicated [[HSBI]]  
 
  448. The United States did not dispute that the FSC/ ETI tax exemptions were specific subsidies.
972  
Moreover, the United States accepted the European  Communities' estimate that the amount of the 
subsidy to Boeing's LCA division from 1989 through 2006 in the form of FSC/ETI tax breaks was 
$2.199 billion.973  The issue in contention was whether Bo eing would continue to receive FSC/ETI 
benefits after 2006.974  The Panel considered the evidence su bmitted by the parties to determine 
whether Boeing would continue to r eceive FSC/ETI benefits after 2006.975  Ultimately, the Panel did 
not consider it necessary to make a finding on this  issue because the European Communities "ha{d} 
not adequately explained how such a finding {was}  relevant to the Panel's evaluation of the 
European Communities' claims of present serious pr ejudice and threat of serious prejudice or to its 
claim of the existence of prohibited subsidies".976 
449. The following paragraphs provide an overview of  the four pieces of US legislation at issue.  
(a) Provisions of the US Internal Revenue Code relating to FSCs977 
450. An FSC was a corporation created, organized, and maintained in a qualified foreign country 
or country under US possession outside the customs territory of the United States under the specific requirements of sections 921-927 of the US  Internal Revenue Code (the "IRC").
978  An FSC obtained 
a US tax exemption on a portion of its "foreign trade income".  In addition to this exemption, the FSC 
measure also allowed the US parent companies of FSCs to defer paying taxes on certain "foreign trade 
income" that would normally be subject to immedi ate taxation and to avoid paying taxes on dividends 
received from their FSCs related to "foreign trade income".979  The FSC measure was found by the 
panel and the Appellate Body in US – FSC  to be an export subsidy incons istent with the United States' 
obligations under Articles 3.1(a) and 3.2 of the SCM Agreement , and under Articles 8 and 10.1 of the 
Agreement on Agriculture .980 
                                                      
972Panel Report, para. 7.1392 (referring to United States' first written submission to the Panel, 
para. 422). 
973Panel Report, paras. 7.1412 and 7.1418. 
974Panel Report, para. 7.1413. 
975Panel Report, paras. 7.1421-7.1426. 
976Panel Report, para. 7.1427. 
977The European Communities submitted that "the 'primary' legal provisions constituting the FSC 
measure are sections 245(c), 921 through 927, and 951 (e) of the United States Internal Revenue Code". 
(European Communities' first written submission to the Panel, footnote 1615 to para. 923)  A detailed 
description of the FSC provisions is contained in Panel Report, US – FSC , paras. 2.1-2.8 and 7.95-7.97, and 
Appellate Body Report, US – FSC , paras. 11-18. 
978Panel Report, para. 7.1379 (referring to United States Code , Title 26 (Internal Revenue Code), 
sections 921-927 (Panel Exhibit EC-623)). 
979Panel Report, para. 7.1379.  
980Panel Report, US – FSC , para. 8.1(a) and (b);  Appellate Body Report, US – FSC , paras. 177(a) 
and 178.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (b) FSC Repeal and Extraterritorial Income Exclusion Act of 2000 
451. On 15 November 2000, the United States enacted the ETI Act
981 in response to the findings 
made with respect to the FSC provisions by the panel and the Appellate Body in US – FSC .982  First, 
the ETI Act specified that, in general, the amendm ents made by the Act "shall apply to transactions 
after September 30, 2000".983  In addition, no new FSCs could be cr eated after that date.  However, in 
the case of an FSC in existence on 30 September 2000,  section 5(c)(1) of the ETI Act provided that 
the amendments made by the Act did not apply to certain transactions.984  Second, the ETI Act 
allowed for the exclusion from taxation of income involving "qualifying foreign trade property".985   
452. The compliance panel in US – FSC (Article 21.5 – EC)  found that the ETI Act was 
inconsistent with the United States' WTO obliga tions and that the United States had not fully 
withdrawn the subsidies found, in the original proc eedings, to be prohibited export subsidies.  The 
panel concluded that the United States, therefore,  had failed to implement fully the recommendations 
and rulings of the DSB made pursuant to Article 4.7 of the SCM Agreement .986  The Appellate Body 
upheld the panel's findings.987 
(c) American Jobs Creation Act of 2004 
453. On 22 October 2004, the United States enacted th e AJCA in response to the findings made by 
the compliance panel and the Appellate Body in US – FSC (Article 21.5 – EC) .  Section 101 of the 
AJCA repealed the provisions in section 114 of the IRC relating to the exclusion from income taxation of ETI.  However, a "transitional rule  for 2005 and 2006" in section 101(d) of the AJCA 
allowed US taxpayers to claim 80% of ETI tax bene fits with respect to certain transactions in 2005 
and to claim 60% of ETI tax benefits with respect to certain transactions in 2006.  In addition to this 
                                                      
981Panel Report, para. 7.1380 and footnote 3035 thereto.  See ETI Act, supra , footnote 18, item (ii).  
A detailed description of the provisions of this Act is contained in Panel Report, US – FSC (Article 21.5 – EC) , 
paras. 2.1-2.8 and Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 15-25.  
982Panel Report, US – FSC , para. 8.1(a) and (b);  Appellate Body Report, US – FSC , paras. 177(a) 
and 178. 
983Panel Report, para. 7.1381. 
984Any transaction in the ordinary course of trade or business involving an FSC that occurred:  
(i) before 1 January 2002;  or (ii) after 31 December 2001, pursuant to a binding contract between the FSC 
(or any related person) and any unrelated person that was in effect on 30 September 2000. (Panel Report, 
para. 7.1381) 
985At least two requirements, under the ETI Act, had to be satisfied in order for a taxpayer to qualify for 
the exclusion from taxation:  (i) that a good produced within or outside the United States be held primarily for 
sale, lease, or rental, in the ordinary course of trade or business for direct use, consumption, or disposition outside the United States;  and (ii) that no more than  50% of the fair market va lue of such property be 
attributable to articles manufactured, produced, grown, or extracted outside the United States, and direct costs 
for labour performed outside the United States. (Panel Report, para. 7.1383) 
986Panel Report, US – FSC (Article 21.5 – EC) , para. 9.1. 
987Appellate Body Report, US – FSC  (Article 21.5 – EC) , para. 257. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 188 HSBI omitted, as indicated [[HSBI]]  
 
  time-limited transitional rule, the AJCA indefinite ly grandfathered the ETI scheme in respect of 
certain transactions.   
454. The second compliance panel in US – FSC (Article 21.5 – EC II)  determined that 
Article 101(d) and (f) of the AJCA maintained ETI  benefits throughout 2 005 and 2006 (albeit at 
reduced percentages), and indefinitely (in the case of  certain transactions).  The panel further noted 
the indefinite grandfathering of the original FSC subsidies for certain transactions through the 
continued operation of section 5 of the ETI Act.
988  The panel concluded that the United States 
continued to fail to implement fully the operative DSB recommendations and rulings to withdraw the 
prohibited subsidies and to bring its measures into conformity with its obligations under the relevant 
covered agreements.989  The panel's findings were also upheld on appeal.990 
(d) Tax Increase Prevention and Reconciliation Act of 2005  
455. On 17 May 2006, the United States enacted the TIPRA in response to the findings of the 
second compliance panel and the Appellate Body in US – FSC (Article 21.5 – EC II) .  Section 513 of 
the TIPRA is entitled "Repeal of FSC/ETI Binding C ontract Relief".  Section 513(a) of the TIPRA 
(FSC provisions) repealed section 5(c)(1)(B) of the ETI Act, which allowed for the continuation of 
FSC benefits in respect of transactions occurring pursuant to a binding contract in effect on 30 September 2000.  Section 513(b) of the TIPRA (ETI provisions) repealed section 101(f) of the 
AJCA, which allowed for the continuation of ETI ta x benefits in respect of transactions occurring 
pursuant to a binding contract in effect on 17 September 2003.  Section 513(c) of the TIPRA provides that "{t}he amendments made by this section shall apply to taxable years beginning after the date of 
the enactment of this Act".
991 
                                                      
988Panel Report, US – FSC (Article 21.5 – EC II) , paras. 7.60 and 7.61. 
989Panel Report, US – FSC (Article 21.5 – EC II) , para. 8.1. 
990Appellate Body Report, US – FSC (Article 21.5 – EC II) , para. 100. 
991Panel Report, para. 7.1385.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  C. State and Local Measures 
1. State of Washington 
(a) Measures under House Bill 2294  
456. In 2003, the State of Washington legislature approved a package of tax incentives pursuant to 
Washington State House Bill 2294, entitled "An Ac t Related to Retaining and Attracting the 
Aerospace Industry to Washington State"992 ("House Bill 2294").993  House Bill 2294 includes five tax 
measures that the European Communities challenged before the Panel as subsidies to Boeing's LCA 
division that cause adverse effects and are also prohibited under the SCM Agreement .994  T h e  f i v e  
measures are: 
(i) a business and occupation ("B&O") tax rate reduction; 
(ii) B&O tax credits for preproduction developm ent, computer software and hardware, 
and property taxes; 
(iii) sales and use tax exemptions for computer s, and construction services and equipment; 
(iv) leasehold excise tax exemptions;  and 
(v) property tax exemptions. 
457. The Panel observed that Boeing had never clai med the sales and use tax exemptions for 
construction services and equipment.  In addition,  it noted that Boeing had not claimed the leasehold 
excise tax exemptions and the property tax exempti ons, and, in fact, Boeing had taken steps that 
suggested it would not claim these exemptions.995  In these circumstances, the Panel found that there 
was no financial contribution to Boeing  in relation to these three measures.996  This finding has not 
been appealed and, consequently, the descripti on below focuses on the Washington State B&O tax 
rate reduction;  the B&O tax credits for preproductio n development, computer software and hardware, 
and property taxes;  and the sales a nd use tax exemptions for computers. 
                                                      
992Supra , footnote 6. 
993Panel Report, para. 7.41  (referring to House Bill 2294, preamble). 
994Panel Report, para. 7.42 (referring to European Communities' first written submission to the Panel, 
para. 69).  
995Panel Report, para. 7.151. 
996Panel Report, para. 7.151. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  (i) Washington State B&O tax rate reduction 
458. The B&O tax is Washington St ate's primary business tax.
997  It is a tax on the "gross receipts 
of all businesses operating in Washington State, as a measure of the privilege of engaging in 
business".998  The Panel noted that "gross receipts" refe rs to the gross proceeds of sales, the gross 
income of a business, or the value of products, depe nding upon which is applicable.  It further noted 
that taxpayers are taxed based on the activities in wh ich they engage in the State of Washington, such 
as manufacturing, wholesaling, retailing, or the provision of services.999 
459. House Bill 2294 includes a reduction in the B&O tax rate for manufacturers of commercial 
airplanes or components for such airplanes.  The bill provides for such reduction to occur in two 
stages:  from a tax rate of 0.484% (or 0.471% in the case of retail sales) to 0.4235% as of 1 October 
20051000;  and then to 0.2904% as of 1 July 2007 or as of the commencement of final assembly1001 of a 
"super-efficient" airplane, whichever is later.1002  The taxation reduction applies until 2024 unless the 
final assembly of a super-efficient aircraft had not  commenced by 31 December 2007, in which case 
the tax rate reverts to 0.484% for manufacturing and wholesaling activities, and 0.471% for retailing 
activities.1003  Given that final assembly of the Boeing 787, which was agreed by the 
European Communities and the United States to meet the definition of a "super-efficient airplane", 
commenced in Washington in the first half of  2007, the reduced taxation rate will continue 
until 2024.1004 
460. The Panel concluded that the Washington St ate B&O tax reduction is a specific subsidy 
within the meaning of Articles 1 and 2 of the SCM Agreement , and estimated the amount of this 
subsidy to Boeing's LCA di vision to be $13.8 million.1005 
                                                      
997Panel Report, para. 7.47 (referring  to Final Bill Report, House B ill 2294, C1L03E2, undated (Panel 
Exhibit EC-90)).  
998Panel Report, para. 7.47 (quoting Business and Occupation Tax, Revised Code of Washington , 
section 82.04 (Panel Exhibit US-179)).   
999Panel Report, para. 7.47 (r eferring to United States' first written su bmission to the Panel, para. 429).  
1000Panel Report, para. 7.48. 
1001"Final assembly" is defined to mean the activity of assembling an airplane from component parts 
necessary for its mechanical operation such  that the finished commercial airplane is ready to be delivered to the 
ultimate consumer. (Panel Report, para. 7.48)  
1002Panel Report, para. 7.48 (referring to Hous e Bill 2294, sections 3(13) and 4(13));  
European Communities' first written submission to the Panel, para. 106;  and United States' first written 
submission to the Panel, para. 438).   
1003Panel Report, para. 7.48 (referring to Hous e Bill 2294, sections 3(13) and 4(13));  
European Communities' first written submission to the Panel, para. 106;  and United States' first written 
submission to the Panel, para. 438). 
1004Panel Report, para. 7.48.  
1005Panel Report, para. 7.302.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (ii) Washington State B&O tax credits for preproduction 
development, computer software and hardware, and property taxes  
461. House Bill 2294 also includes three B&O tax cr edits relating to certain preproduction 
development expenditures, computer soft ware and hardware, and property taxes.
1006  First, it provides 
for a B&O tax credit for  preproduction development to any "manufacturer or processor for hire of 
commercial airplanes, or components of such  airplanes" for its expenditure on certain 
aeronautics-related research, design, and engineer ing activities performed in the development of a 
product.1007   
462. Second, a B&O tax credit is granted for  computer software and hardware to any 
"manufacturer of commercial airplanes" for its expend itures, between 1 July 1995 and 1 July 2003, on 
design and preproduction development computer softwa re and hardware used primarily for the digital 
design and development of commercial airplanes.1008 
463. Third, House Bill 2294 grants a B&O tax credit for property taxes where the tax credit is 
equal to the state and local property taxes paid on certain property used in the manufacture of 
commercial airplanes or components for such airplanes.1009   
464. The Panel concluded that the B&O tax credits  for preproduction development, computer 
software and hardware, and property taxes are specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement , and estimated the amount of these subsidies to Boeing's LCA 
division to be collectively $42.4 million.
1010 
(iii) Washington State sales and use tax exemptions for computer 
software, hardware, and peripherals 
465. In addition to the B&O tax, the State of Washi ngton has a retail sales tax and a use tax.  The 
retail sales tax is a tax on the sale of tangible personal property and certain services.  The use tax is 
due on the value of tangible personal property and certain services on which the retail sales tax has 
                                                      
1006Panel Report, para. 7.50.  
1007Panel Report, para. 7.51.  The credit is equal to 1.5% of qualifying preproduction development 
expenditure.  It can be claimed after 1 July 2005, although  credits earned prior to th is date can be accrued and 
carried forward.  The credit expires on 1 July 2024. ( Ibid.) 
1008The credit is equal to 8.44% of the purchase price of the property. (Panel Report, para. 7.53)   
1009The three types of qualifying property taxes are:  (i) taxes on new buildings, and the land upon 
which the buildings are located, used in manufacturing airplanes and components;  (ii) taxes on increases in the 
assessed value of a building, used in manufacturing aircraft or components, due to renovation or expansion of 
the building;  and (iii) taxes on certain machinery and equipment used in manufacturing commercial airplanes or their components. (Panel Report, para. 7.55) 
1010Panel Report, para. 7.302. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  not been paid.
1011  House Bill 2294 introduced two exemptions  to these taxes, na mely, an exemption 
relating to computer hardware, software, and peripherals and an  exemption relating to certain 
construction services and equipment.1012 
466. The Panel concluded that the sales and use tax exemptions for computer hardware, software, 
and peripherals are a specific subsidy with in the meaning of Articles 1 and 2 of the SCM Agreement , 
and estimated the amount of this subsidy to  Boeing's LCA division to be $8.3 million.1013   
(b) City of Everett local B&O tax rate reduction 
467. The City of Everett imposes a B&O tax similar in nature to the one imposed at the state level.  
It is a tax on gross revenues, which in the case of  manufacturing is generally treated as the value of 
products manufactured, and in the case of retailing or wholesaling as the gross proceeds of sales.  It applies to all business activities occurring with in the limits of the City of Everett.
1014 
468. The Panel found that Boeing was the only company in the City of Everett that could qualify 
under the threshold required to receive the B&O tax rate reduction.1015  Thus, the Panel concluded that 
the City of Everett B&O tax rate reduction is a speci fic subsidy within the meaning of Articles 1 and 2 
of the SCM Agreement , and estimated the amount of the subsidy to Boeing's LCA division 
through 2006 to be $2.2 million.1016  
                                                      
1011Panel Report, para. 7.57.  
1012Panel Report, para. 7.58.   
1013Panel Report, para. 7.302.   
1014Panel Report, para. 7.306.   
1015See Everett Municipal Code (2004), chapter 3.24 (Panel Exhibit EC-104).  Prior to 2004, the City of 
Everett B&O tax was imposed at a rate of 0.1%.  In 2 004, the City of Everett passed Ordinance 2759-04.  The 
Ordinance amends chapter 3.24 of the Everett Municipal Code .  The result of the amendment is that the 0.1% 
B&O tax rate "upon every person engaging within the city in business as a manufacturer" is reduced to 0.025% for manufacturers exceeding a minimum thre shold of value of production in the City of Everett.  Only Boeing 
met the $6 billion threshold required to benefit from the tax reduction.  After Boeing, the second largest 
manufacturer in the City generated $1.12 billion in re venue and no other manufacturer surpassed $1 billion. 
(Panel Report, paras. 7.342 and 7.344) 
1016Panel Report, paras. 7.346 and 7.354.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (c) Project Olympus Master Site Agreement 
469. The Project Olympus Master Site Development and Location Agreement between the Boeing 
Company and the State of Washington
1017 (the "MSA") was concluded on 19 December 2003.1018  The 
Panel observed that "Project Olympus" means "a fully operational state-of-the art facility for, initially, 
the assembly of the 7E7 Aircraft, together with all related utilities and tr ansportation improvements 
and facilities necessary and appurtenant thereto to be  located on or connected to the Facilities Site, 
including any off-site improvements and facilities".1019  The European Communities challenged eight 
measures referred to in the MSA.1020  Only one of these measures—the job training incentives—was 
found to be a specific subsidy by the Panel.1021 
470. The job training incentives consisted of a workforce development programme and an 
Employment Resource Center provided for in th e MSA.  The Panel noted that approximately 
$14 million was allocated by the State of Washington , under the MSA, for the workforce development 
programme from 1 July 2003 through 30 June 2007.1022  As for the Employment Resource Center, the 
State decided not to construct a new facility, but ra ther leased the facility at a cost of $956,400 per 
year.1023  The Employment Resource Center became operational on 1 August 2006.1024   
                                                      
1017Supra , footnote 8.  
1018Panel Report, para. 7.355. Article 1.2 of the MSA provides: 
This Agreement is intended to legally bind the parties, subject only to the granting, adoption or enactment of the respective resolutions, ordinances, 
legislative amendments and similar authorizations that may be required to 
provide any Commitments.  This Agreement sets forth the terms and conditions under which Boeing intends to locate the Facilities and 
operations related to Project Olympus in the State and the covenants, 
representations and warrantie s in connection therewith. 
(Panel Report, para. 7.355 (quoting MSA, Article 1.2)) 
1019Panel Report, para. 7.356 (quoting MSA, Article. 1.3). 
1020The eight measures are listed in paragraph 7.357 of the Panel Report.  
1021Panel Report, paras. 7.644 and 7.645.  
1022Panel Report, para. 7.584 (referring to exhibits to the MSA (Panel Exhibit EC-59), Exhibit D-2).  
From these funds, $4.4 million were provided to Accenture LLP to develop the workforce development programme that would operate out of the Employment Resource Center by 30 June 2006. ( Ibid., para. 7.570)   
1023Panel Report, para. 7.587 (referring to Employment Resource Center Lease (August 2005) (Panel 
Exhibit US-239), p. 3). 
1024Panel Report, para. 7.571.  The MSA provides for Boeing to enjoy exclusive use of the facilities for 
a period of five years. ( Ibid., para. 7.592)   WT/DS353/AB/R BCI deleted, as indicated [***] 
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  471. The Panel found that the workforce developm ent programme and the Employment Resource 
Center are specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement .
1025  I t 
estimated the amount of these subsidies to Boeing' s LCA division during the period 1989-2006 to be 
$11 million.1026   
2. Wichita (Kansas) Industrial Revenue Bonds1027 
472. Industrial revenue bonds ("IRBs") are issued by cities and counties in Kansas State, on behalf 
of private entities, in order to assist in raisi ng revenue to fund the purchase, construction, or 
improvement of various types of industrial a nd commercial property (the "project property").1028  
IRBs are generally issued in the following steps.  The city or county acts as the issuer of the bonds.  
The issuer sells the bonds to the general public, or bondholders, through an underwriter or private 
placement, in exchange for proceeds that will be used to acquire or enhance the project property.  The 
issuer serves as a passive conduit whose role is simply  to lend its status as a municipal corporation to 
the transaction.  The private entity, on behalf of whic h the IRBs are issued, acts as the lessee or tenant.  
The lessee conveys the project property to the issuer for the term of the IRBs, and the issuer leases the 
project property back to the lessee for the length of that term.  The lessee makes rent payments that 
                                                      
1025Panel Report, para. 7.594.  
1026Panel Report, para. 7.597.  This amount corresponds to $10.5 million for the workforce 
development programme and $478,200 reflecting the cost  of the lease of the Empl oyment Resource Center for 
the second half of 2006. ( Ibid., para. 7.595) 
1027Before the Panel, the European Communities also challenged a tranche of bonds issued by the 
Kansas Development Finance Authority to fund the development by Spirit of parts for the Boeing 787.  The 
Panel found that the European Communities had failed to demonstrate that the benefit of subsidies to be received by Spirit passed through to Boei ng at the time of sale  of Boeing Wichita. (Panel Report, paras. 7.889 
and 7.890) This finding has not been appealed and thus we do not further discuss this measure.  
1028Panel Report, para. 7.651.  Cities in Kansas issue IRBs pursuant to the Kansas Statutes Annotated , 
sections 12-1740 ff.  Section 12-1741 of the Kansas Statutes Annotated  provides: 
{A}ny city shall have the power to issue bonds, the proceeds of which shall 
be used for the purpose of paying all or part of the cost of purchasing, acquiring, constructing, reconstructing, improving, equipping, furnishing, 
repairing, enlarging or remodeling f acilities for agricultural, commercial, 
hospital, industrial, natural resources, recreational development and manufacturing purposes.  Any city shall also have the power to enter into 
leases or lease purchase agreements by ordinance with any person, firm or 
corporation for the facilities. 
(Ibid., para. 7.652 (referring to and quoting Kansas Statutes Annotated , sections 12-1740 ff (2001) (Panel 
Exhibit EC-167))  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  are sufficient to pay the principal and interest on the IRBs to the bondholders.
1029  Finally, a bank acts 
as the trustee on behalf of the bondholders.1030   
473. The European Communities alleged that the a dvantages for a private entity of having IRBs 
issued on its behalf include:  (i) the ability to borro w funds at lower than market interest rates, due to 
tax-exempt interest;  (ii) property tax abatements for up to 10 years on project property;  and (iii) sales 
tax exemptions on project property and ser vices acquired with the proceeds of IRBs.1031 
474. Boeing Commercial Airplanes, Wichita Divisi on, produced commercial airplanes and their 
components in Wichita, Kansas, for over 70 years.  On 16 June 2005, Boeing sold its Wichita facilities to another company, now Spirit AeroSystems ("Spirit").
  For these two companies, the IRB 
scheme operated in a different manner.  Most notably , rather than being purchased by the public, the 
IRBs issued on behalf of Boeing or Spirit were purchased by these companies themselves1032, 
resulting in a cash flow, from Boeing (or Spirit) to th e City of Wichita to purchase the IRBs, and from 
the City of Wichita back to Boeing (or Spirit) to fund the development of project property.1033  As 
Boeing or Spirit owns the IRBs, any principal or inte rest payments are payments that are ultimately 
transferred to themselves.  Boeing and Spirit do no t use the IRBs to fina nce the development of 
property, but rather, to take advantage of the pr operty and the sales tax exemptions referred to 
above.1034  According to the European Communities, the City of Wichita issued IRBs on behalf of 
Boeing every year since 1979.1035   
475. The Panel found the tax benefits to Boeing arisi ng from the issuance of IRBs to be a specific 
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement .  The value of this subsidy for 
Boeing's LCA division was estimated by the Panel to be $475.8 million.1036 
                                                      
1029City of Wichita IRB Overview: "Industrial Revenu e Bond Issuance in the State of Kansas" (Panel 
Exhibit EC-741). 
1030The trustee:  (i) holds and disburses the bond proceeds to the lessee to pay for the project property 
being acquired or enhanced;  (ii) receives rent payments from the lessee;  (iii) disb urses principal and interest 
payments to the bondholders;  and (iv) acts on behalf of bondholders to exercise remedies in the event of 
defaults. (City of Wichita IRB Overview: "Industrial Re venue Bond Issuance in the State of Kansas" (Panel 
Exhibit EC-741)) 
1031Panel Report, para. 7.656 (referring to European Communities' first written submission to the Panel, 
para. 298).   
1032Panel Report, para. 7.658 (referring to European Communities' first written submission to the Panel, 
Annex A (Background on Wichita Industrial Revenue Bonds), para. 19). 
1033Panel Report, para. 7.658 (referring to European Communities' first written submission to the Panel, 
Annex A (Background on Wichita Industrial Revenue Bonds), para. 22). 
1034Panel Report, para. 7.658 (referring to European Communities' first written submission to the Panel, 
para. 312).  The European Communities did not challenge any other aspects of the IRB transactions. ( Ibid. 
(referring to European Communities' first wr itten submission to the Panel, para. 318)) 
1035Panel Report, para. 7.660.  
1036Panel Report, para. 7.819. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 196 HSBI omitted, as indicated [[HSBI]]  
 
  3. State of Illinois 
476. Finally, the European Communities challenged four separate incentives that the State of 
Illinois, Cook County, and the City of Chicago provided to Boeing in consideration for Boeing's 
decision to relocate its corporate headquarters fro m Seattle to Chicago in 2001.  The first three 
incentives are derived from the Corporat e Headquarters Relocation Act of 20011037 (the "CHRA").  
The CHRA was adopted by the Illinois State legi slature on 1 August 2001, approximately one month 
before Boeing relocated its headquarters to Chicago.  It granted both the City of Chicago and Cook 
County, as taxing districts, the authority to abate or refund certain property taxes, as long as such 
property tax abatements/refunds were approved by 1 August 2006.1038  The CHRA indicates that its 
purpose is to encourage the relocation of the in ternational headquarters of large, multinational 
corporations to a location within Illinois "through th e use of incentives … that would otherwise not be 
available through existing incentives programs".1039  Boeing made use of all of these incentives under 
the CHRA.1040 
477. In addition to the three incentives provided under the CHRA, the City of Chicago also agreed 
to pay $1 million to retire the lease of the previous tenant of Boeing's new corporate headquarters building.  The City made the payment in order to enable Boeing to move into its new office space by 
September 2001.  On 10 May 2001, immediately after the City of Chicago agreed to the $1 million 
payment, the landlord and Boeing executed a 15-year lease agreement.
1041 
478. The Panel found that the four incentives provide d to Boeing in consideration for Boeing's 
decision to relocate its corporate headquarters to Chicago constitute a specific subsidy within the 
meaning of Articles 1 and 2 of the SCM Agreement , and estimated the amount of the subsidy provided 
to Boeing's LCA division to be approxim ately $11 million over the 2002-2006 period. 
                                                      
1037Supra , footnote 41. 
1038See Illinois Compiled Statutes Annotated , chapter 35, section 200/18-165(a)(8) (Panel Exhibit 
EC-225). 
1039Panel Report, para. 7.897 (quoting CHRA, section 5). 
1040Panel Report, para. 7.898.   
1041Panel Report, para. 7.902.  The City of Chicago made the actual payment on 15 January 2003 
pursuant to the Lease Termination Compensation Agreement between 100 North Riverside, LLC, and the City 
of Chicago (Panel Exhibit EC-217).  This Agreement notes that the City of Chicago made the payment in order 
to "induce the Landlord to consent to the termination of Morton's {the previous tenant's} long-term, above market lease".  This served to "make floors 25-28 available to Boeing and finalize the Boeing relocation". (Panel 
Report, para. 7.902 (quoting Panel Exhibit EC-217, p. 2))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 197  
 
  479. All the measures found by the Panel to constitute  specific subsidies within the meaning of 
Articles 1 and 2 of the SCM Agreement , as well as their estimated amounts, are set out in Table 1. 
Table 1.  Amount of subsidies to Boeing's LCA division over the period 1989-2006 
Government or 
government agency Measures found to constitute specific subsidies within the 
meaning of Articles 1 and 2 of the SCM Agreement  Amount of subsidy 
NASA  -  payments made to Boeing pursuant to procurement contracts 
entered into under the eight aeronautics R&D programmes at 
issue 
-  access to government faciliti es, equipment, and employees 
provided to Boeing pursuant to procurement contracts and Space 
Act Agreements entered into under the eight aeronautics R&D 
programmes at issue $2.6 billion  
USDOD  -  payments made to Boeing pursuant to assistance instruments 
entered into under the RDT&E programmes at issue 
-  access to government facilities  provided to Boeing pursuant to 
assistance instruments entered into under the RDT&E 
programmes at issue unclear1042 
FSC/ETI  -  the tax exemptions and tax ex clusions provided to Boeing under 
FSC/ETI legislation, including the transition and grandfather 
provisions of the ETI Act and the AJCA $2.2 billion1043 
State of Washington and 
municipalities therein  -  B&O tax rate reduction provided for in House Bill 2294  
-  B&O tax credits for preproduction development, computer 
software and hardware, and proper ty taxes provided for in House 
Bill 2294 
-  sales and use tax exemptions fo r computer hardware, peripherals, 
and software provided for in House Bill 2294 
-  City of Everett B&O tax rate reduction 
-  workforce development progra mme and Employment Resource 
Center $77.7 million 
City of Wichita, Kansas -  property and sales tax abatements provided to Boeing pursuant to 
IRBs issued by the State of Kansas and municipalities therein $476 million 
State of Illinois and 
municipalities therein -  reimbursement of a portion of  Boeing's relocation expenses 
provided for in the CHRA 
-  15-year Economic Development for a Growing Economy 
("EDGE") tax credits provided for in the CHRA 
-  abatement or refund of a portion of Boeing's property taxes 
provided for in the CHRA 
-  payment to retire the lease of th e previous tenant of Boeing's new 
corporate headquarters building $11 million 
Total   at least $5.3 billion 
Source :  Table at Panel Report, para. 7.1433.   
 
                                                      
1042As noted supra , para. 439, the Panel rejected the estimates submitted by both the 
European Communities ($2.4 billion) and the United States (less than $308 million), but was unable to arrive at its own estimate.  
 1043The European Communities submitted the following data on the amount of FSC/ETI subsidies 
provided to Boeing's LCA division during the period 1989 to 2006: 1989–$58 million; 1990–$96 million; 1991–
$77 million; 1992–$94 million; 1993–$64 million; 1994–$68 million; 1995–$74 million; 1996–$95 million; 
1997–$68 million; 1998–$115 million; 1999–$206 million; 2000–$266 million; 2001–$197 million; 2002–
$179 million; 2003–$107 million; 2004–$153 million; 2005–$142 million; and 2006–$140 million (estimated). (International Trade Resources LLC, "FSC/ETI Tax Benefits Provided to U.S. Large Civil Aircraft Producers" 
(December 2006) (Panel Exhibit EC-12))  The Panel noted that the United States had "indicated that it {was} 
not disput{ing} the estimate by the European Communities of FSC/ETI benefits related to large civil aircraft during the period 1989-2006". (Panel Report, para. 7.1418) 
 WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 198 HSBI omitted, as indicated [[HSBI]]  
 
  V. Procedures under Annex V to the SCM Agreement 
A. Introduction 
480. On appeal, the European Union challenges a preliminary ruling made by the Panel
1044 with 
respect to the absence, in this dispute1045, of a procedure pursuant to Annex V to the SCM Agreement .  
Annex V, entitled "Procedures for Developing Info rmation Concerning Serious Prejudice", provides 
for an information-gathering procedure to be conduc ted in disputes where it is  claimed that a Member 
has, through subsidization, caused adverse effects in the form of serious prejudice to the interests of 
another Member.  Such process is to be initiated by  the DSB and facilitated by a representative of the 
DSB.  It is to be carried out within 60 days of establishment of the panel a nd is intended to facilitate 
the panel's subsequent review of the dispute.  
481. We begin in section B by outlining the prel iminary procedural issue raised by the 
European Communities at the outset of the Panel pr oceedings, and the Panel's disposition of it.  We 
then set out in section C an overview of the claims and arguments on appeal.  Our analysis is set out in section D, and is divided into two main parts:  (i) the European Union's request for reversal of 
certain statements and findings by the Panel set fort h in paragraph 7.22 of its Report;  and (ii) the 
European Union's request for completion of the anal ysis, including its request that we make four 
specific findings, as well as two additional requests re lating to the alleged w ithholding of information 
by the United States and its alleged non-cooperation in  the Annex V procedure.  Our conclusions are 
set out in section E. 
B. The Panel's Preliminary Ruling 
482. The Panel in this dispute was established on 17 February 2006.  In its request for the 
establishment of a panel, the European Communities requested that the DSB initiate a procedure for 
developing information concerning serious prejudice under Annex V to the SCM Agreement  and 
designate Mr. Mateo Diego-Fernández as its repr esentative for the purpose of facilitating such 
procedure.
1046  At the DSB meeting at which the Panel was established, as well as at four subsequent 
DSB meetings in March, April, and May of that year, the European Communities sought initiation of 
                                                      
1044The Panel's preliminary rulings are reproduced in paragraphs 7.19-7.24 of the Panel Report.  On 
appeal, the European Union's challenge relates to the ruling set out in paragraphs 7.20-7.23. 
1045When referring to "this dispute", we are referring to DS353.  However, as explained further below, 
the DS number 353 was not initially attributed to this dispute.  Rather, the DS353 number was assigned only on 
4 December 2006, that is, several months after the establishment and composition of the Panel.  At the time of 
establishment and composition of the Panel, the dispute bo re the DS number 317.  The evolution of DS317 and 
DS353 is discussed infra , paras. 537-539. 
1046Panel Report, para. 1.7.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 199  
 
  an Annex V procedure.
1047  At those meetings, the United Stat es made statements indicating that it 
could not agree to the proposed initiation of an Annex V procedure, and the European Communities 
made statements expressing the view that the DSB must initiate such a procedure upon request, unless 
there is a consensus not to do so.1048  At each meeting, the DSB "took note" of the statements 
made.1049  No Annex V procedure ensued. 
483. On 24 November 2006, two days after the Panel had been composed1050, the 
European Communities submitted a request for prel iminary rulings concerning the gathering of 
information in connection with its claims of serious prejudice.1051  The European Communities 
requested, inter alia , that the Panel rule that an Annex V procedure had been initiated, that a 
facilitator had been effectively designated, and that the United States was under an obligation to 
cooperate and answer the questions that had been put to it in a letter from the European Communities 
to the facilitator dated 23 May 2006.1052  The European Communities' request included extensive 
argumentation in support of several propositions, including  that "the initiation of a procedure within 
the meaning of Annex V, paragraph 2 SCM Agreement is not a DSB 'decision' to be adopted by 
consensus, but rather a DSB 'action' that is auto matically taken upon request, or at least taken unless 
there is a negative consensus not to take the action".1053  The European Co mmunities requested, 
alternatively, that the Panel exercise its pow ers under Article 13 of the DSU and request the 
United States to provide certain information.1054 
                                                      
1047WT/DSB/M/205, paras. 69 and 72;  WT/DSB/M/206, paras. 11-13 and 19-20;  WT/DSB/M/207, 
paras. 92 and 93;  WT/DSB/M/210, para. 99-101;  WT/DSB/M/212, paras. 64-67. 
1048See infra , para. 538. 
1049WT/DSB/M/205, para. 76;  WT/DSB/M/206, para. 26;  WT/DSB/M/207, para. 101;  
WT/DSB/M/210, para. 104;  WT/DSB/M/212, para. 71. 
1050The Panel was composed on 22 November 2006. (Panel Report, para. 1.5) 
1051Request for preliminary rulings by the European Communities, 24 November 2006 
("European Communities' request for preliminary rulings"). 
1052European Communities' request for preliminary rulings, para. 58.  As explained infra , 
footnote 1142, after failing to obtain a DSB decision to initiate an Annex V procedure, the 
European Communities sought to have the Annex V facilitator in the DS316 ( EC and certain member States – 
Large Civil Aircraft ) and DS317 disputes conduct an Annex V procedure in this dispute. 
1053European Communities' request for preliminary rulings, para. 29. 
1054European Communities' request for preliminary rulings, para. 58. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 200 HSBI omitted, as indicated [[HSBI]]  
 
  484. On 22 March 2007, the United States submitted its response to the European Communities' 
request for preliminary rulings.
1055  The United States argued that the Panel lacked the authority to 
rule on the conduct, duties, and procedures of th e DSB, that the European Communities' negative 
consensus arguments were not supported by the cove red agreements, and that  an exhaustive Annex V 
procedure had already been undertaken.1056  Further, the United States argued that it would be 
inappropriate at that juncture for the Panel to seek information, and also that it is for a panel and not 
the requesting party to determine if seeki ng information is necessary and appropriate.1057 
485. On 30 July 2007, the Panel issued a Preliminary Ruling denying all of the requests that had 
been made by the European Communities.  The Pane l observed that "it may well be" that the initiation 
of an Annex V procedure does not require a decision by positive consensus.1058  However, based on its 
understanding of the phrase "the DSB shall, upon requ est, initiate the procedure" in paragraph 2 of 
Annex V, the Panel opined that "some form of  action is required on the part of the DSB".1059   
Because the Panel found it "clear from the minutes of the DSB meetings where this matter was discussed that the DSB never took any action to initiate  an Annex V procedure, or to designate a DSB 
representative pursuant to paragraph 4 of Annex V", th e Panel considered that it was "unable to rule 
that an Annex V procedure was initiated in this dispute".
1060  Accordingly, the Panel denied the 
European Communities' request that it rule that an  Annex V procedure had been initiated, as well as 
several additional requests that the Panel considered  to be dependent on a ruling that such initiation 
had occurred.1061  The Panel also denied the alternative re quest made by the European Communities to 
                                                      
1055United States' response dated 22 March 2007 to the European Communities' request for preliminary 
rulings.  22 March 2007 was also the due date for the European Communities' first written submission to the 
Panel.  The Panel also received letters from Cana da and Brazil commenting on the European Communities' 
request.  Both third parties took the position that the in itiation of an Annex V procedure is automatic and that the 
DSB must launch such a procedure at th e request of the complaining party.  Brazil acknowledged that, at that 
stage in the proceedings, no Annex V procedure could o ccur "{a}bsent subsequent developments before the 
DSB or agreement of the parties to initiate a full Annex V procedure for DS353", but at the same time 
emphasized the unlimited nature of a panel's authority under Article 13 of the DSU to seek and obtain 
information from the parties to a dispute, as well as a panel's discretion to draw adverse inferences. (Comments of Brazil dated 21 December 2006 on the European Co mmunities' request for pre liminary rulings, paras. 6 
and 7)  Canada stressed that "the appropriate forum to  judge the actions or inactions of the DSB is the DSB 
itself", and that "the Panel ha{d} no jurisdiction to do so".  Canada also considered it "premature" for the Panel to exercise its authority under Article 13 of the DSU prio r to the exchange of the first written submissions of the 
parties. (Comments of Canada dated 1 December 2006 on the European Communities' request for preliminary 
rulings, p. 2) 
1056The United States was referring to the Annex V procedure conducted in DS317, US – Large Civil 
Aircraft .  The relationship between DS317 and this dispute (DS353) is discussed infra , paras. 537-539. 
1057Panel Report, footnote 1026 to para. 7.22.  
1058Panel Report, para. 7.21. 
1059Panel Report, para. 7.21. 
1060Panel Report, para. 7.20. 
1061See Panel Report, para. 7.22 (quoting European  Communities' request for preliminary rulings, 
para. 58).  The relevant portion of this paragraph is set out, infra , para. 487.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 201  
 
  "exercise its discretion under Article 13 of the DSU to seek information from the United States prior 
to having carefully reviewed the parties' first written submissions".
1062   
486. Two days after the Panel issued its Prelim inary Ruling, the European Communities sent 
another letter to the Panel highligh ting that, in its Ruling, the Panel had twice stated that "it may well 
be" that the initiation of an Annex V procedure is no t a "decision" that is subject to positive consensus 
within the meaning of Article 2.4 of the DSU1063, and requesting the Panel to clarify how such a 
decision is to be taken.  On 30 August 2007, the Panel declined this request based on its view that it 
was being asked "to offer guidance on an issue that would not affect the resolution of this dispute".1064  
The Panel noted that Article IX of the WTO Agreement  provides that the Ministerial Conference and 
the General Council have the exclusive authority to adopt interpretations of the covered agreements.  
C. Overview of the Claims and Arguments on Appeal 
487. In its appeal of this preliminary issue, the Eur opean Union makes a number of requests.  First, 
the European Union requests that we  reverse the first and last sentences in paragraph 7.22 of the Panel 
Report, which reproduces paragraph 4 of the Panel' s Preliminary Ruling.  Paragraph 7.22 reads as 
follows: 
We therefore deny the European Co mmunities' request that the Panel 
"rule that the Annex V procedure requested by the European Communities at the DSB meeting of 21 April 2006 and confirmed at the DSB meeting of 17 May 2006 has been initiated".   
The European Communities further requested that the Panel:  (i) 
"rule that the United States is unde r an obligation to cooperate and 
answer the questions that have been put to it in the European Communities' letter to th e Facilitator dated 23 May 2006";  
(ii) "rule that Mr. Mateo Diego-Fernández was effectively designated as a facilitator in that procedure, a nd in the event that the Panel does 
not make this ruling, nevertheless to  provide the relief set forth in the 
preceding and following points";  an d (iii) "adopt such working 
procedures that would allow the completion of the Annex V 
                                                      
1062Panel Report, para. 7.23.  The Panel was of the view that "a panel will usually not be in the position 
to determine what information is 'necessary and appropri ate', and will therefore usually not be in a position to 
exercise its authority under Article 13 of the DSU to request information 'the panel considers necessary and 
appropriate', prior to having carefully review ed the parties' first written submissions." ( Ibid.)  The Panel also 
referred to "the particular circumstances and procedural history of this dispute", and added that it did "not consider it necessary or appropriate to use its discretio n under Article 13 of the DSU to remedy the parties' 
inability to reach agreement on the initiation of an Annex V procedure, or to remedy the parties' inability to 
reach agreement on a means for tran sferring the information obtained duri ng the DS317 Annex V procedure to 
the present Panel".
 (Ibid.) 
1063Letter from the European Communities to the Panel dated 2 August 2007 (quoting Panel's 
Preliminary Ruling of 30 July 2007, para. 3).  
1064Letter from the Panel to the parties dated 30 August 2007 responding to the European Communities' 
request of 2 August 2007.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 202 HSBI omitted, as indicated [[HSBI]]  
 
  procedure in due time before the deadline for the filing of the 
European Communities' first written submission".  These additional requests are necessarily dependant upon the Panel ruling that the Annex V procedure was initiated.  We therefore deny these requests 
as well.  (footnotes omitted;  emphasis added) 
488. The European Union further requests us to comp lete the analysis and make the following four 
findings
1065: 
(i) that the initiation of an Annex V procedure is  an action by negative consensus or is 
automatic; 
(ii) that, as a matter of law, all of the c onditions for the initiation of an Annex V 
procedure were fulfilled in this dispute a nd such procedure was initiated and/or is 
deemed to have been initiated a nd/or should have been initiated; 
(iii) that, in refusing to cooperate in the info rmation-gathering process, the United States 
failed to comply with its obligation under the first sentence of paragraph 1 of Annex V to the SCM Agreement ;  and 
(iv) that, pursuant to paragraphs 6 to 9 of Annex V to the SCM Agreement , the 
European Union was entitled to present its serious prejudice case based on the evidence available to it;  the Panel was en titled to complete the record as necessary 
relying on best information otherwise availa ble;  and the Panel was entitled to draw 
adverse inferences.  
489. In addition, and "independently" from these re quests, the European Union requests us to 
"constantly bear in mind the circumstances of this c ase", notably that "the United States has chosen to 
withhold information from the European Union and the Panel" and that the United States' "refusal to co-operate in the Annex V procedure colours the entire dispute".
1066  This means, according to the 
European Union, that:  (i) with respect to the United States' appeal, "the United States cannot now 
reasonably criticise the Panel for its assessment of the facts or for the reasonable drawing of factual 
inferences where the United States itself is responsib le for depriving the Panel of information";  and 
(ii) with respect to the European Union's appe al, "{i}n case of doubt or evidentiary conflict or 
equipoise, the Appellate Body should rule in favour of the European Union".1067 
                                                      
1065European Union's appellant's submission, para. 52. 
1066European Union's appellant's submission, para. 53. 
1067European Union's appellant's submission, para. 53.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 203  
 
  490. The United States requests that we reject this ground of the European Union's appeal.  
According to the United States, the Panel corr ectly found that "initiation of an Annex V 
information-gathering procedure requires an affirma tive act or decision by the DSB, irrespective of 
whether by positive or negative consensus" , and that "the DSB took no such step".
1068  Should we 
uphold these findings then, submits the United States, we  need proceed no further with our analysis.  
In the event that we nonetheless decide to address the additional issues raised and requests made by 
the European Union, the United St ates submits that:  (i) both the initiation of an Annex V procedure 
and the designation of a facilitator require a positive consensus of the DSB;  (ii) the Panel did not 
have the authority to rule that an Annex V proce dure had been initiated, that the DSB had appointed a 
facilitator, or that the United States had an obliga tion to answer the European Union's questions;  
(iii) there is no legal authority for the Appellate  Body to take adverse inferences against the 
United States in the circumstances of this disp ute;  and (iv) the findings requested by the 
European Union are improper.   
491. The United States asserts that the requests and ar guments made by the European Union fail to 
identify many relevant facts.  The United States highlights, for example, the Annex V process that 
was conducted in 2005, during which its officials "s pent thousands of hours collecting and assembling 
more than 40,000 pages of documents".1069  The United States adds that the DSB representative in that 
Annex V procedure made no finding that the Un ited States had failed to cooperate in those 
proceedings.1070  Furthermore, in this dispute, "the Panel vigorously exercised its right to request 
further information from the parties"1071, and the United States "responded fully and completely to 
every request for information made by the Panel"1072, including by providing "voluminous responses" 
to the three sets of questions that  the Panel posed to the parties.1073  The United States adds that, 
throughout the proceedings, it relied in  good faith on:  the lack of a decision by the DSB to initiate an 
Annex V procedure;  Mr. Diego-Fernández' conclusion that he could not agree to the 
European Communities' request that he serve as DSB representative1074;  and the Panel's preliminary 
ruling and ultimate finding that no such procedure had been initiated.   
                                                      
1068United States' appellee's submission, para. 52. 
1069United States' appellee's submission, para. 30. 
1070For an explanation of the Annex V procedure conducted in 2005 in US – Large Civil Aircraft 
(DS317), see infra , paras. 537-539.  
1071United States' appellee's submission, para. 38.  
1072United States' appellee's submission, para. 111. 
1073United States' appellee's submission, para. 38. 
1074See infra , footnote 1142. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 204 HSBI omitted, as indicated [[HSBI]]  
 
  D. Evaluation of the European Union's Claim of Error on Appeal  
1. The European Union's Request for Reversal of the Panel's Findings in 
Paragraph 7.22 of the Panel Report 
492. The European Union seeks to have us reverse the statements in the first and last sentences of 
paragraph 7.22 of the Panel Report on the gro unds that the Panel failed to make an objective 
assessment of the matter within the meaning of Ar ticle 11 of the DSU, and/or falsely exercised 
judicial economy, and/or erred in the interpreta tion and application of Ar ticle 7.4 and Annex V, 
paragraph 2, first sentence, to the SCM Agreement .1075  
493. We understand the European Union to challenge th e analytical approach adopted by the Panel 
and, in particular, its determina tion that all of the requests made by the European Communities had to 
be rejected because, as a factual matter, there was an absence of any action by the DSB with respect to 
an Annex V procedure.  The European Union assert s that the Panel "simply avoided ruling on the 
legal question at the root of the dispute".1076  Although "the Panel appears to  have accepted, at least by 
implication, that it had an implied or inherent po wer, and in fact an obligation, to rule on the 
matter"1077, instead of doing so, it "erroneously re-state{d} part of the EU complaint as a request for a 
ruling on a narrow factual  proposition:  that the DSB has initiated an Annex V procedure by action by 
negative consensus"1078, and then rejected that factual proposition.  Such reasoning is, in the view of 
the European Union, "circular and unreasonable", since it "is exactly the absence of an Annex V 
procedure about which the European Union was comp laining;  and yet for the Panel that absence 
becomes the very justification for rejecting the EU request".1079   
494. In response, the United States observes that th e European Union's arguments do not address 
the substance of the Panel's findi ngs, and submits that the Panel co rrectly understood the request for 
preliminary rulings as a "request to 'rule' on the 'f actual proposition' that a particular event occurred at 
two DSB meetings".1080  The Panel found, based on a proper understanding of the DSU, that the 
initiation of an Annex V procedure requires an affirmative act or decision by the DSB.  Whether such 
initiation is by negative or positive consensus is "beside the point".1081  This is because the Panel 
found that no  formal step to initiate an Annex V pro cedure had been taken by the DSB.   
                                                      
1075European Union's appellant's submission, para. 51. 
1076European Union's appellant's submission, para. 48. 
1077European Union's appellant's submission, para. 49. 
1078European Union's appellant's submission, para. 50. (original emphasis) 
1079European Union's appellant's submission, para. 50. 
1080United States' appellee's submission, para. 50. 
1081United States' appellee's submission, para. 49.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 205  
 
  495. We begin by observing that, as the Panel reflected , in its request for preliminary rulings the 
European Communities asked the Panel:   
… to rule that the Annex V procedure requested by the EC at the 
DSB meeting of 21 April 2006 and confirmed at the DSB meeting of 
17 May 2006 has been initiated {.}
1082 (emphasis added)   
496. This request was, however, but one part of a lengthy communication from the 
European Communities.  At the outset of its request for preliminary rulings, the 
European Communities underscored the "key legal issu e hereby put before this Panel", namely, "the 
procedure to be followed when 'the DSB shall, upon request, initiate the procedure'"1083 provided for 
in Annex V, paragraph 2, first sentence, to the SCM Agreement .  The European Communities then set 
out, over several pages, its arguments, including its  interpretation of various provisions of the DSU 
and the SCM Agreement , in support of its view that "the initiation of a procedure within the meaning 
of Annex V, paragraph 2 SCM Agreement  is not a DSB 'decision' to be adopted by consensus, but 
rather a DSB 'action' that is automatically taken upon request, or at least taken unless there is negative 
consensus not to take the action".1084  This analysis was further buttressed by considerations of object 
and purpose, including the following arguments: 
The Annex V process is a necessary corollary and integral part of the 
establishment of a Panel in a dispute settlement proceeding which, 
through the establishment of a pane l, is launched by a negative 
consensus. Any attempt to make this fact-finding procedure specifically designed for serious prejudice cases subject to a veto of the defending party would severely limit the ability of a complaining party to successfully bring a serious prejudice case. The overall 
balance and effectiveness of the SCM Agreement  would be severely 
hampered with far-reaching systemic  implications. The complainants 
must have a tool to prepare their serious prejudice case by obtaining the necessary information before their submissions have to be made to a panel.
1085 
497. The Panel, however, did not engage with these arguments.  Rather, the Panel's disposition of 
the issue put before it by the European Communitie s rested entirely upon its perfunctory examination 
of a single phrase within paragraph 2 of Annex V to the SCM Agreement , together with its factual 
finding that the DSB had taken no action in co nnection with Annex V in this dispute.   
                                                      
1082European Communities' request for preliminary rulings, para. 58 (reproduced at Panel Report, 
para. 7.22).  See also ibid., para. 44.   
1083European Communities' request for preliminary rulings, para. 9.   
1084European Communities' request for preliminary rulings, para. 29.   
1085European Communities' request for preliminary rulings, para. 34.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 206 HSBI omitted, as indicated [[HSBI]]  
 
  498. In its brief appraisal of paragraph 2 of Anne x V, the Panel focused solely on the phrase "the 
DSB shall, upon request, initiate the procedure" a nd, in particular, on the meaning of the verb 
"initiate".
1086  The Panel did not consider the significance of the other language set out in that 
provision, including the explicit cross-reference to Article 7.4 of the SCM Agreement.  Nor did the 
Panel identify or analyze any relevant context.   Although the Panel asserted that accepting the 
interpretation of paragraph 2 of Annex V put forward by the European Communities "would 
effectively remove the DSB from having any role in the initiation of an Annex V procedure" and 
"could have far-reaching and potentiall y surprising systemic consequences that would be inconsistent 
with the object and purpose of providing 'security and predictability' to the multilateral trading 
system", the Panel did not identify what those syst emic consequences might be or why they would be 
inconsistent with the objectives of the WTO dispute settlement system.1087  The only other step in the 
Panel's reasoning consisted of its review of the minut es of the relevant DSB meetings, en route to its 
determination that it was "clear" from such minutes th at the DSB did not take any action to initiate an 
information-gathering procedure.1088   
499. We consider that, in seeking to reduce the issu e put before it by the European Communities to 
the factual issue of whether the DSB had taken acti on to initiate an Annex V procedure, the Panel 
effectively refused to tackle the i ssue of law raised.  The Panel's partial interpretation of one of the 
provisions at issue did not address the key legal subm issions advanced by the European Communities.  
For example, in explaining why it was "not convinced"1089 by the European Communities' argument, 
the Panel twice made the rather cryptic observati on that "it may well be that the initiation of an 
Annex V procedure is not … subject to consensus."1090  In so stating, the Panel appears to have 
considered that the issue of how an Annex V pro cedure is initiated by the DSB was not germane to 
the issue that it had to decide.  We have some di fficulty accepting that this was the case.  The Panel 
also made the rather sweeping observation that accepting the position of the European Communities 
would "effectively remove the DSB from having any role in the initiation of an Annex V 
                                                      
1086The Panel observed that the verb "initiate" means " begin, introduce, set goin g, originate" (Panel 
Report, para. 7.21 (quoting Shorter Oxford English Dictionary , 5th edn, W.R. Trumble, A. Stevenson (eds) 
(Oxford University Press, 2002), Vol. 1, p. 1377) and considered that "{t}he ordinary meaning of the term 
'initiate', used in the immediate c ontext of a positive duty formulated in  the active voice ('the DSB shall ... 
initiate'), implies that some form of action is required on the part of the DSB." ( Ibid., para. 7.21)   
1087Panel Report, para. 7.21. 
1088Panel Report, para. 7.20. 
1089Panel Report, para. 7.21.  The European Communitie s contended that "the initiation of a procedure 
within the meaning of Annex V, paragraph 2 SCM Agreement  is … a DSB 'action' that is automatically taken 
upon request, or at least taken unless there is negative consensus not to take the action." (European Communities' request for preliminary rulings, para. 29) 
1090Panel Report, para. 7.21, third and final sentences.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 207  
 
  procedure"
1091, even though the European Communities' ar guments clearly did envisage a role for the 
DSB in such initiation. 
500. Taken as a whole, the Panel's findings and stat ements in paragraphs 7.21 and 7.22 of its 
Report do not adequately resolve the legal issues pr esented.  The question before the Panel was not 
limited to whether an Annex V procedure had been initiated;  rather, the Panel was asked to rule on 
how the relevant provisions of the covered agreem ents provide for an Annex V procedure to be 
initiated.  The Panel did not provide an answer to th at question in its truncated analysis of paragraph 2 
of Annex V.  By refusing to undertake a more comp rehensive analysis of the legal issue of how the 
DSB is to initiate an Annex V procedure, the Pane l deprived Members of the benefit of a "a clear 
enunciation of the relevant WTO law" and faile d to advance a key objective of WTO dispute 
settlement, namely, the resolution of disputes "in a ma nner that preserves the rights and obligations of 
WTO Members and clarifies existing provisions of the covered agreements in accordance with the 
customary rules of interpretation of public international law".1092  We also recall that, when a panel's 
findings provide "only a partial resolution of the matter at issue", this amounts to "false judicial 
economy" and an error of law.1093   
501. For these reasons, we find that the Panel erred, in the first and last sentences of 
paragraph 7.22 of the Panel Report,  reproducing paragraph 4 of its Pr eliminary Ruling, in denying the 
various requests made by the European Communities with respect to an Annex V procedure.   
502. In so ruling, we are not asked to, and we do not, disturb the Panel's factual finding, in 
paragraph 7.20 of the Panel Report, that "the DSB never took any action to initiate an Annex V 
procedure" in this dispute.  We are also mindful that it is not for panels, or the Appellate Body, to 
review DSB actions in a particular dispute or to di rect that specific actions be taken.  At the same 
time, however, the DSU stipulates that panels a nd the Appellate Body are to clarify relevant 
provisions of the covered agreements in accordance with the customary rules of interpretation of 
public international law in such a way as to pr eserve the rights and obligations of Members and 
contribute to the security and predictability of the multilateral trading system, consistently with the 
objective of securing a positive solution to individual  disputes.  The DSU does not identify specific 
provisions of the covered agreements , or particular obligations thereunder, that are exempt from or 
not susceptible of interpretation by panels or the Appe llate Body.  To the extent that they are at issue 
in a specific dispute, even provisions relating to the functioning of the DSB or the dispute settlement 
                                                      
1091Panel Report, para. 7.21. 
1092Appellate Body Report, China – Publications and Audiovisual Products , para. 213 (referring to 
Article 3.2 of the DSU). 
1093Appellate Body Report, Australia – Salmon , para. 223;  see also paras. 224-226. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 208 HSBI omitted, as indicated [[HSBI]]  
 
  process itself are properly the subject of interpre tation by panels and the Appellate Body, as the 
content of such provisions also affects the rights and obligations of WTO Members.  Moreover, and 
as explained further below, the conduct of an Annex V information-gathering procedure bears a direct 
relationship to a panel's discharge of its adjudica tive function in a dispute involving allegations of 
serious prejudice.   
2. The European Union's Request fo r Completion of the Analysis 
503. Having found that the Panel erred in deny ing the European Communities' request for 
preliminary rulings in connection with an Annex V procedure, we turn to the European Union's 
request for completion of the analysis.  We recall th at the European Union requests us to make four 
specific findings1094, each of which is "a separate and inde pendent matter" and not dependent on any 
other requested finding.1095  We address these in turn below. 
(a) Interpretation of relevant provisions of the SCM Agreement and 
the DSU 
504. The first issue that the European  Union seeks to have us decide  is how an Annex V procedure 
is initiated.  According to the European Union, this is "a pure question of legal interpretation", 
namely, whether an information-gathering procedure under Annex V to the SCM Agreement  is 
initiated, upon request, by negative consensus and/or  automatically (as the European Union submits), 
or through a DSB decision by consensus (as the United States submits).1096   
505. The European Union submits that , when the terms of the treaty are properly interpreted, in 
accordance with the Vienna Convention , and all relevant interpreta tive elements are taken into 
account, it is clear that the initiation of an inform ation-gathering procedure within the meaning of 
Annex V, paragraph 2 to the SCM Agreement  is not a DSB decision to be adopted by positive 
consensus, but a DSB action that is take n by negative consensus or automatically.1097  T h e  
European Union emphasizes the mandatory language  "the DSB shall" in the first sentence of 
paragraph 2 of Annex V, as well as the significance of  the express cross-reference to Article 7.4 of the 
SCM Agreement  in that sentence.  These considerations, t ogether with various other elements of the 
text, context, and object and purpose, do not suppor t a conclusion that the treaty negotiators would 
have obliged  the DSB to act, and yet at the same time provided the defending Member in a dispute 
                                                      
1094See supra , para. 488. 
1095European Union's appellant's submission, footnote 65 to para. 52. 
1096European Union's appellant's submission, para. 9.  In footnote 11 to paragraph 9, the 
European Union clarifies that, when it says "by negative consensus", it means "in effe ct and/or alternatively, 
automatically". 
1097European Union's appellant's submission, paras. 9, 10, and 43.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 209  
 
  with the means to frustrate such action.  Rather, initiation of an information-gathering procedure is 
closely bound to the establishment of a panel in a serious prejudice dispute, and conditional only on a 
request being made by the interested Member.
1098 The European Union adds that the overall balance 
and effectiveness of the SCM Agreement  would be compromised if the conduct of an Annex V 
fact-finding procedure, specifically designed for serious prejudice cases, were to be subject to a veto of a responding party.  In addition, the European Union further submits that its interpretation is 
confirmed by the preparatory work and/or the circumstances of conclusion of the treaty. 
506. The United States, in contrast, submits that both the initiation of an Annex V procedure and 
the designation of a facilitator require a positive consen sus of the DSB.  Neither can occur without the 
DSB reaching a "decision", which is defined as "the action of coming to a determination or resolution 
with regard to any point or course of acti on;  a resolution or conclusion arrived at".
1099  Article 2.4 of 
the DSU and footnote 3 to Article IX:1 of the WTO Agreement  establish a general rule requiring 
positive consensus for DSB decisions.  According to the United States, there can be no deviation from 
this general rule in the absence of an express indica tion, in the very text of a provision assigning a 
responsibility to the DSB, that a di fferent decision-making rule applies.1100  Because paragraph 2 of 
Annex V does not expressly provide otherwise, the United States asserts, the initiation of an Annex V 
procedure must be a decision subject to the general rule of consensus.1101 
507. Several of the third participants also express view s on this issue.  For Brazil, paragraph 2 of 
Annex V to the SCM Agreement  establishes an automatic  process that requires the DSB to initiate the 
procedure whenever it is so requested, and does not  permit the DSB to decide not to do so even 
through negative consensus.  According to Brazil, the DSB has no choice to make in respect of the 
functions assigned to it and hence no new decision or approval by consensus is required.  Rather, the 
WTO membership already consented to the perfo rmance of these functions by the DSB by accepting 
an agreement that assigns an obligation to the DS B.  Brazil adds that interpreting the relevant 
provisions as allowing the subsidizing Member to block unilaterally the initiation of an Annex V 
procedure would contradict the text of those pr ovisions and undermine the ability of Members to 
bring complaints under the SCM Agreement , particularly in cases where mu ch of the evidence relating 
to subsidization rests with the government of the subsidizing Member.  In Canada's view, the Panel 
                                                      
1098European Union's appellant's submission, para. 34.  
1099United States' appellee's submission, para. 54 (quoting The New Shorter Oxford English Dictionary , 
4th edn, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 608).  
1100The United States points out that this is the case in Articles 6.1, 16.4, 17.14, 22.6, and 22.7 of the 
DSU, and the corresponding provisions of the SCM Agreement , which identify circumstances in which the DSB 
is to operate pursuant to a rule of "negative consensus", namely, when it establishes panels, adopts panel and 
Appellate Body reports, and authorizes countermeasures or the suspension of concessions. (United States' appellee's submission, para. 55) 
1101United States' appellee's submission, para. 55.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 210 HSBI omitted, as indicated [[HSBI]]  
 
  was correct to limit its finding to whether the Anne x V procedure had been initiated and not to make 
findings on how the procedure is to be initiated.  Canada does not consider that panel and Appellate 
Body proceedings are the proper fora to discuss how the DSB is to initiate an Annex V procedure.  
Rather, such discussions should take place within the DS B itself.  China agrees with the Panel that it 
is the DSB that must initiate an Annex V proce dure, and that this does not "occur automatically"
1102 
upon request, in the absence of any action by the DSB.  Korea also supports the Panel's view that the 
relevant provisions of Annex V and the DSU mean that the init iation of the Annex V proceeding 
requires some positive action by the DSB.   
508. Before turning to the specific interpretative i ssue raised, we wish to identify briefly the 
broader scheme within which it is situated.  Part III of the SCM Agreement defines the circumstances 
in which a Member's use of subsidies is actiona ble, including when such subsidies cause adverse 
effects in the form of serious prejudice to another Member's interests.  Article 7 sets out the remedies 
that may be obtained in such circumstances, including, in paragraph 4, the right to obtain the establishment of a panel by the DSB by negative con sensus in the event that consultations do not yield 
a positive solution to the dispute.
1103  Article 6 of the SCM Agreement  defines "serious prejudice" and 
refers, on two occasions, to Annex V.1104  Annex V to the SCM Agreement is entitled "Procedures for 
Developing Information Concerning Serious Prejudice" , and contains nine pa ragraphs outlining an 
information-gathering procedure to be used in WT O disputes where the complaining party alleges that 
                                                      
1102China's third participant' s submission, para. 4. 
1103Article 7.4 of the SCM Agreement  provides: 
If consultations do not result in a mutually agreed solution within 60 days, 
any Member party to such consultations may refer the matter to the DSB for 
the establishment of a panel, unless the DSB decides by consensus not to 
establish a panel.  The composition of the panel and its terms of reference 
shall be established within 15 days from the date when it is established. 
(footnote omitted) 
1104Paragraphs 6 and 8 of Article 6 of the SCM Agreement  provide: 
6.  Each Member in the market of which serious prejudice is alleged to have 
arisen shall, subject to the provisions of paragraph 3 of Annex V, make available to the parties to a dispute arising under Article 7, and to the panel 
established pursuant to paragraph 4 of Article 7, all relevant information that 
can be obtained as to the changes in market shares of the parties to the 
dispute as well as concerning prices of the products involved. 
8.  In the absence of circumstances refe rred to in paragraph 7, the existence 
of serious prejudice should be determined on the basis of the information submitted to or obtained by the panel, including information submitted in 
accordance with the provisions of Annex V.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  another Member's subsidization has caused serious prejudice to its interests.  The provisions of 
Annex V refer three times to Article 7.4 of the SCM Agreement.
1105  
509. All of Annex V, together with, inter alia , Articles 6.6, 7.4, 7.5, and 7.6 of the 
SCM Agreement , are listed as special or additional rul es and procedures under Appendix 2 to the 
DSU.  We recall in this connection that, pursuant to  Article 1.2 of the DSU, the provisions of both the 
SCM Agreement and the DSU apply in the context of a di spute involving allegations of actionable 
subsidies causing serious prejudice, except that, to the extent that there is a conflict, those provisions 
of the SCM Agreement identified in Appendix 2 to the DSU prevail, including over Article 2.4 of 
the DSU.1106   
510. Returning to the specific question raised by th e European Union on appeal, we observe that 
the only direct reference to the initiation of an A nnex V procedure is found in the second paragraph of 
Annex V.  The first sentence of that provision uses mandatory language to charge the DSB with 
responsibility for initiating an information-gath ering procedure, in the following terms: 
In cases where matters are referred to the DSB under paragraph 4 of 
Article 7, the DSB shall, upon re quest, initiate the procedure to 
obtain such information from the government of the subsidizing Member as necessary to establish the existence and amount of 
subsidization, the value of total sales of the subsidized firms, as well 
as information necessary to analyze the adverse effects caused by the 
subsidized product.
66  
66 In cases where the existence of serious prejudice has to be demonstrated.   
                                                      
1105Paragraph 1 of Annex V provides: 
Every Member shall coop erate in the developmen t of evidence to be 
examined by a panel in procedures under paragraphs 4 through 6 of 
Article 7.  The parties to the di spute and any third-country Member 
concerned shall notify to the DSB, as soon as the provisions of paragraph 4 
of Article 7 have been invoked, the organization responsible for 
administration of this provision within its territory and the procedures to be used to comply with requests for information. 
In addition to the reference to establishment of a panel in the first sentence of the second paragraph of 
Annex V (reproduced infra, para. 510), the first sentence of paragraph 5 of Annex V stipulates that "{t}he 
information-gathering process … shall be completed within 60 days of the date on which the matter has been 
referred to the DSB under paragraph 4 of Article 7." 
1106See Appellate Body Report, Guatemala – Cement I , para. 65;  and Appellate Body Report, US – 
FSC, para. 159.  Article 30 of the SCM Agreement reinforces this overall structure by providing that: 
{t}he provisions of Articles XXII and XXIII of GATT 1994 as elaborated 
and applied by the Dispute Settlement Understanding shall apply to consultations and the settlement of disputes under this Agreement, except as 
otherwise specifically provided herein. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  511. The DSB's obligation to initiate under paragra ph 2 of Annex V is expressly subject to two 
conditions.  First, there must be a request by a WTO Member for initiation of an Annex V 
procedure.
1107  Second, the relevant matter must be "referred to the DSB under paragraph 4 of 
Article 7".  Article 7.4 of the SCM Agreement supplies the legal basis for the DSB's establishment of a 
panel in disputes involving claims brought under Part III of the SCM Agreement.  In other words, the 
text of the first sentence of pa ragraph 2 of Annex V itself makes the DSB's establishment of a panel 
the second condition for initiation of an Annex V proce dure.  Accordingly, we read the first sentence 
of paragraph 2 of Annex V to mean that, when a request by a Member for an Annex V procedure is 
made and a panel established, the DSB is required to  discharge a specific function, namely, to initiate 
that Annex V procedure.  This straightforward and specific administrative action is a procedural 
incident of the DSB's decision to establish a pane l when the initiation of an Annex V procedure has 
been requested.  As such, this function that the DSB is required to carry out contrasts with other 
responsibilities assigned to the DSB that have a more  deliberative nature, a nd which require the DSB 
to discuss and to make a choice among multiple courses of action.   
512. Other provisions of Annex V also reinforce the importance of the establishment of the panel 
to an Annex V procedure.  For example, the dut y of Members to cooperate in the gathering of 
information is, under paragraph 1 of Annex V,  activated as soon as a complainant has invoked 
Article 7.4 and sought establishment of a panel.   The time-limit within which an information-
gathering procedure must be completed is, as set out in paragraph 5 of Annex V, fixed by reference to 
the date of establishment of the panel.  These provi sions, too, affirm the link between establishment of 
a panel and the initiation of an Annex V procedure, underline the primacy of Article 7.4, and suggest 
that the mandatory functions assigned to the DSB unde r paragraph 2 of Annex V are executory, in the 
sense that the obligation is both triggered by and discharged upon establishment of a panel, provided 
that a request for initiation of an Annex V procedure has been made by a Member.   
513. Both the title of Annex V ("Procedures for Developing Information Concerning Serious 
Prejudice") and Articles 6.6 and 6.8 of the SCM Agreement  make clear that Annex V is a procedure to 
be used when a complainant alleges that another Member's subsidization has caused serious prejudice 
to its commercial interests.  Disputes involving claims of serious prejudice are characterized by the 
need for a complainant to adduce ex tensive evidence of the market e ffects of the challenged subsidies, 
including in third-country markets, as well as by the fact that much of the information relating to the 
                                                      
1107We note in this regard that complaining Members that have sought initiation of an Annex V 
procedure have always included that request in their requests for establishment of a panel.  In addition to the 
request for establishment of a panel in this dispute, see the panel requests in Indonesia – Autos (WT/DS54/6, 
complaint by the European Communities;  WT/DS59/6, complaint by the United States);  US – Upland Cotton 
(WT/DS267/7);  Korea – Commercial Vessels (WT/DS273/2; WT/DS273/3);  EC and certain member States – 
Large Civil Aircraft (WT/DS316/2);  and US – Large Civil Aircraft (WT/DS317/2).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  subsidization in question will be within the sole c ontrol of the government of the responding Member 
or found only in the territories of third-country ma rkets in which the subsidized products are sold.  
Recognition of the challenges that such types of di sputes present for a complainant is evident in the 
design and structure of Articles 6 and 7 of the SCM Agreement , as well as the entirety of Annex V. 
514. Annex V and Article 6.6 of the SCM Agreement prominently and unambiguously require 
cooperation from all WTO Members that may be invol ved in a serious prejudice dispute.  The first 
paragraph of Annex V imposes mandatory duties of coope ration on the parties to such dispute, as well 
as upon all WTO Members whose markets may be relevant to the issues in dispute.
1108  Article 6.6 of 
the SCM Agreement  likewise mandates cooperation with respect to a specific type of information by 
providing that each Member in whose market serious prejudice is alleged to have occurred shall make 
available to the parties to the dispute and to the pa nel "all relevant informati on" relating to prices and 
changes in market share.   
515. The provisions of Annex V also convey the impor tance of the time at which and within which 
an Annex V procedure is to be conducted.  Para graph 5 stipulates that the information-gathering 
procedure should be completed within 60 days of  the date of establishment of the panel, and 
paragraph 4 of Annex V refers to "the timely de velopment of the information necessary".  The latter 
paragraph also refers to the " subsequent  multilateral review of the dispute", thereby making clear that 
the information-gathering is meant to be completed prior to  the panel's substantive consideration of 
the matter.1109   
516. Modalities for the information-gathering process,  as well as how the results of the process are 
to be used in the panel proceedings, are also pr ovided for.  Paragraphs 5 through 9 prescribe a time 
period for completion of this process and address the transfer of information by the DSB representative to the panel, the use by the panel of su ch information, and the steps to be taken by the 
panel and the complainant in the event of non-cooper ation in the information-gathering process by the 
responding Member.  Article 6.8 of the SCM Agreement  specifies that the existence of serious 
                                                      
1108Specifically, "{e}very Member shall cooperate in th e development of evidence to be examined by a 
panel in procedures under paragraphs 4 through 6 of Article 7".  Paragraph 1 of Annex V also imposes a 
concrete obligation on each party to the dispute and any third-country Member concerned to notify the DSB of the organization within its territory that will handle requ ests for information upon establishment of a panel.   
1109Emphasis added.  Paragraph 4 of Annex V provides: 
The DSB shall designate a representative to serve the function of facilitating the information-gathering process.  The sole purpose of the representative 
shall be to ensure the timely development of the information necessary to 
facilitate expeditious subsequent multilateral review of the dispute.  In particular, the representative may suggest ways to most efficiently solicit 
necessary information as well as encour age the cooperation of the parties. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 214 HSBI omitted, as indicated [[HSBI]]  
 
  prejudice should be determined by a panel on the basis of the information submitted to or obtained by 
it, "including information submitted in accord ance with the provisions of Annex V". 
517. In this way, Annex V sets out a comprehens ive scheme designed to collect the kind of 
information that will need to be relied upon by the parties involved in a serious prejudice dispute.  
This scheme aims to foster the cooperative exch ange of information at the earliest possible 
opportunity, and thereby to contribute to the pr ompt resolution of these particularly complex 
disputes.
1110  A cornerstone of the scheme is the obligati on to cooperate that the first paragraph of 
Annex V and Article 6.6 of the SCM Agreement  place on all Members.  This obligation is given teeth 
through paragraphs 6 through 9 of Annex V, which put responding parties on notice of the potential 
consequences that may flow from non-cooperation.  The provisions of Annex V, together with 
Articles 6.6, 6.8, and 7.4 of the SCM Agreement , reflect Members' recognition of the practical realities 
of serious prejudice disputes, and their intention to create a process to flow into, supplement, and 
largely precede a panel's substantive adjudication of such disputes, without materially delaying or 
impinging upon the substance of their adjudication.1111   
518. By imposing an obligation to cooperate in th e gathering of information, together with 
sanctions for non-cooperation, Annex V seeks to ensure  that a complaining party is afforded access to 
information critical to its claims, and that such Member is not hampered, in the subsequent panel 
proceedings, in the event of a responding party's no n-cooperation in an Annex V procedure.  Thus, 
paragraph 6 enables a complaining party to pr esent its case based on the evidence available to it 
(together with evidence of non-cooperation in th e Annex V procedure), and enables a panel to 
complete the record by relying on the best informat ion otherwise available.  Paragraph 7 of Annex V 
affirmatively directs a panel to draw adverse in ferences from "instances of non-cooperation" by a 
party, and paragraph 8 makes clear that whether a party has been uncooperative is to be determined by 
the panel, taking into account the advice of the facili tator "as to the reasonableness of any requests for 
information and the efforts made by parties to co mply with these requests in a cooperative and timely 
manner".  Paragraph 9 explicitly confirms that a pa nel's right to seek additional information is not 
curtailed by the fact that an Annex V procedure was conducted, while at the same time cautioning 
panels not to give a party that engaged in "unreasonable non-coopera tion" in the Annex V procedure a 
                                                      
1110In our view, the conduct of an Annex V procedure not only contributes to better adjudication of a 
dispute, it also enhances the scope for settlement of the dispute without adjudication, consistent with Members' 
preference, as expressed in Article 3.7 of the DSU, for mutually agreed solu tions to disputes.  This is because 
the full and early exchange of information provides partie s with a better understanding of the complexities of the 
dispute and of the merits of their respective claims and defences.   
1111Paragraph 9 of Annex V makes clear that the completion of an Annex V procedure does not 
circumscribe a panel's fact-finding authority in the related panel proceedings, and that a panel remains able to seek information "which was not adequately sought or developed during that process" when it deems such 
information "essential to a proper resolution to the dispute".    BCI deleted, as indicated [***] WT/DS353/AB/R 
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  fresh opportunity to adduce information favourable to its position when that information was not 
provided in the Annex V procedure.   
519. At the same time, Annex V limits the scope for a complainant to abuse an information-
gathering procedure or transform it into an open- ended and unduly burdensom e fishing expedition.  
Several aspects of the design of the Annex V proced ure indicate that a complaining party is required 
to be disciplined and focused in th e information that it seeks.  In particular:  (i) the process is to be 
completed within a maximum of 60 days (paragraph 5);  (ii) the information to be sought from the 
subsidizing Member is not any information, but rather "such information … as necessary  to establish 
the existence and amount of subsidization, the value of total sales of the subsidized firms, as well as 
information necessary to analyze the adverse effects caused by the subsidized product" 
(paragraph 2)
1112;  and (iii) the reference in paragraph 8 of  Annex V to the facilitator's advice as to 
"the reasonableness of any requests for information" suggests that requests for information made by a 
party in an Annex V procedure must be reasonable.   Furthermore, footnote 67 to paragraph 2 of 
Annex V stipulates that the process "shall take into  account the need to protect information which is 
by nature confidential or which is provided on a confidential basis by any Member involved in this 
process".1113  Finally, Annex V does not relieve a complain ing party of its burden of proof.  Whether 
or not an Annex V procedure has taken place, every complaining Member must identify specific evidence and put forward legal arguments sufficient to demonstrate the alle ged inconsistency of a 
measure with a relevant obligation.
1114  Annex V seeks, rather, to ensure that a Member is not 
prevented from gaining access to the inform ation that it considers necessary to its prima facie case. 
                                                      
1112Emphasis added.   
1113Annex V also imposes limits on the information to be supplied by third country Members.  For 
example, the information to be supplied is information "which is not otherwise r easonably available from the 
complaining Member or the subsidizing Member", and th e procedure should be "administered in such a way as 
not to impose an unreasonable burden on the third-country Member" (paragraph 3).  Paragraph 5 of Annex V 
also sets out an illustrative list of the type of information that is to be collected in the course of the procedure 
and transmitted to the panel (see, in pa rticular, third and fourth sentences). 
1114Appellate Body Report,  US – Wool Shirts and Blouses , p. 16, DSR 1997:I, 323, at 335.  As the 
Appellate Body stated in US – Gambling : 
A complaining party may not simply s ubmit evidence and expect the panel 
to divine from it a claim of WTO-inconsistency.  Nor may a complaining 
party simply allege facts without relating them to its legal arguments.  
(Appellate Body Report,  US – Gambling , para. 140 (footnote omitted))  The same holds true with respect to 
information and evidence that has entered the panel record via transmission by a facilitator following an 
Annex V procedure.  It is for the parties, not the panel, to make out their respective claims and defences, 
including through reliance upon, as they see fit, the info rmation collected in an Anne x V procedure.  See also 
Appellate Body Report, Japan – Agricultural Products II , para. 129;  Appellate Body Report, Canada – 
Aircraft , para. 193;  and Panel Report, Korea – Commercial Vessels , para. 7.516. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 216 HSBI omitted, as indicated [[HSBI]]  
 
  520. Overall, the structure of the information- gathering mechanism set out in Annex V and 
Articles 6.6 and 6.8 of the SCM Agreement seems to us to reinforce the vital role that the 
information-gathering procedure plays in the contex t of a dispute involving an allegation of serious 
prejudice.  An interpretation of paragraph 2 of Annex V that would enable a responding Member to 
frustrate that role by preventing the DSB from initia ting such a procedure would be at odds with WTO 
Members' manifest intention to promote the early a nd targeted collection of information pertinent to 
the parties' subsequent presentation of their cases to  the panel, as well as with the duty of cooperation 
to which such a responding Member is subject. 
521. We note that the role of the DSB in connection with Annex V procedures is set out not only in 
paragraph 2, but also in paragr aph 4 of Annex V.  Paragraph 4 requires the DSB to designate a 
representative (commonly referred to as a "facilitato r") in connection with the information-gathering 
process.
1115  The United States relies upon this provision in  support of its position that the initiation by 
the DSB of an Annex V procedure is by positive con sensus.  For the United States, the similarity in 
the language used in these two provisions shows that th e DSB is to take both actions in the same way, 
and that can only be through consensus.  The Unite d States argues that, when both of these provisions 
are considered together with the overall structure of Annex V, it is clear that the European Union's 
interpretation of paragraph 2 of Annex V would be "unworkable".1116  Nonetheless, we are not 
persuaded that this is so.  It is true that the la nguage of paragraph 2 of A nnex V ("the DSB shall, upon 
request, initiate the procedure") is similar to th at of paragraph 4 ("{t}he DSB shall designate a 
representative") in that both impose mandatory obligati ons on the DSB.  We are not asked to and need 
not, in this dispute, rule on the process to be  followed by the DSB in appointing an Annex V 
facilitator.  The DSB is the body responsible fo r administering the dispute settlement rules and 
procedures, and the Chairman of the DSB serves as th e representative of the DSB within the WTO.  It 
seems to us that, as the representative of the DSB,  the Chairman is in principle responsible for 
discharging the function of facilitating an Annex V procedure until such time as that function is 
delegated through the DSB's designation of another individual as a facilitator pursuant to paragraph 4 
of Annex V. 
522. Additional relevant context, in our view, is f ound in Article 1.2 of the DSU, which deals with 
the special or additional dispute settlement rules found in other agreements (including Annex V and 
Article 7.4 of the SCM Agreement ).  The last sentence of Article 1.2 stipulates that, in the event of a 
conflict between the DSU and the special or addition al rules and procedures listed in Appendix 2 to 
the DSU: 
                                                      
1115Paragraph 4 of Annex V is set out supra , footnote 1109. 
1116United States' appellee's submission, para. 59.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 217  
 
  {t}he Chairman shall be guided by the principle that special or 
additional rules and procedures should be used where possible , and 
the rules and procedures set out in this Understanding should be used to the extent necessary to avoid conflict. (emphasis added) 
This provision expresses Members' preference for the use of the special or additional rules and 
procedures.  Such preference is logical given that the special or additional rules listed in Appendix 2 
were crafted by the negotiators of each indivi dual agreement with a view to the particular 
characteristics of disputes that might arise unde r such agreement and, in the case of the 
SCM Agreement,  under each Part of that Agreement.   
523. In contrast, if a positive consensus rule were  to apply to the initiation of an Annex V 
procedure, as the United States contends, this w ould mean that an Annex V procedure cannot be 
initiated whenever there is a formal objection by a single WTO Member.  This would enable 
individual Members to prevent the use of this de tailed, carefully tailored mechanism for gathering 
necessary information, even though the DSB's initiation of such information-gathering procedures and 
Members' duty to cooperate in them are both ex pressed as mandatory.  Furthermore, if initiation 
required positive consensus, two consequences could flow for which there may be no remedy in the 
panel proceedings.  First, the parties to the disput e could be denied access to critical information from 
third-country Members if those Memb ers choose not to become third par ties in the dispute.  Second, if 
the objection to the initiation of the Annex V pro cedure comes from a WTO Member other than the 
responding party or a concerned third-country Memb er, there may be no basis upon which the Panel 
could, pursuant to paragraphs 6 a nd 7 of Annex V, allow the complainant to rely upon best available 
evidence and/or draw adverse inferences  based on the conduct of the respondent.
1117   
524. We are of the view that, taken together, the a bove considerations make clear that the first 
sentence of paragraph 2 of Annex V to the SCM Agreement must be understood as requiring the DSB 
to take action, and that such action occurs automatic ally when there is a requ est for initiation of an 
Annex V procedure and the DSB establishes a panel.1118  This provision does not conflict with 
Article 2.4 of the DSU;  rather, it establishes the conditions which, when satisfied, necessarily result 
in the initiation of an Annex V procedure by the DSB.  
                                                      
1117Of course, irrespective of whether an Annex V pr ocedure was initiated or conducted, a panel would 
always have the authority, during the panel proceedings, to seek additional information pursuant to Article 13 of 
the DSU, and to draw adverse inferences from a party's failure to produce requested information. 
1118One Member of the Division wishes to qualify this understanding of paragraph 2 of Annex V to the 
SCM Agreement .  In the opinion of this Member, to initiate an Annex V procedure, an act of the DSB is 
required.  The DSB's initiation of an Annex V procedure in the manner described above can occur only when the complaining Member's request for an Annex V procedure forms an integral part of that Member's request for 
the establishment of a panel. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 218 HSBI omitted, as indicated [[HSBI]]  
 
  (i) Additional considerations purs uant to Article 32 of the 
Vienna Convention 
525. The European Union also relies on the negotiating history of the SCM Agreement  as 
additional confirmation for its understanding of th e Annex V procedure, as well as relevant context 
found elsewhere in the SCM Agreement .  The European Union emphasizes that Annex V originated in 
a proposal made by the United States, and asserts that, from the first time this proposal was 
incorporated in the draft text of the Agreement, it was "clear" that "the Annex V procedure was tied-to 
the panel request, in the sense that the same proce dures would apply", and that  "when the reference to 
negative consensus was subsequently  added to Article 7.4 of the SCM Agreement  it was well 
understood that the linked Annex V proce dure would follow the same procedure".
1119  
526. We recall that, under Article 32 of the Vienna Convention , preparatory work and the 
circumstances of a treaty's conclusion are releva nt to confirm the interpretation reached under 
Article 31.  In our view, while the negotiating history of the SCM Agreement supplies little concrete 
insight as to how Members intended the Annex V procedure to be initiated, it does confirm our 
understanding of the reasons why Members considered such a procedure to be a key part of serious 
prejudice disputes.   
527. The first two Chairman's drafts of the SCM Agreement did not contain any precursor to 
Annex V.  On 5 October 1990, the United Stat es submitted a "Proposal for Improvement in 
Procedures for Dealing with Adverse Effects in the Home Market of the Subsidizing Country and in 
Third-Country Markets".1120  This proposal referred to a provision in the existing draft text imposing 
an obligation on all Members in whose market adver se effects are alleged to arise, to provide "all 
relevant information that can be obtained as to the ch anges in market shares of the disputing parties as 
well as concerning prices of the products involved"1121, and expressed concern about the absence of 
"an information-gathering mechanism or a mean s for assuring the co-operation of the party in 
possession of information necessary to demonstrate adverse effects".1122  The United States 
emphasized the challenges facing a complainant trying to prepare an adequate case given its 
dependence upon the cooperation of the subsidizing c ountry or third countries, and stressed that the 
"problem of developing a proper case is especially acute where third-countries are involved because 
the information necessary to show adverse effects caused by subsidized products is not necessarily 
                                                      
1119European Union's appellant's submission, para. 45. 
1120MTN.GNG/NG10/W/40. 
1121MTN.GNG/NG10/W/38/Rev.1.  This  provision eventually became, with some modifications, the 
current Article 6.6 of the SCM Agreement .   
1122MTN.GNG/NG10/W/40, p. 2.    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 219  
 
  within the reach of the complaining party".
1123  The United States explained that it was proposing an 
information-gathering procedure "in order to im prove the multilateral rules and procedures for 
demonstrating adverse effects required to show seri ous prejudice, and for enhancing the credibility of 
the remedies in this area", and added that its  proposal "should especially enhance the ability of 
countries with the most limited national resources in  preparing cases to bring to multilateral dispute 
settlement".1124  The next draft text circulated by the Chairman, on 2 November 1990, contained 
several modifications that appeared to be b ased on the United States' proposal, including a first 
version of Annex V.1125   
528. With respect to the remedies for actionable subs idies, all of the drafts circulated by the 
Chairman contained the same provisions—namely, Articles 7.4 and 7.5.1126  These were the 
predecessors of the provisions of the SCM Agreement bearing the same Article number, but differed 
from them in two main respects.  First, Articles 7.4 and 7.5 of the drafts provided for the matter to be 
referred to, and reviewed by, the Committee on Subsidies and Countervailing Measures (the 
"Subsidies Committee"), rather than the DSB.  Second, Articles 7.4 and 7.5 of the drafts did not mention establishment or composition of a panel or th e establishment of its terms of reference and, in 
particular, did not refer to the establishm ent of a panel by negative consensus. 
529. The negotiations on dispute settlement were c onducted simultaneously with the negotiations 
on subsidies and countervailing duties, but by a sep arate negotiating group.  In his 21 September 1990 
draft text, the Chairman of the Negotiating Group  on Dispute Settlement incorporated a "negative 
consensus" approach in two of four possible decision-making options for adopting panel reports.
1127  
The Chairman's revised draft of 19 October 1990 still contained options, but came closer to endorsing 
a negative consensus rule1128, and also introduced the same options with respect to other aspects of the 
panel process, such as the establishment of panels.  Subsequently, the negative consensus rule for the 
establishment of panels, the adop tion of panel/Appellate Body repor ts, and the authorization of 
suspension of concessions formed part of the agreem ent on dispute settlement included as part of the 
                                                      
1123MTN.GNG/NG10/W/40, p. 2.   
1124MTN.GNG/NG10/W/40, p. 3. 
1125MTN.GNG/NG10/W/38/Rev.2.  The provision that would eventually become Article 6.8 of the 
SCM Agreement  was also added to this draft text for the first time. 
1126The four Chairman's  draft texts contained the following: 
7.4 If a mutually acceptable solution ha s not been reached within sixty 
days of the request for consultations, any signatory party to such 
consultations may refer the matter to the Committee. 7.5 The Committee shall, upon request, review the matter referred to it 
and shall present its conclusions within 120 days. 
(MTN.GNG/NG10/W/38, and Rev.1, Rev.2, and Rev.3) 
1127Draft Text on Dispute Settlement, 21 September 1990, MTN.GNG/NG13/W/45, p. 2.   
1128Chairman's Text on Dispute Settlement, 19 October 1990, p. 9. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 220 HSBI omitted, as indicated [[HSBI]]  
 
  "Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations" at 
the Brussels 1990 Ministerial Conference.
1129   
530. Thus, the negotiating history of the SCM Agreement reveals that, at the time that Annex V 
was introduced into the text of what would become the SCM Agreement , the draft provided that the 
Subsidies Committee was to have responsibility both fo r adjudicating allegations of serious prejudice, 
as well as for the initiation of an Annex V procedure.   No express provision was made as to how such 
initiation was to occur.  At that time, the concu rrent negotiations on disput e settlement were moving 
towards acceptance of a negative con sensus rule for the establishment of panels, adoption of reports, 
and authorization of suspension of concessions.  The draft SCM Agreement was subsequently 
modified as part of the process of harmonizing all of the Uruguay Round agreements to bring them into line with the single undertaking and the unifie d system of dispute settlement, and the express 
reference to the establishment of a panel by ne gative consensus was added to Article 7.4.   
(ii) Summary of interpretative considerations 
531. We have considered the meaning of the oblig ation that paragraph 2 of Annex V imposes on 
the DSB, namely, that "the DSB shall, upon request , initiate" an information-gathering procedure in 
disputes involving claims of serious prejudice.  Fo r the reasons set out above, we have reached the 
view that the text and context of paragraph 2 of Annex V, together with the object and purpose of the 
WTO dispute settlement system as reflected in the DSU and the SCM Agreement , support an 
understanding of this provision as imposing an obligation on the DSB to initiate an Annex V 
procedure upon request, and that such DSB action occu rs automatically when there is a request for 
initiation of an Annex V procedure and the DSB establishes a panel.
1130 
532. The first sentence of paragraph 2 of Annex V, along with other provisions of Annex V, refers 
directly to the establishment of a panel pursuant to Article 7.4 of the SCM Agreement .  Provided that a 
request for initiation of an Annex V procedure has been made, the DSB's initiation of such a 
procedure is a procedural incident of the estab lishment of a panel in serious prejudice cases.  The 
function assigned to the DSB under paragraph 2 of  Annex V is executory in nature, and is 
automatically discharged by it once the two speci fied conditions precedent are satisfied.  This 
interpretation of paragraph 2 of Annex V also fi nds support in the structure of the information-
                                                      
1129MTN.TNC/W/35/Rev.1/3. 
1130One Member of the Division wishes to qualify this understanding of paragraph 2 of Annex V to the 
SCM Agreement .  In the opinion of this Member, to initiate an Annex V procedure, an act of the DSB is 
required.  The DSB's initiation of an Annex V procedure in the manner described above can occur only when the complaining Member's request for an Annex V procedure forms an integral part of that Member's request for 
the establishment of a panel.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 221  
 
  gathering mechanism set out in Annex V and Articles 6.6 and 6.8 of the SCM Agreement , and in 
Members' expressed preference, as set out in Article  1.2 of the DSU, for the use of the special or 
additional dispute settlement rules set out in the SCM Agreement and listed in Appendix 2 to the DSU .   
533. In contrast, an interpretation of paragraph 2 of Annex V that would enable a single WTO 
Member to frustrate the important role that an information-gathering procedure plays in serious 
prejudice disputes by preventing the DSB from initiating such a procedure would be at odds with 
WTO Members' clear intention to promote the early and targeted collection of information pertinent 
to the parties' subsequent presentation of their cases to  the panel, and with th e obligation to cooperate 
in the collection of information in serious prejudice disputes imposed on all Members under 
paragraph 1 of Annex V and Article 6.6 of the SCM Agreement .  Such an interpretation would also 
hamper the collection of information from third- country WTO Members and delay until the stage of 
panel proceedings the collection of necessary information.  The initiation and cond uct of Annex V 
procedures have important consequences for the abilit y of parties to a dispute to present their case, 
and for panels and the Appellate Body to fulfil their respective roles in complex serious prejudice 
disputes under the SCM Agreement .  Annex V procedures are key to affording parties early access to 
critical information, which may in turn serve as th e foundation upon which those parties will construct 
their arguments and seek to satisfy their evidentia ry burden.  Moreover, the initiation and conduct of 
such procedures are key to the ability of panels to  make findings of fact that have a sufficient 
evidentiary basis or to draw negative infe rences from instances of non-cooperation.   
(b) The European Union's remaining requests for completion of the 
analysis  
534. We turn now to the European Union's remaini ng three requests for completion of the analysis, 
namely, that we find that:  (i) as a matter of law, a ll of the conditions for the initiation of an Annex V 
procedure were fulfilled in this dispute and such pr ocedure was initiated, and/or is deemed to have 
been initiated, and/or should have been initiated; (ii) in refusing to cooperate in the information-
gathering process, the United States failed to comply  with its obligations under the first sentence of 
paragraph 1 of Annex V to the SCM Agreement ;  and (iii) the European Communities was entitled to 
present its serious prejudice case ba sed on the evidence available to  it, the Panel was entitled to 
complete the record as necessary relying on best in formation otherwise available, and the Panel was 
entitled to draw adverse inferences.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 222 HSBI omitted, as indicated [[HSBI]]  
 
  535. With respect to the first of these requests by the European Union, we recall that, in our 
interpretation of paragraph 2 of  Annex V above, we identified th e two conditions that must be 
satisfied in order to trigger the initiation of an A nnex V procedure, namely, a request for initiation by 
a Member, and the DSB's establishment of a panel.  In this dispute, the Panel made an explicit finding 
that no Annex V procedure had been initiated by the DSB.
1131  Even if this finding rested upon a 
mistaken and incomplete interpretation of paragra ph 2 of Annex V, it is uncontested that no Annex V 
procedure was carried out as a consequence of the requests made by the European Communities 
in 2007 and the establishment of the Panel in that sa me year.  More than five years later, we do not 
see how the findings that the European Union seeks to have us make, on appeal, would contribute to resolving the dispute at this stage.  Accordingl y, it is unnecessary for us to make a ruling on whether 
the conditions for the initiation of an An nex V procedure were fulfilled.   
536. Turning to the European Union's other request s, we consider that these raise a number of 
associated issues that flow from the sui generis circumstances of this dispute and that have been 
largely unexplored by the participants.  To illustrate  why this is so, it is necessary to outline briefly 
the procedural history of this dispute as well as the dispute that carries the DS number 317.  
537. This dispute, which carries the DS number 353, is  at least to some extent the progeny of an 
earlier dispute that bore the DS number 317:  US – Large Civil Aircraft .
1132  In 2005, an Annex V 
procedure was initiated and completed in that DS317 proceeding1133, but both at the time of 
establishment of that panel and throughout the A nnex V procedure the United States took the position 
that the European Communities' panel request improperly included 13 measures that had not been 
included in its original consultations request.  For this reason, during the Annex V procedure, the United States refused to respond to questions rela ting to those 13 measures.  It is nevertheless 
uncontested that the United States did respond to ot her questions, and that a voluminous record was 
transmitted from the facilitator to the DS317 panel.  Du e to the inability of the participants to agree on 
                                                      
1131Panel Report, para. 7.20. 
1132See Panel Report, footnote 2 to para. 1.1. 
1133Simultaneous Annex V procedures were initiated by the DSB and conducted by the same facilitator 
for DS317 and for DS316 ( EC and certain member States – Large Civil Aircraft ).    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 223  
 
  the modalities for the transfer of that record
1134, however, the information gathered in the DS317 
Annex V procedure does not form part of the record  in this dispute, and we have no way of knowing 
what it contains. 
538. In the light of the position adopted by the Un ited States in the DS317 Annex V procedure, the 
European Communities submitted an expanded sec ond request for consultations just before 
establishment of the panel1135, as well as an expanded second request  for establishment of a panel in 
DS317 just as the Annex V procedure was coming to a close.1136  A second panel was established by 
the DSB shortly thereafter, on 17 February 2006.1137  At that time, the dispute still bore the DS 
number 317.  The European Communities' second requ est for establishment of a panel contained a 
request that the DSB initiate an Annex V proce dure, and the European Communities sought initiation 
of an Annex V procedure at the DSB meeting at which the second panel was established, as well as at 
four subsequent DSB meetings during the spring of 2006.1138  Each time, the United States opposed 
initiation.  The main reasons given by the United States for its inability to agree to an Annex V 
procedure were:  that an Annex V procedure had already been completed in DS317;  that the 
United States had cooperated extensively in th at first Annex V procedure;  and that the 
European Communities was unilaterally seeking to re-open that burdensome procedure or obtain a 
                                                      
1134Panel Report, paras. 7.19 and 7.23.  We note that, on 14 January 2007, at the Panel's prompting, the 
United States submitted in writing a proposal to make available to the Panel the materials submitted during the DS317 Annex V procedure, via a DSB decision requesting the facilitator to transmit the materials to the Panel.  
In responding to this proposal, by letter dated 17 Ja nuary 2007, the European Communities contended that the 
proposal represented "only a partial solution to its requ est", given the United States' refusal to answer certain 
questions in that procedure as well as the fact that "the information produced in case DS317 has become to a 
significant extent outdated by lapse of time."  The European Communities added that it saw "no legal or 
practical necessity to make the transfer of documents dependent on a decision of the DSB" since the parties "do not need permission from the DSB to allow their own documents and submissions to be communicated to 
the Panel in this case."  In a subsequent letter, dated 7 February 2007, the European Communities stated that 
"it does accept the US proposal as a pa rtial solution to its pre liminary ruling request", but added that it had  
not reached any agreement with the United States on the implementation of the proposal.  The 
European Communities reiterated that there was no legal or  practical necessity for a DSB decision, in particular 
because the European Communities was not seeking to use the info rmation submitted by  third-country WTO 
Members to the facilitator.  The United States reacted to the European Communities in a subsequent letter to the 
Panel, dated 20 February 2007, in which it characterized the European Communities "alternative proposal" as a 
proposal "for an unbalanced process that would deprive the Panel of access to information from third-country 
Members or the work of the Facilitator" and summarized the benefits of its own proposal.  The United States 
added that "the EC proposal is to grant the EC an unwarranted new Annex V process" and that, since "the EC made this request even before presenting a single ar gument or piece of evidence, it cannot possibly have 
established a prima facie case.  Therefore, it is difficult to conceive  of the EC's proposal as anything but an 
effort to have the Panel make the EC's case for it".   
1135Originally circulated as document WT/D S317/1/Add.1, and amended by WT/DS353/1, 
WT/DS317/1/Add.2.  See Panel Report, para. 1.1 and footnote 2 thereto, and Annex A. 
1136Originally circulated as document WT/DS317/ 5, amended by WT/DS353/2, WT/DS317/5/Add.1, 
and corrected by WT/DS353/2/Corr.1, WT/DS317/5/Add.1/Corr.1.  See Panel Report, para. 1.2 and footnote 3 
thereto, and Annex B (Request for the Establishment of a Panel by the European Communities). 
1137WT/DSB/M/205, para. 73.  
1138WT/DSB/M/205, paras. 69 and 72;  WT/DSB/M/206, paras. 11-13 and 19-20;  WT/DSB/M/207, 
paras. 92 and 93;  WT/DSB/M/210, para. 99-101;  WT/DSB/M/212, paras. 64-67. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 224 HSBI omitted, as indicated [[HSBI]]  
 
  second procedure because it was diss atisfied with the results.
1139  The United States further expressed 
the view that, while the SCM Agreement and the DSU do not require a procedural agreement between 
the parties to commence Annex V procedures for the first time, such an agreement is necessary "when 
the Annex V request cover{s} measures that ha{ve}  already been subject to a completed Annex V 
process" and that a responding party cannot "be subject to an endless cycle of burdensome Annex V processes" simply because a complainant has added "some new measures to a panel request".
1140  
Although the European Communities argued that initia tion should occur by ne gative consensus, this 
view does not appear to have been shared by the DSB Chairman at that time.  Accordingly, at the first 
four meetings where the DSB considered the Eur opean Communities' request, the DSB "took note" of 
the statements made, but took no decision.1141  At the DSB meeting of 17 May 2006, the Chairman 
proposed, and the DSB agreed, to take note of the st atements made and to su spend consideration of 
this item pending consultations on a way forward.1142  
539. At all of the DSB meetings where the Eur opean Communities requested initiation of an 
Annex V procedure, the request was made in respect  of the dispute that carried the DS317 number.  
Only subsequently—and retroactively—was the DS353 number attributed to this dispute, and the 
words "Second Complaint" added to the title of DS353.1143  On 4 December 2006, the DS353 number 
was added to the previously circulated second re quest for consultations and second request for the 
establishment of a panel, which had originally been circulated bearing the DS317 number alone.1144  
There is no explanation in the record as to why th is occurred, and the participants were unable to 
provide us with one at the oral hearing.   
                                                      
1139See, for example, WT/DSB/M/206, paras. 14-18;  and WT/DSB/M/207, paras. 94-97. 
1140See WT/DSB/M/206, paras. 15 and 18. 
1141WT/DSB/M/205, paras.  75 and 76; WT/DSB/M/206, para.  26; WT/DSB/M/207, para.  101;  
WT/DSB/M/210, para. 104.   
1142WT/DSB/M/212, paras. 70 and 71.  The minutes of that meeting record that, on 23 May 2006, the 
Chairman sent a fax to delegations informing them that, "following consultations between the parties to the 
dispute, an agreement had been reached that it was no t necessary to revert to this matter and that the 
consideration of this agenda item did not need to be suspended". ( Ibid., footnote 2 to para. 70)  The same day, 
the European Communities sent a letter to the facilitator in the completed DS316 and DS317 Annex V 
procedures and asked him to pose 343 questions to the United States. (Letter from the European Communities to 
Mr. Mateo Diego-Fernández, dated 23 May 2006, attaching questions for the United States (Panel Exhibit EC-1))  By letter of 6 June 2006, Mr. Diego- Fernández declined to serv e as a DSB representative 
pursuant to Annex V or to pose these questions to the United States, noting that there had been no DSB 
consensus to initiate a new Annex V procedure. (Letter from Mr. Mateo Diego-Fernández to the European Communities, dated 6 June 2006 (Panel Exhibit EC-2)) 
1143See WT/DS353/1, WT/DS317/1/Add.2;  and WT/DS353/2, WT/DS317/5/Add.1, corrected by 
WT/DS353/2/Corr.1, WT/DS317/5/Add.1/Corr.1. 
1144See WT/DS353/2, WT/DS317/5/Add.1, corrected by WT/DS353/2/Corr.1, 
WT/DS317/5/Add.1/Corr.1.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 225  
 
  540. Taking account of this procedural history, it seems to us that any assessment of the 
European Union's allegations that the United Stat es failed to comply with its obligations under the 
first sentence of paragraph 1 of Annex V to SCM Agreement , or of the consequences that should, 
according to paragraphs 6 to 9 of Annex V to the SCM Agreement , flow from any such failure, would 
likely require consideration of a number of thorny is sues.  These include:  (i) the relationship between 
the proceedings in DS317 and the proceedings in this di spute;  (ii) the relationship, if any, between the 
Annex V procedure in DS317 and the absence of an Anne x V procedure in this dispute;  (iii) the facts 
concerning the extent of the United States' particip ation in the Annex V procedure in DS317 and the 
relevance and role, if any, of information collect ed in that information- gathering process in this 
dispute;  (iv) the relevance, in assessing the United States' cooperation, of the fact that both the DSB Chairman and the individual who the European Communities sought to have facilitate the Annex V 
procedure considered that positive consensus was requi red to initiate such a procedure;  and (v) the 
relevance, if any, of the fact that, ultimately, the European Communities' request for initiation of an 
Annex V procedure appears to have  been removed from the agenda  of the DSB through a consensus 
joined in by the European Communities itself.   
541. In the particular circumstances of this proceeding, it is not evident to us that the relevant facts 
are sufficiently clear or uncontested, or that the co mplex legal issues have been sufficiently explored 
by the participants to permit us to accede to the European  Union's requests.  Indeed, the facts and 
circumstances of this dispute and of DS317 are complicated, highly case-specific, and decidedly 
unclear.  Neither participant has provided us with a full accounting of its understanding of the facts, 
and, in any event, these facts appear to be contested.  Moreover, each participant appears to us to have 
adopted positions over the course of these two dispute se ttlement proceedings that are, at least to some 
degree, internally contradictory in the way that they  approach the issue of the relationship between the 
two disputes.  The United States, for example, indi cated at the oral hearing that it accepts that DS317 
and DS353 are separate disputes.  At the time that  the European Communities sought initiation of an 
Annex V procedure in this dispute, however, th e United States objected mainly on the basis that 
Annex V provides no right to "resume", "re-open", or to "seek a second Annex V process".
1145  Such 
arguments suggest that, at least at that time, the Un ited States held the view that there was but a single 
                                                      
1145See WT/DSB/M/207, paras. 94, 95, and 97;  WT/DSB/M/206, paras. 18 and 25;  and 
WT/DSB/M/205, para. 71.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 226 HSBI omitted, as indicated [[HSBI]]  
 
  dispute.
1146  Furthermore, we have diffi culty understanding why, if the United States accepts that these 
disputes are to be treated as separate, it considers that its participation in the Annex V procedure in 
DS317 is relevant to assessing whether it complied wi th its obligations under paragraph 1 of Annex V 
in this dispute.   
542. We also fail to see how we can answer questions  relating to the extent of the United States' 
cooperation in the abstract or for the entire dispute.  Whether there has been a failure to c ooperate or a 
refusal to submit essential information, and whet her there is a resulting need to use adverse 
inferences, are questions that usually refer to speci fic claims, measures, or pieces of evidence.  Yet, 
the European Union has not provided us with such details in connection with its requests that we find 
that the United States failed to comply with its ob ligations under the first sentence of paragraph 1 of 
Annex V to the SCM Agreement , and that the Panel was entitled to re ly on best information otherwise 
available, and to draw adverse inferences in accord ance with the provisions of paragraphs 6 and 7 of 
Annex V.  We also note the United States' argum ent that it cannot be deemed to have been 
uncooperative when both the DSB and the facilitator in  the DS317 Annex V procedure appear to have 
shared its view that the initiation of an A nnex V procedure occurs by positive consensus.   
543. In this dispute, the Panel made no specific fi ndings of "non-cooperation" on the part of the 
United States, and the uncertain nature of the f acts surrounding the alleged non-cooperation on the 
part of the United States means that we have no basis for making any such finding on appeal.  The only thing that can be said with some degree of c onfidence is that there a ppears to have been little 
cooperation between the parties before the Panel on an y of the issues relating to Annex V.  This is 
regrettable, particularly in the light of the coope rative attitude that is cal led for both under Annex V 
and, more generally, pursuant to Article 3.10 of the DSU.   
544. For these reasons, we make no finding as to whether the United States failed to comply with 
its obligation under the first sentence of paragraph 1 of Annex V to the SCM Agreement , or whether 
the European Communities was en titled to present its serious prej udice case based on the evidence 
                                                      
1146We also note that the United States has, including in its submissions on appeal, invoked its 
participation in the Annex V procedures in DS317 as a justification for not agreeing to any Annex V procedure 
in this dispute.  The United States acknowledges, however, that in the DS317 Annex V procedure, it refused to answer any questions with respect to measures that it unilaterally deemed to be outside that panel's terms of 
reference.  At least some of those measures were within the terms of reference of this Panel, but the absence of 
an Annex V procedure in this dispute meant that no information relating to them could be gathered in such a procedure.  For its part, the European Union insists that the United States' non-cooperation in this dispute 
prevented any Annex V procedure from being initiated, and in doing so fails to acknowledge any degree of 
cooperation during the Annex V procedure in DS317.  Moreover, the European Communities appears to have 
resisted efforts by the Panel and the proposal by the United States to ente r the (apparently si zeable) record from 
the DS317 Annex V procedure into the Panel record in this dispute.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 227  
 
  available to it, or whether the Panel was entitled to  rely on best information available or to draw 
adverse inferences. 
(c) The European Union's additional requests 
545. In addition, and "independently" from the a bove requests to complete the analysis, the 
European Union requests us to "constantly bear in  mind the circumstances of this case", notably "that 
the United States has chosen to withhold informa tion from the European Union and the Panel" and 
that the United States' "refusal to co-operate in  the Annex V procedure colours the entire dispute".
1147  
This means, according to the European  Union, that:  (i) with respect to the United States' appeal, "the 
United States cannot now reasonably criticise the Pa nel for its assessment of the facts or for the 
reasonable drawing of factual infere nces where the United States itself is responsible for depriving the 
Panel of information";  and (ii) with respect to  the European Union's appeal, "{i}n case of doubt or 
evidentiary conflict or equipoise, the Appe llate Body should rule in favour of the 
European Union".1148 
546. The United States asserts that there is no legal authority for us to draw adverse inferences 
against the United States in the circumstances of this  dispute, and that the rulings requested by the 
European Union are improper. 
547. We begin by noting that we have some difficulty understanding precisely what the 
European Union's additional requests seek to have  us do, and how they square with our mandate 
under Article 17.6 of the DSU.  Starting with the first request, we understand the European Union's 
contention that the United States should be precluded, on appeal, from challenging the Panel's assessment of the facts to amount to an argument that the United States should be barred in these 
appellate proceedings from raising a claim under Artic le 11 of the DSU with respect to the Panel's 
assessment of the facts in this dispute.  Whether or  not such an approach would be appropriate is a 
moot point since, in any event, we reject the tw o claims of error that the United States has raised 
under this provision.
1149 
548. With respect to the European Union's second additional request, we have some doubts as to 
whether it is appropriate given that it is not the ma ndate of the Appellate Body to resolve instances of 
"evidentiary conflict or equipoise".  In any event,  we do not see that this request is sufficiently 
supported to allow us to make the requested finding.  To the extent that the European Union is asking 
us to draw adverse inferences, we would have exp ected it to have provided us with a more precise 
                                                      
1147European Union's appellant's submission, para. 53. 
1148European Union's appellant's submission, para. 53. 
1149See infra , paras. 723 and 996. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 228 HSBI omitted, as indicated [[HSBI]]  
 
  indication of the areas in which the factual record is  incomplete, how the lack of information relates to 
the United States' alleged non-cooperation, and the speci fic inferences that it is requesting us to draw.  
This is because, as a general matter, the need to and justification for drawing adverse inferences 
relates to particular instances of non-coope ration or withholding of evidence and is 
context-specific.
1150  We are not convinced that the provisions  of Annex V, and, in particular its 
paragraph 7, means, as the European Union's broa d request implies, that any non-cooperation in an 
Annex V procedure requires the drawing of adver se inferences against the non-cooperative party on 
all factual issues.  Rather, the drawing of such in ferences should at least to some extent involve 
consideration of the connection between the non-cooperation and the relevant issue, as well as of 
other evidence available on the record.  Although the European Union has not, in its appeal related to 
Annex V to the SCM Agreement , provided us with sufficiently specific arguments or information 
regarding the precise rulings or findings it seeks from us, we note that it has in other sections of its 
arguments raised instances of alleged non-coopera tion relating to the evidentiary basis for specific 
Panel findings challenged on appeal, and we  address those elsewhere in this Report.1151   
E.  Conclusion 
549. In the reasoning set out above, we have found th at the Panel erred, in the first and last 
sentences of paragraph 7.22 of th e Panel Report, reproduci ng paragraph 4 of its Preliminary Ruling, in 
denying the various requests made by the Eur opean Communities with respect to an Annex V 
procedure, because the Panel's denial of those requ ests rested upon an inadequate legal foundation and 
an incomplete interpretation of the relevant legal provision.1152  In our consideration of the 
European Union's various requests for completion of the analysis and for additional findings, we have 
interpreted paragraph 2 of Annex V to the SCM Agreement to mean that the DSB's initiation of an 
information-gathering procedure in a serious prej udice dispute occurs automatically provided that a 
request for such a procedure has been made and a panel established.1153  We have declined to find that 
all of the conditions for the initiation of an Annex V procedure were fulfilled in this dispute, and have 
made no finding as to whether the United States failed  to comply with its obligations under the first 
sentence of paragraph 1 of Annex V to the SCM Agreement ;  whether the European Communities was 
entitled to present its serious prejudice case based on the evidence available to it;  whether the Panel 
                                                      
1150See, albeit outside the context of Annex V of the SCM Agreement , Appellate Body Report,  
US – Wheat Gluten , para. 174. 
1151See section X.C of this Report. 
1152Supra , para. 501. 
1153One Member of the Division wishes to qualify this understanding of paragraph 2 of Annex V to the 
SCM Agreement .  In the opinion of this Member, to initiate an Annex V procedure, an act of the DSB is 
required.  The DSB's initiation of an Annex V procedure in the manner described above can occur only when the complaining Member's request for an Annex V procedure forms an integral part of that Member's request for 
the establishment of a panel.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 229  
 
  was entitled to complete the record as necessary rely ing on best information ot herwise available;  or 
whether the Panel was entitled to draw adverse inferences. 
VI. NASA Procurement Contracts and USDOD Assistance Instruments 
A. Financial Contribution 
1. Introduction 
550. The issues raised in this part of the app eal concern both the Panel's interpretation and 
application of Article 1.1(a)(1) of the SCM Agreement .  We note that, in its analysis of whether the 
NASA and USDOD measures challenged by the European Communities constitute financial 
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement , the Panel began by 
focusing on the interpretative issue of whether meas ures that are properly characterized as "purchases 
of services" are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement and, therefore, 
do not qualify as financial contributions by means of a "direct transfer of funds".1154 
551. After determining that Article 1.1(a)(1)(i) does not include within its scope measures that are 
"properly characterized "1155 as purchases of services, the Panel proceeded to consider whether the 
NASA and USDOD measures at issue qualify as such.  For this purpose, th e Panel developed and 
applied a test that it derived from Article 1.1(a)(1).1156  According to the Panel, whether or not the 
NASA and USDOD measures could be properly characterized as purchases of services depends on 
the nature of the work that Boeing was required to perform pursuant to them and, more specifically, 
whether that research was "principally for {Boe ing's} own benefit and use, or whether it was 
principally for the benefit and use of the U.S. Government (or unrelated third parties)".1157   
552.  Having applied its purchase of services test to five categories of evidence1158, the Panel 
concluded that the NASA procurement contracts and USDOD assistance instruments could not be properly characterized as such.  By contrast, it found that the USDOD procurement contracts did 
qualify as purchases of services.  For measures th at qualified as purchases of services under its test 
—that is, the USDOD procurement contracts
1159—the Panel excluded them from further consideration 
based on its interpretation of Article 1.1(a)(1), wher eby such measures are not financial contributions.  
By contrast, where the measures did not qualif y as purchases of services under the test—the NASA 
                                                      
1154Panel Report, para. 7.953. 
1155Panel Report, para. 7.970. (original emphasis) 
1156Panel Report, paras. 7.977, 7.978, 7.1136, and 7.1137. 
1157Panel Report, paras. 7.978 and 7.1137.   
1158See infra , para. 567. 
1159Panel Report, para. 7.1171. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 230 HSBI omitted, as indicated [[HSBI]]  
 
  procurement contracts and USDOD assistance instru ments—the Panel treated the payments made by 
NASA and the USDOD to Boeing pursuant to those c ontracts and instruments as direct transfers of 
funds within the meaning of Article 1.1(a)(1)(i).
1160  Furthermore, it determined that the access to 
NASA facilities, equipment, and employees provided to Boeing pursuant to the NASA contracts, and 
the access to USDOD facilities pursuant to the USDO D assistance instruments, constitute the 
provision of goods and services under Article 1.1(a)(1)(iii).1161  Having found these measures to be 
financial contributions, the Panel then proceeded with the remaining analysis under the relevant 
provisions of the SCM Agreement .  
553. The participants appeal the Panel's interpretation of Article 1.1(a)(1) and its application to the 
facts of this dispute.  The European Union seeks re versal or modification of the Panel's interpretation 
that measures properly characterized as purchases  of services are excluded from the scope of 
Article 1.1(a)(1) of the SCM Agreement .1162  The United States does not appeal the Panel's 
interpretation;  rather, it challenges various findings of  the Panel that derive from the application of its 
purchases of services test to the NASA and USDOD measures at issue.  In particular, the United States requests reversal of the Panel's finding that the NASA procurement contracts and 
USDOD assistance instruments do not constitute purch ases of services and, consequently, its finding 
that these measures involve payments that are dir ect transfers of funds within the meaning of 
Article 1.1(a)(1)(i), as well as the Panel's finding that the other support
1163 provided to Boeing 
constitutes the provision of goods and services w ithin the meaning of Article 1.1(a)(1)(iii). 
554. We begin by providing an overview of the rele vant findings of the Panel, after which we 
assess the merits of the arguments of the participants on appeal.  
2. The Panel's Findings 
555. In its first written submission to the Panel, th e European Communities asserted that the direct 
funding accruing to Boeing and the other s upport provided under the NASA and USDOD 
R&D programmes constitute a financial contributi on through a direct transfer of funds under 
                                                      
1160Panel Report, paras. 7.1027 and 7.1171.   
1161Panel Report, paras. 7.1027 and 7.1171.  
1162European Union's appellant's submission, para. 127.  The European Union does not seek reversal of 
the Panel's application  of its interpretation to the NASA and USDOD measures at issue.  Rather, the 
European Union argues that, if the Appellate Body were to reverse the Panel's legal interpretation of 
Article 1.1(a)(1), as it requests on appeal, that reversal would render moot the United States' appeal related to the Panel's findings that the payments and access to NA SA facilities, equipment, and employees and access to 
USDOD facilities, provided through the NASA and USDOD aeronautics R&D programmes, are financial 
contributions. (European Union's appellee's submission, paras. 28 and 112) 
1163We use the term "other support" as shorthan d for access to NASA facilities, equipment, and 
employees and access to USDOD facilities.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Article 1.1(a)(1)(i) and the provision of goods  and services under Article 1.1(a)(1)(iii) of the 
SCM Agreement .
1164  In response, the United States argued that the funding and other support were 
provided pursuant to transactions that qualify as purchases of services.1165  According to the 
United States, purchases of services do not qualify as fi nancial contributions within the meaning  
of Article 1.1(a)(1).1166  The United States supported its argument by reference to the context  
of Article 1.1(a)(1)(i) and the negotiating history of the SCM Agreement .1167  The 
European Communities countered th at an analysis of Article 1.1(a)(1) provides no basis for an 
exclusion of a category of transactions referred to as "purchases of services" that otherwise fit into any 
of the other categories of financial contributions li sted in that provision, an d that the interpretation 
advanced by the United States creates an enormous "loophole"1168 in the SCM Agreement  that would 
allow Members to frustrate its object and purpose.   
(a) The Panel's interpretation of Article 1.1(a)(1)(i) of the 
SCM Agreement  
556. In addressing the parties' arguments, the Panel not ed that the legal issue raised was "whether 
transactions properly characterized as purch ases of services are excluded from the scope of 
Article 1.1(a)(1)(i) of the SCM Agreement".1169  For purposes of answering this question, the Panel 
explained that it would engage the rules of inte rpretation provided in Articles 31 and 32 of the 
Vienna Convention .1170 
557. Beginning with the ordinary meaning of the phrase "a government practice involves a direct 
transfer of funds" in Article 1.1(a)(1)(i) of the SCM Agreement , the Panel remarked that this phrase, 
"read in isolation", might be "broad enough" to cover purchases of services.1171  The Panel reached 
this conclusion for four reasons.  First, nothing in th e dictionary definitions of  the terms in this phrase 
suggests that transactions properly characterized as purchases of services fall outside their scope, 
because "the definition of 'transfer' is a 'conveyan ce from one person to another', and the definition of 
                                                      
1164Panel Report, paras. 7.971, 7.972, 7.1125, and 7.1126.   
 1165Panel Report, paras. 7.975 and 7.1130-7.1133.  
1166Panel Report, para. 7.950. 
1167Panel Report, para. 7.950 (referring to United Stat es' first written submission to the Panel, paras. 48 
and 218;  and United States' responses and/or comments on the European Communities' responses to Panel 
Questions 15, 17, and 113-120). 
1168Panel Report, para. 7.949 (refer ring to European Communities' second written submission to the 
Panel, paras. 349-364;  and European Communities' responses to Panel Questions 15, 17, and 113-120). 
1169Panel Report, para. 7.953.  
1170Panel Report, para. 7.953.  The Panel noted that no prior panel or Appellate Body report has dealt 
with this issue.  Nor is there a "subsequent agreement" or "subsequent  practice" within the meaning of 
Article 31(3)(a) or (b) of the Vienna Convention  that could provide guidance on the interpretative questions 
raised. ( Ibid.)  
1171Panel Report, para. 7.954. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 232 HSBI omitted, as indicated [[HSBI]]  
 
  'funds' is 'a stock or sum of money, esp. one set apart for a particular purpose' or 'financial 
resources'".
1172  Second, there is "no qua lifying or limiting language"1173 in the text of 
Article 1.1(a)(1)(i).  Third, one example of a direct transfer of funds given in Article 1.1(a)(1)(i) is an 
equity infusion, which refers to "a situation in which the government 'purchases' something (i.e. 
shares in a company)".1174  Fourth, previous panels and th e Appellate Body have not given a 
restrictive interpretation to these terms.1175  
558. The Panel thereafter turned to the immediate context provided by Articles 1.1(a)(1)(iii) 
and 14(d) of the SCM Agreement .  Both provisions refer to a government's provision  of goods or 
services (other than general infrastructure), or purchase  of goods.  In the light of the "glaring 
difference"1176 between the first and second sub-clauses of Article 1.1(a)(1)(iii), the Panel considered 
that the drafters intended to exclude purchases of services  from the definition of Article 1.1(a)(1) of 
the SCM Agreement .  Since Article 1.1(a)(1) sets out an "exhaustive, closed list" of the types of 
transactions that constitute fina ncial contributions under the SCM Agreement , the omission of the 
words "or services" in connection with a government 's purchase reinforced the implication of an 
intention by Members to exclude purchases of servic es from the definition of "financial contribution" 
in Article 1.1(a)(1).1177  The Panel was concerned that the Eu ropean Communities' attempt to include 
purchases of services, whether under Article 1.1(a)(1)(i) or another subparagraph of 
Article 1.1(a)(1), would "necessarily mean that tr ansactions involving purchases of goods must also 
be covered by those same othe r sub-paragraphs and elements".1178  For the Panel, this would render 
the term "purchases goods" in Article 1.1(a)(1)(iii)  "redundant and inutile", because the scope and 
                                                      
1172Panel Report, para. 7.954 and footnotes 2421 and 2422 thereto (quoting Shorter Oxford English 
Dictionary , L. Brown (ed.) (Clarendon Press, 2002), Vol. 2, p. 3367 and Vol. 1, p. 1042,  respectively).  The 
Panel also referred to Webster's Online Dictionary , which defines "transfer" to mean the conveyance of right, 
title, or property, either real or personal, from one person to another, whether by sale, by gift, or otherwise;  and 
defines "funds" to mean, among other things, "{a}ssets in  the form of money" and "{a} reserve of money set 
aside for some purpose". ( Ibid.) 
1173Panel Report, para. 7.954.  
1174Panel Report, para. 7.954.  Here, the Panel quoted a finding of the panel in EC – Countervailing 
Measures on DRAM Chips that:  
Article 1.1(a)(1)(i) of the SCM Agreement provides that there is a financial 
contribution where a government practice involves a direct transfer of funds, such as in the case of a grant, loan  and equity infusion for example.  The 
purchase of corporate bonds  is such a direct transfer  of funds, and therefore 
constitutes a financial contribution. 
(Panel Report, footnote 2423 to para. 7.954 (quoting Panel Report, EC – Countervailing Measures on DRAM 
Chips , para. 7.92 (emphasis added by the Panel)) 
1175Panel Report, para. 7.954 (referring to Appellate Body Report, Japan – DRAMs (Korea) , para. 250).  
1176Panel Report, para. 7.955.  
1177Panel Report, para. 7.955.  The Panel also explained that the omission of purchases of "services" 
from Article 14(d) meant that "there is no standard for determining whether purchases of 'services' provide a 'benefit' under Article 1.1(b)". (See ibid., footnote 2428 thereto) 
1178Panel Report, para. 7.956.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  coverage of Article 1.1(a)(1) would be "precisely the same" as if "purchases {of} goods" had not been 
expressly provided for under Article 1.1(a)(1)(iii).
1179   
559. Next, the Panel considered the context provide d by (now lapsed) Article 8.2(a) of the 
SCM Agreement , which stated that "the following subs idies shall be non-actionable" and then 
proceeded to list, as the first of such non-actiona ble subsidies, "assistance for research activities 
conducted by firms or by higher education or researc h establishments on a contract basis with firms if 
certain conditions are met ".  For the Panel, the terms of Article 8.2(a) did not give rise to a 
"necessary implication" that government purchases of R&D services were subsidies within the 
meaning of the SCM Agreement .  Moreover, a government could provide "assistance" for research 
activities conducted by firms through means other than the purchase of R&D services.1180 
560. In its consideration of the object and purpose of the SCM Agreement , the Panel addressed a 
circumvention argument by the European Commun ities, Brazil, and Australia according to which 
"excluding purchases of services from the scope of Ar ticle 1.1(a)(1) 'would run counter to the overall 
object and purpose of the SCM Agreement ' by creating 'an enormous loophole in the coverage of the 
SCM Agreement  and provide WTO Members with a roadmap for distorting trade in goods through 
"service contracts" with their goods producers'."1181  The Panel remarked that, if a finding that 
purchases of services are excluded from the scope of the SCM Agreement  necessarily led to the 
manifestly absurd result that a Member could tu rn a grant into an excluded purchase of services 
simply by "labelling"1182 the transaction a "contract" or "purchase of services", then such an 
interpretation would indeed run counter to the object and purpose of the SCM Agreement .  However, 
the Panel was of the view that WTO panels and nati onal investigating authorities are in a position to 
"detect"1183 transactions that are not properly characterized as purchases of services.   
561. In order "{t}o confirm the meaning that ari ses from the application of Article 31 of the 
Vienna Convention"1184, the Panel turned to supplementary means of interpretation under Article 32 
of the Vienna Convention .  For the Panel, the preparatory work of Article 1.1(a)(1)(iii) and 
Article 14(d) of the SCM Agreement  reveals that a reference to gove rnmental "purchases of services" 
originally appeared in, and was subsequently remove d from, the text of both of these provisions in the 
                                                      
1179Panel Report, para. 7.956.  
1180Panel Report, para. 7.958.  
1181Panel Report, para. 7.960 (referring to European  Communities' response to Panel Question 15(a), 
para. 51;  Brazil's third party submission to the Panel, para. 10;  and Australia's oral statement at the Panel 
meeting with the third parties, para. 6).   
1182Panel Report, para. 7.960 (quoti ng European Communities' second wr itten submission to the Panel, 
para. 358). 
1183Panel Report, para. 7.960.  
1184Panel Report, para. 7.961.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 234 HSBI omitted, as indicated [[HSBI]]  
 
  final draft of the Agreement.  This confirms that Members purposely excluded purchases of services 
from the scope of Article 1.1(a)(1).
1185  Moreover, the arguments of  the European Communities did 
not provide a "plausible explanation"1186 as to why purchases of services had been removed from 
Article 1.1(a)(1)(iii) and Article 14(d) of the SCM Agreement .   
562. Finally, the "circumstances of the conclusion"1187 of the SCM Agreement  suggest that the 
drafters of Article 1 of the SCM Agreement  would have understood the consequences of removing the 
reference to "purchases of services" in Article 1.   Such circumstances included both pre-existing 
GATT disciplines regarding government procurement,  relevant dispute settlement proceedings that 
were decided under those disciplines1188, as well as negotiations that were underway to establish new 
disciplines regarding government procurement, in cluding government procurement in respect of 
services.1189  The Panel also referred to parallel ne gotiations that were taking place under the General 
Agreement on Trade in Services .1190  For the Panel, rather than illustrating that the drafters excluded 
purchases of services because such a reference would be  "superfluous" or that such transactions would 
be understood to be implicitly covered, the histor ical background reveals a "deliberate choice" by 
Members to exclude purchases of services from Article 1.1(a)(1).1191  
563. On the basis of the foregoing, the Panel conc luded that transactions properly characterized  as 
purchases of services are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement .1192  
(b) The Panel's assessment of the NASA measures 
564. Having concluded that purchases of services are excluded from the scope of 
Article 1.1(a)(1)(i) of the SCM Agreement , the Panel turned to consid er whether the payments and 
access provided to Boeing under the NASA contracts c ould be properly characterized as purchases of 
services. 
565. The Panel commenced its analysis by referri ng to the Appellate Body's statement in  
US – Softwood Lumber IV  that "an evaluation of the existence of a financial contribution involves 
                                                      
1185Panel Report, para. 7.962.  
1186Panel Report, para. 7.963.  
1187Panel Report, footnote 2444 to para. 7.964 (referring to Appellate Body Report, EC – Computer 
Equipment , para. 86).  In accordance with that Appellate Body report, the Panel understood this to include an 
examination into the historical background against which the treaty was negotiated.  
1188The Panel referred to two such GATT cases:  US – Sonar Mapping  and Norway – Trondheim Toll 
Ring . (Panel Report, para. 7.966) 
1189Panel Report, paras. 7.964-7.968. 
1190Panel Report, para. 7.968 (referring to Articles XIII:2 and XV of the General Agreement on Trade 
in Services ). 
1191Panel Report, para. 7.969. 
 1192Panel Report, para. 7.970.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 235  
 
  consideration of the nature of the transaction  through which something of economic value is 
transferred by a government".
1193  The Panel found that a determination of whether a transaction is a 
purchase of services depends on: 
… the nature of the work that Boeing was required to perform under 
the contracts, and more specifically, whether the R&D that Boeing was required to conduct was principa lly for its own benefit and use, 
or whether it was principally for the benefit and use of the U.S. 
Government (or unrelated third parties).
1194 (emphasis omitted) 
566. The Panel explained the basis for its test as fo llows.  First, the R&D contracts with Boeing 
should be characterized based on their terms (and the core term of these contracts is the work that 
Boeing was required to perform).  Second, inherent  in the ordinary meaning of the concept of a 
"service" is that the work performed be for the benefit and use of the entity funding the R&D (or 
unrelated third parties).1195  Third, the Panel's test  was "broadly consistent"1196 with the arguments of 
the parties and third parties in this case.  Fina lly, the test was consistent with prior GATT panel 
reports that examined the question of whethe r a transaction was properly characterized as 
"government procurement".1197 
                                                      
1193Panel Report, para. 7.977 (quoting Appellate Body Report, US – Softwood Lumber IV , para. 52). 
(emphasis added by the Panel) 
1194Panel Report, para. 7.978. 
1195The Panel defined "service" to mean:  "An act of helping or benefiting another  …  The action of 
serving, helping, or benefiting another ;  behaviour conducive to the welfare or advantage of another ". (Panel 
Report, footnote 2469 to para. 7.978 (quoting Shorter Oxford English Dictionary , 5th edn, W.R. Trumble, 
A. Stevenson (eds) (Oxford University Press, 2002), Vol. 2, p. 2768)  (emphasis added by the Panel)) 
1196Panel Report, para. 7.978.  The Panel noted definitions of "service" provided by the 
European Communities and Canada.  In particular, the European Communities had argued that whether or not a 
transaction is properly characterized as  a purchase of services depends on, inter alia , whether "the ultimate 
purpose of the transaction would need to be the acquisitio n of a service for the direct benefit and own use of the 
government".  Canada had noted that, in general terms, "a service is the performance of duties or work for 
someone else", such that the relevant question is whether the government has "procured the performance of 
duties or work for itself or anyone else (other th an the service seller)". ( Ibid., footnote 2470 to para. 7.978 
(referring to European Communities' response to Panel Question 15(b), para. 55;  and Canada's response to 
Panel Question 5(c) to the th ird parties, paras. 4-7)) 
1197Panel Report, para. 7.978 (referring to GATT Panel Report, US – Sonar Mapping , paras. 4.7 
and 4.10;  and GATT Panel Report, Norway – Trondheim Toll Ring , paras. 4.8-4.13).  The Panel noted that, in 
US – Sonar Mapping , the panel had stated that, " while not intending to offer a definition of government 
procurement within the meaning of Article I:1(a) of the Tokyo Round Agreement on Government 
Procurement , the Panel felt that in considering the facts of any particular case the following characteristics, 
none of which alone could be decisive, provide guidance  as to whether a transaction should be regarded as 
government procurement within the meaning of Article I:1(a):  payment by government, governmental use of or 
benefit from the product , government possession and government control over the obtaining of the product" 
(para. 4.7).  The panel concluded that, in that case, the government agency would " enjoy the benefits  of the 
system's purchase—Antarctic research and the pr eparation of seabed maps—which were clearly for government 
purposes , and the Government can thus be regarded as the ultimate beneficiary  of the system" (para. 4.10). 
(Panel Report, footnote 2471 to para. 7.978 (emphasis added by the Panel)) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 236 HSBI omitted, as indicated [[HSBI]]  
 
  567. The Panel thereafter turned to the kinds of ev idence it considered would "shed light" on the 
nature of the R&D activities required of Boeing under th e contracts, and in turn the issue of whether a 
transaction was a purchase of services.
1198  In particular, it explained that it would consider the 
following five categories of evidence:  (i) the legi slation authorizing the R&D programmes at issue;  
(ii) the types of instruments entered into betw een NASA and Boeing;  (iii) whether NASA has any 
demonstrable use for the R&D performed under the pr ogrammes;  (iv) the allocation of intellectual 
property rights under the transactions at issue;  an d (v) whether the transactions have the typical 
elements of a purchase of services.1199 
568. The Panel turned first to NASA's statutory b asis for performing aeronautical research.  The 
Panel noted all of the objectives set out in NASA's statute, but highlighted the following ones:  (i) "improvement of the usefulness, performance, speed, safety, and efficiency of aeronautical and 
space vehicles";  (ii) "{t}he preservation of the ro le of the United States as a leader in aeronautical 
and space science and technology";  and (iii) "{t} he preservation of the United States preeminent 
position in aeronautics and space through research an d technology development related to associated 
manufacturing processes".
1200  Second, the Panel considered the type of instruments entered into 
between NASA and Boeing.  The Panel observed that  attaching the label "procurement contracts" 
rather than "assistance instruments"  to the instruments did not "shed very much light on the nature of 
the transactions".1201  
569. Third, the Panel considered whether "NAS A has any demonstrable use for the R&D 
performed under the eight aeronautics programmes at issue".1202  The Panel considered a variety of 
evidence including statements by NASA and Boeing officials and staff1203, as well as NASA 
documents1204 and budgetary and other doc umentation detailing the objectives for each of the eight 
NASA R&D programmes at issue.1205  The Panel determined that the principle purpose of NASA's 
                                                      
1198Panel Report, para. 7.979.  The Panel explained that it would review "all of the evidence" regarding 
the terms and surrounding context of NASA's aeronau tics R&D contracts with Boeing.  This would not 
preclude, for example, the "formal" features of the transa ctions or evidence of the "purpose and motives" of the 
programmes.  The Panel did not consider these elements "extraneous" features divorced from the "terms" of the 
transactions;  rather, they could be central to understanding the core term of the transaction. ( Ibid. (emphasis 
omitted)) 
1199Panel Report, para. 7.980. 
1200Panel Report, para. 7.982 (quoting National Aero nautics and Space Act of 1958, Public Law 
No. 85-568, as amended (Panel Exhibit EC-286), pp. 2-3). (emphasis omitted)  The Panel also noted that NASA must, in order to carry out the objectives of the Sp ace Act, "provide for th e widest practicable and appropriate  
dissemination of information concerning its activities and the results thereof". (Panel Report, para. 7.983 
(quoting Space Act, section 203(a)) (emphasis added by the Panel)) 
1201Panel Report, para. 7.984. 
1202Panel Report, para. 7.985. 
1203Panel Report, paras. 7.986-7.992. 
1204Panel Report, paras. 7.993 and 7.998. 
1205Panel Report, paras. 7.999-7.1023.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  aeronautics R&D in general, and the eight programmes in particular, was "to transfer technology to 
U.S. industry with a view to improving U.S. competitiveness vis-à-vis foreign competitors".
1206  
Fourth, the Panel considered the allocation of  intellectual property rights in the NASA R&D 
contracts.  It found that Boeing was not obligat ed to pay royalties to NASA for any commercial 
rewards resulting from the exploitation of patents right s over inventions conceived in the course of the 
research.1207  Moreover, the Panel noted that some  of the NASA contracts included limitations1208 on 
the government's rights over data developed as part of the research efforts. 
570. Finally, the Panel considered whether the NASA R&D contracts "involve the typical elements 
of a purchase of services".1209  The Panel noted that "a number" of NASA R&D contracts did not 
provide any fee or profit to Boeing for performi ng the work "because of NASA's determination that 
Boeing stood to benefit commercially from the R&D that it performed under the contract".1210 
571. The Panel ultimately held that: 
{t}he evidence relating to NASA ae ronautics R&D … leads to the 
conclusion that the work that Boeing performed under its aeronautics R&D contracts with NASA was prin cipally for its own benefit or 
use, rather than for the benefit or  use of the U.S. Government (or 
unrelated third parties).  While NASA's aeronautics R&D contracts take the form of a governmental procurement of services, the totality of the evidence before the Panel leads to the conclusion that the 
substance of these transactions cannot properly be characterized as a 
"purchase of services" for the purpose of Article 1.1(a)(1) of the 
SCM Agreement.
1211 (footnotes omitted) 
572. Accordingly, the Panel concluded that: 
… the payments made to Boeing under these contracts are covered 
by Article 1.1(a)(1)(i) of the SCM Agreement as a direct transfer of funds.  The Panel further {found} th at the access to NASA facilities, 
equipment and employees provided to Boeing through the R&D contracts and agreements at issue constitutes a provision of goods or 
services within the meaning of Article 1.1(a)(1)(iii) of the 
SCM Agreement.
1212 (footnote omitted) 
                                                      
1206Panel Report, para. 7.985. 
1207Panel Report, para. 7.1024. 
1208Panel Report, para. 7.1024.  The limitations are known as "Limited Exclusive Rights Data" 
("LERD") clauses. 
1209Panel Report, para. 7.1026. 
1210Panel Report, para. 7.1026. 
1211Panel Report, para. 7.1027. 
1212Panel Report, para. 7.1027.  The Panel did not accept that the payments to Boeing are outright 
"grants". ( Ibid., footnote 2552 thereto) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 238 HSBI omitted, as indicated [[HSBI]]  
 
  (c) The Panel's assessment of the USDOD measures 
573. In evaluating the payments and access to facilities provided to Boeing under the USDOD 
contracts and assistance instruments, the Panel once again first considered the evidence based on the 
five categories it had identified w ith respect to the NASA measures.
1213  The Panel began by 
considering the legislation authorizing the programmes and transactions at issue.  The Panel noted that 
the USDOD is given authority to fund certain kinds of R&D through "contracts", "cooperative 
agreements", "grants", and "other transactions".  The Panel also highlighted  that, in accordance with 
specific legislation, any R&D funded must be of "p otential interest" to the USDOD, and that special 
and additional rules apply to funding provided th rough "cooperative agreements", as distinct from 
"contracts".1214 
574. Second, with respect to the types of inst ruments entered into between Boeing and the 
USDOD, the Panel referred to the USDOD Grant and Agreement Regulations ( United States Code of 
Federal Regulations , Title 32, Sub-chapter C (Parts 21 to 37)).  The Panel noted that these regulations 
made a distinction between, on the one hand, "pro curement contracts" and, on the other hand, 
"assistance" and "other nonprocurement instrument s" (which comprise "grants", "cooperative 
agreements", "technology investment agreements", and "other transactions").  Whereas "procurement 
contracts" are appropriate where the "principal pu rpose" of the instrument is the acquisition of 
property or services for the direct benefit or use of the federal government, under the "assistance 
instruments" the principal purpose is "assistance", defined as the "transfer of a thing of value to a 
recipient to carry out a public purpose of support or stimulation".1215  
                                                      
1213See supra , para. 567. 
1214Panel Report, paras. 7.1140 and 7.1141 (referring to United States Code , Title 10 (Armed Forces), 
Sub-Part A (General Military Law), Part IV (Service, Supply and Proc urement), chapter 139 (Research and 
Development), section 2358(a)-(d) (Panel Exhibit US-1205)). 
1215United States Code of Federal Regulations , Title 35, section 21.615.  See Panel Report, 
paras. 7.1141-7.1146.  The Panel referred to some of th e cooperative agreements that  had been submitted to it 
by the European Communities, which provided:  "the principal purpose of this agreement is for the government 
to support and stimulate the recipient to provide reasonable efforts in advanced research and technology development and not for the acquisition of property or serv ices for the direct benefit or use of the government". 
(Ibid., para. 7.1145 (referring to Cooperative Ag reement between the U.S. Air Force et al.  and McDonnell 
Douglas Corporation, No. F33615-95-2-5019, 1 February 1995 (Panel Exhibit EC-512);  and Cooperative Agreement between the U.S. Air Force et al. and Mc Donnell Douglas Corporation, No. F33615-96-2-5051, 
16 November 1995 (Panel Exhibit EC-513))  The Panel also noted that all of th e "assistance instruments" 
submitted by the European Communities in this dispute used the terminology of "Grants Officer" and "Grants Administration Office", and refer to  the other party as the "recipient", and not as a "contractor". ( Ibid., 
para. 7.1146)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  575. Third, the Panel examined whether the US DOD had any "demonstrable use" for R&D 
performed under the 23 USDOD RDT&E programmes at issue.
1216  The Panel noted that 
"{g}enerally, the purpose of these programmes was to conduct R&D aimed at designing more 
advanced weapons or other defense systems or to reduce the cost of such systems".1217  Nonetheless, 
the Panel observed that two of the USDOD progra mmes at issue (Dual Use Science and Technology 
("DUS&T") and Manufacturing Technology ("ManTech")) "had the explicit objective of developing 
'dual use' R&D", and that those two progra mmes were funded through assistance instruments.1218 
576. Fourth, the Panel considered how intellect ual property rights are allocated under USDOD 
contracts and assistance instruments.  The Panel no ted that, "{w}hile the allocation of patents is 
uniform across all U.S. government R&D contracts and agreements, the allocation of 'data rights' 
differs (depending on the extent to which there is cost-sharing.)"1219  The Panel explained that, 
whereas any data delivered under an R&D procuremen t contract funded solely by the government is 
"unlimited rights data", in the case of assistance instruments, the government acquires only "limited rights" data, meaning that it can release or disclose the data outside the government only for government purposes.
1220  
577. Finally, the Panel examined whether the tran sactions "involve the typical elements of a 
purchase of services".1221  In this regard, the Panel pointed out that the R&D procurement contracts 
differ from the R&D assistance instruments with regard  to the payment of a fee or profit.  While the 
USDOD R&D assistance instruments do not provide for any fee or profit, all of the procurement 
contracts submitted to the Panel appear to provide for the payment of a fee.1222 
578. On the basis of the foregoing, the Panel conc luded that the USDOD assistance instruments are 
not properly characterized as purchases of servic es, but that the USDOD procurement contracts 
are.1223  The Panel noted that the distinction between the procurement contracts and assistance 
                                                      
1216Panel Report, paras. 7.1147 and 7.1148.  The Pane l referred in particular to the purpose of the 
programmes as reflected in the "Mi ssion Description" statement contained in the RDT&E programme budgets. 
(Ibid., para. 7.1147) 
1217Panel Report, para. 7.1147.  
1218Panel Report, para. 7.1148. 
1219Panel Report, para. 7.1149. 
1220Panel Report, paras. 7.1149 and 7.1150. (emphasis omitted)  The Panel added that the government 
"may, however, 'use, modify, release, reproduce, perform, display, or disclose' such jointly-funded data 'within the government without restriction'". ( Ibid., footnote 2723 to para. 7.1150 (referring to United States Code of 
Federal Regulations , Title 48, section 227.7103-4(a)(1) (Panel Exhibit EC-590))) 
1221Panel Report, para. 7.1151. 
1222Panel Report, para. 7.1151. 
1223Panel Report, para. 7.1153.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  instruments "is not one of the Panel's own making"
1224 but, rather, had been drawn to the Panel's 
attention by the United States.1225 
579. In closing, the Panel addressed some of the sp ecific arguments advanced by the parties with 
respect to the characteri zation of the USDOD measures.1226  The Panel rejected various arguments put 
forward by the United States in support of its proposition that the assistance instruments are properly characterized as purchases of services.
1227  The Panel stated that it was not persuaded by the 
United States' arguments that the technologi es developed under the USDOD R&D programmes are 
neither "technologically applicable" to commercial ai rcraft (because of the different missions and 
cost-sensitivities of military and commercial aircraft),  nor "legally applicable" to commercial aircraft 
(because of Boeing's decision to ensure that the 787 is International Traffic in Arms Regulations 
("ITAR")-free).1228  The Panel also rejected the United States' assertion that the ITAR make it 
"effectively impossible" for Boeing to utili ze any of the R&D performed under USDOD R&D 
procurement contracts and assistance instruments towards LCA.1229   
580. The Panel then turned to arguments by th e European Communities that the USDOD R&D 
procurement contracts are not purchases of services.  The Panel rejected a number of the 
European Communities' arguments, namely:  th at USDOD R&D contracts are not purchases of 
services because they "relate to {US}DOD's purchase of  goods" (that is, the mil itary aircraft and other 
defence systems that the USDOD ultimately procures1230);  that there is a "degree of artificiality" in 
how the USDOD finances R&D because, instead of paying one purchase price for its goods, the 
USDOD pays for R&D through its RDT&E budget a nd then pays for acquisition costs through its 
procurement budget1231;  that USDOD R&D contracts are not  properly characterized as purchases of 
                                                      
1224Panel Report, para. 7.1153.  
1225Panel Report, para. 7.1153 (referring to United States' first written submission to the Panel, 
footnote 75 to para. 90).  The Panel noted that, while  the European Communities had argued that consideration 
of the types of instrument is "too formalistic" to guide the analysis, the United States had asserted that, under 
US law, the type of instrument will determ ine which contract clauses are available. ( Ibid. (referring to 
United States' comments on the European Communities' response to Panel Question 19, para. 75)) 
1226Panel Report, paras. 7.1154-7.1170.  
1227Panel Report, para. 7.1157 (referring to United States' first written submission to the Panel, 
para. 92). In particular, the United States highlighted that assistance instruments:  (i) typically committed 
Boeing to a coordinated research an d development programme in accordance w ith a detailed statement of work;  
(ii) set a schedule for performance of research, and tie d payments to completion of the requisite tasks;  and 
(iii) specified that costs would be governed by the same rules applicable to contracts, and that Boeing would provide a final report, as well as quarterly reports and reports upon the achievement of certain milestones. ( Ibid., 
para. 7.1155) 
1228Panel Report, para. 7.1158.  
1229Panel Report, para. 7.1160.  
1230Panel Report, para. 7.1162 (quoting and referr ing to European Communities' second written 
submission to the Panel, para. 454). 
1231Panel Report, para. 7.1163 (referring to European Communities' second written submission to the 
Panel, paras. 475 and 476).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  services because the USDOD conveys monetary resources to Boeing for the purpose of conducting 
dual-use R&D
1232;  that the USDOD R&D contracts at issue do not contain the "typical elements of a 
purchase"1233;  that the contracts are not purchases of services because Boeing does not offer such 
R&D services to anyone else but NASA and the USDOD1234;  that the USDOD contracts are not 
purchases of services because they do not exclusively affect trade in services1235;  and, finally, that the 
USDOD procurement contracts are not purchases of  services because they help Boeing develop 
technology that it utilizes towards its LCA.1236   
581. On the basis of the above, the Panel conclude d with respect to the USDOD R&D procurement 
contracts as follows: 
The evidence relating to {US}DOD aeronautics R&D … leads to the 
conclusion that the work that Boeing performed under its aeronautics R&D contracts with {US}DOD was principally for the benefit and use of {US}DOD, and is therefore properly characterized as a "purchase of services".  Therefore, the Panel finds that the payments 
and access to facilities provide d to Boeing under {US}DOD 
contracts are not financial contributions within the meaning of Article 1.1(a)(1).
1237   
582. However, with respect to the USDOD R&D assist ance instruments, the Panel concluded that: 
… the evidence demonstrates that th e work Boeing performed under 
its aeronautics R&D "assistance in struments" with {US}DOD was 
principally for the benefit and use of Boeing itself.  Accordingly, the 
Panel concludes that {US}DOD's R&D agreements (i.e. "assistance 
instruments") with Boeing are not properly characterized as "purchases of services".  Therefore, the Panel finds that the payments made to Boeing under these agreements are covered by Article 1.1(a)(1)(i) of the SCM Agreement as a direct transfer of funds.  The Panel further finds that the access to {US}DOD facilities 
provided to Boeing under these agre ements constitutes a provision of 
goods or services within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
1238 (footnote omitted) 
                                                      
1232Panel Report, para. 7.1165 (referring to European Communities' second written submission to the 
Panel, para. 453). 
1233Panel Report, para. 7.1166 (referring to European  Communities' response to Panel Question 15(c);  
and European Communities' comments on the United States' response to Panel Question 20(a), para. 75). 
1234Panel Report, para. 7.1167. 
1235Panel Report, para. 7.1168 (referring to European  Communities' response to Panel Question 15(c), 
para. 66). 
1236Panel Report, para. 7.1170. 
1237Panel Report, para. 7.1171. 
1238Panel Report, para. 7.1171. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  3. The Panel's General Approach  
583. The European Union and the United States frame their respective appeals on the basis of the 
inquiry entered into by the Panel, namely, whet her purchases of services are excluded from the scope 
of Article 1.1(a)(1)(i) of the SCM Agreement  and, if so, whether the challenged measures can be 
properly characterized as purchases of services.  On appeal, therefore, both participants take as a given the terms upon which the Panel engaged in  the analysis of the matter before it. 
584. We note that the characterization of the measures challenged by the European Communities 
was heavily contested from the outset of this dispute.   In its first written submission to the Panel, the 
European Communities characterized the payments  made to Boeing under the challenged NASA and 
USDOD measures as direct transfers of funds falling within the scope of Article 1.1(a)(1)(i) of the 
SCM Agreement .
1239  The European Communities also claimed that the other support provided under 
the measures constitutes the provision of goods  and services under Article 1.1(a)(1)(iii).1240  T h e  
United States responded that the measures pursuant to which these payments and other support were 
provided are properly characterized as purchases of services, a category of transactions that the United States claimed to be excluded from the scope of Article 1.1(a)(1)(i).
1241   
585. The Panel was therefore confronted with contrasting characterizations of the NASA and 
USDOD measures before it.  However, instead of first resolving the dispute over the proper 
characterization of the measures, the Panel emba rked on an interpretative exercise based on the 
assumption that the measures are purchases of services.  Only after it had completed its interpretative exercise on the basis of that assumption did the Pane l return to the question of what was the proper 
characterization of the measures at issue.  This see ms an odd approach.  It would seem more logical to 
determine first the issue of the proper characterizati on of the measures at issue and, once the measures 
                                                      
1239See, for instance, European Communities' first wr itten submission to the Panel, paras. 524, 650, 
and 762;  and European Communities' second written submission to the Panel, paras. 332-334 and 362. 
1240See European Communities' first written submission to the Panel, paras. 524-650 and 762;  and 
European Communities' second written submission to the Panel, paras. 335 and 398.   
1241See, for instance, United States' first writte n submission to the Panel, paras. 41-48.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  have been properly determined, to examine the ques tion of whether such types of measures fall within 
the scope of Article 1.1(a)(1) of the SCM Agreement .
1242 
586. The Appellate Body has said that a "panel must thoroughly scrutinize the measure before it, 
both in its design and in its operation, and identify its principal characteristics"1243, and that, "{i}n 
making its objective assessment of the applicability of specific provisions of the covered agreements 
to a measure properly before it, a panel must identify all relevant characteristics of the measure, and 
recognize which features are the most central to that  measure itself, and which are to be accorded the 
most significance for purposes of characterizing th e relevant {measure} and, thereby, properly 
determining the discipline(s) to which it is subject under the covered agreements".1244  The Appellate 
Body has therefore clarified that a proper determ ination of which provision of the WTO agreements 
applies to a given measure must be grounded in a proper understanding of the measure's relevant 
characteristics.  In this regard, we note that the classification of a transaction under municipal law is 
not "determinative"1245 of whether that measure can be characterized as a financial contribution under 
Article 1.1(a)(1) of the SCM Agreement .  Moreover, the Appellate Body has "reviewed the meaning 
of a Member's municipal law, on its face, to determine whether the legal characterization by the panel 
was in error, in particular when the claim before the panel concerned whether a specific instrument of 
municipal law was, as such, inconsis tent with a Member's obligations".1246   
                                                      
 1242In their arguments to the Panel, the parties seemed to accept that, in  its assessment of the type of 
financial contribution, the Panel was required to determine the nature of the measures before it.  The 
European Communities stated that: 
{w}ith regard to financial contribution, the European Communities and the 
United States both agree that "the substance of the transaction must guide 
the analysis of whether it provides a financial contribution and, if so, what kind".  The European Communities has explained that a substantive 
examination of the NASA and {US}DOD contracts at issue shows that they 
result in direct transfers of funds and provisions of goods and services, since they convey economic resources to Boeing.  
(European Communities' oral statement at the second Panel meeting, para. 46 (quoting United States' comments 
on the European Communities' response to Panel Question 20, para. 76) (footnotes omitted)) 
1243Appellate Body Reports, China – Auto Parts , para. 171. 
1244Appellate Body Reports, China – Auto Parts , para. 171. (original emphasis)  
1245See Appellate Body Report, US – Softwood Lumber IV , para. 56. 
1246Appellate Body Reports, China – Auto Parts , para. 225 (referring to Appellate Body Report, US – 
Section 211 Appropriations Act , para. 106).  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  587. We note that the Panel in this dispute did not ultimately arrive at a definitive characterization 
of the NASA procurement contracts and USDOD assist ance instruments.  According to the Panel, 
these measures are not purchases of services, nor grants.
1247  However, having rejected the 
characterization advocated by each party, the Panel never provided a definitive view on what it considered to be the correct characterization of these measures.  Instead, the Panel arrived at the 
conclusion that the payments and other support are financial contributions by exclusion.  This 
conclusion seems to have proceeded mechanical ly from the Panel's conclusion that the NASA 
procurement contracts and USDOD assistance instruments are not  purchases of services.  The reason 
why one conclusion—that the relevant measures are direct transfers of funds—follows mechanically 
from the other—that the same measures are not purchases of services—is not explained by the Panel. 
588. The other curious feature about the Panel's approach is that it framed its inquiry as one 
seeking to determine whether a category of measures not expressly mentioned (purchases of services) 
is "excluded" from the scope of Article 1.1(a)(1) of the SCM Agreement .  It is not clear to us why, in 
the face of arguments by the European Commun ities that the payments under the contracts fall within  
the scope of Article 1.1(a)(1)(i) because they ar e grants—a category of financial contributions 
expressly mentioned in that provision—the Panel started from the premise that it was required to 
determine whether purchases of services—a category that is not mentioned in that provision—are 
excluded from its scope. 
589. We consider that the Panel should first have  examined the measure s to determine their 
relevant characteristics, and then considered whet her, in the light of a proper interpretation of 
Article 1.1(a)(1), these measures, properly character ized, fall within the scope of that provision.  
Given that the Panel failed to undertake a proper anal ysis of the characterizat ion of the measures at 
issue, we begin, in subsection 4, with an examina tion of the measures before us on appeal—that is, the 
NASA procurement contracts and the USDOD assistance instruments—in order to determine what are 
their relevant characteristics.  Next, in sub section 5, we consider the terms and scope of 
Article 1.1(a)(1) of the SCM Agreement .  Finally, in subsection 6, we determine whether, in the light 
of their relevant characteristics, the NASA proc urement contracts and USDOD assistance instruments 
fall within any of the four categories of financial contributions covered by Article 1.1(a)(1) of the 
SCM Agreement . 
                                                      
1247See, respectively, Panel Report, paras. 7.1027 and 7.1171;  and para. 7.1100, footnote 2552 to 
para. 7.1027, and footnote 2757 to para. 7.1171.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  590. We note that the conclusion as to the proper characterization of the measures may have 
consequences for the scope of our inquiry.  For instan ce, if we were to find that the measures are of a 
type that fall within the scope of Article 1.1, there would be no reason for us to examine whether 
purchases of services fall within the scope of Article 1.1(a)(1) of the SCM Agreement .  Whether or not 
purchases of services are covered by Article 1.1(a)(1) would be irrelevant to the question of whether 
the measures before us—the NASA procurement contracts and USDOD assistance instruments—
constitute financial contributions.  This would render moot the European  Union's appeal of the Panel's 
interpretation that purchases of services are excluded fro m the scope of Article 1.1(a)(1)(i).  It would 
also render moot the United States' appeal of the Panel's application of the test it developed for 
determining whether the measures could be prop erly characterized as purchases of services.   
591. Before proceeding further, we wish to make a general remark about the Panel's test for 
determining whether the measures could properly be characterized as purchases of services.  As it 
turns out, the Panel's test is of li mited relevance to us given the an alytical approach that we have 
adopted.  We also recognize that neither participan t directly challenged on appeal the test developed 
by the Panel to determine whether the measur es could properly be characterized as purchases of 
services.  Nevertheless, we wish to note some concerns  that we have with the Panel's test.  We have 
difficulty understanding the legal basis of the test, wh ich does not appear to us to be grounded in the 
terms of Article 1.1(a)(1) of the SCM Agreement .  Moreover, formulated as it is, requiring an inquiry 
into the degree to which either party (Boeing, or  the government/unrelated third parties) derives a 
disproportionate "benefit" from the transaction, we f ear that the test risks conflating the financial 
contribution and benefit elemen ts of a subsidy analysis.
1248  Finally, the Panel's use of the term 
"benefit" in its "principally for th e benefit and use" test is somewhat misleading, as this term has a 
particular legal meaning under Article 1.1(b) of the SCM Agreement . 
                                                      
1248We are cognizant of prior findings of the Appellate Body that these two inquiries should be kept 
distinct. (See Appellate Body Report, Brazil – Aircraft , para. 157)   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 246 HSBI omitted, as indicated [[HSBI]]  
 
  4. What is the Proper Characterization of the NASA/USDOD Measures at 
Issue? 
592. We turn to the measures before us on appeal , namely, the NASA procurement contracts and 
USDOD assistance instruments.  
(a) NASA procurement contracts 
593. The US legislative and regulatory framework indicates that procurement contracts are the 
instruments used when the US Gove rnment intends to make a purchase.1249  The label given to an 
instrument under municipal law, however, is not di spositive and cannot be the end of our analysis, as 
the United States acknowledged before the Panel.1250  Thus, we continue our assessment by looking at 
the other characteristics of the measures. 
594. The United States argued that, under the procurement contracts, NASA paid Boeing to 
conduct research services.1251  There is no dispute that NASA made payments to Boeing under the 
procurement contracts;  however, NASA did more than pay Boeing to conduct R&D.  The 
transactions are composite in the sense that they involve a combination of elements.  Some of the 
transactions also involved NASA providing Boeing with access to its equipment, facilities, and 
employees to undertake the research project.  For example, pursuant to contract NAS1-20546, NASA 
was required to make available to McDonnell D ouglas a single-needle computer-controlled stitching 
machine and a multi-needle stitching machine.1252  Under contract NAS1-20553, NASA was required 
                                                      
 1249Under US law, "procurement contracts are the appropriate legal instruments for acquiring … 
property or services". United States Code of Federal Regulations , Title 48, section 21.605 defines "acquisition" 
as:  
{t}he acquiring (by purchase, lease, or barter) of property or services for the 
direct benefit or use of the United States Government (see more detailed 
definition at 48 CFR 2.101). In accord ance with 31 USC, 6303, procurement 
contracts are the appropriate legal instru ments for acquiring such property or 
services. 
 Title 48, section  35.003 (Panel Exhibit US-23) el aborates on the requirement that a contract be used 
for acquisitions: 
(a) Use of contracts . Contracts shall be used only when the principal 
purpose is the acquisition of supplies or services for the direct benefit or use 
of the Federal Government. Grants or cooperative agreements should be 
used when the principal purpose of the transaction is to stimulate or support 
research and development for another public purpose. 
1250Panel Report, para. 7.1131. 
1251Panel Report, para. 7.975.  
1252Award contract between NASA and McDonnell Douglas Corporation, No. NAS1-20546, 
18 September 1995 (Panel Exhibit EC-324).  The United States did not contest that the two machines were 
provided by NASA.  Instead, the United States argued th at "the machines were not provided as distinct 
government action, but rather as an integral element of  the terms of the contract for purchases of services 
between NASA and McDonnell Douglas".  (United States' first written submission to the Panel, footnote 333 to 
para. 231)   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  to provide Boeing with a resin transfer moulding ("RTM") tool, a winding mandrel tool, a large cure 
tool, and an RTM and braiding tool, among others.
1253  Contract NAS1-97040 commits NASA to 
supply Boeing with phased array hardware, fan rig test hardware, transducers, instrumentation 
adaptors, anemometry sensors, and additional fan rig hardware.1254  The Panel record also indicates 
that some of the contracts awarded to Boeing unde r the ACT programme provided for research teams 
that included NASA employees.1255  
595. The Panel attributed considerable importance to the access to facilities, equipment, and 
employees provided by NASA and concluded that the value of such access was significantly higher 
than the value of the payments.  The Panel estimat ed the value of the payments to be $1.05 billion, 
while the access to equipment, facilities, and employees was estimated to have a value of 
$1.55 billion.1256  Thus, under the measures at issue, NASA provides Boeing with funding and also 
with access to its facilities, equipment, and employe es, while Boeing contributes the labour of its own 
employees as well as the use of its own facilities.  Th erefore, in addition to the funding provided by 
NASA, the transactions involve NASA and Boeing pooling non-monetary resources and employees.  
Another relevant feature is that the subjects to be  researched are often determined in a collaborative 
arrangement between NASA and the US aeronautics indus try.  As noted in more detail below, this 
was an aspect of the measures highlighted by the Panel in its analysis of serious prejudice.1257 
596. It is clear from the NASA procurement contracts and the arguments put forward by the 
United States that scientific and technical informa tion, discoveries, and data are among the expected 
outcomes of the research jointly undertaken by Boeing and NASA.  The scientific and technical 
information may be gathered in reports, the discove ries may be patentable, and the data may also be 
subject to certain intellectual property protection and to non-disclosure requirements.  Boeing and 
NASA have different rights over the use of the results of the research.  Both Boeing and NASA receive access to the scientific info rmation gathered as part of the r esearch.  Title to any invention 
                                                      
1253Award contract between NASA and Boeing Commercial Airplane Group, No. NAS1-20553, 
25 September 1995 (Panel Exhibit EC-334).  
1254Award contract between NASA and Boeing Commercial Airplane Group, No. NAS1-97040, 
10 January 1997 (Panel Exhibit US-421). 
1255See Panel Report, para. 7.1711 and footnotes 3602-3605 thereto. 
1256Panel Report, para. 7.1109.  The United States has appealed the Panel's finding as to the total value 
of the access to facilities, equipment, and employees provide d by NASA to Boeing.  Th e United States' appeal is 
directed at the Panel's estimate of the payments made by NASA to Boeing, which was then used to estimate the value of the access to facilities, equipment, and employees.  As the Panel noted, even using the United States' 
estimate of the payments provided by NASA to Boei ng ($775 million), the value of the access to facilities, 
equipment, and employees would be $1.17 billion. ( Ibid., para. 7.1099)  We recognize that this figure may 
include access to facilities, equipment, and employ ees provided under Space Act Agreements and not 
procurement contracts.  Nevertheless, the United States se emed to indicate before the Panel that the value of 
goods and services provided und er the Space Act Agreements was approximately $88 million. ( Ibid., 
para. 7.1092) 
1257See infra , para. 610. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  discovered as part of the research will bel ong to Boeing under NASA's waiver provisions.
1258  The 
US Government (of which NASA is a part) receives a royalty-free, government use/purpose license to 
use the subject invention.1259  Under this arrangement, Boeing is not required to pay any royalties to 
NASA for any resulting commercial rewards.1260  Boeing obtains rights over the data developed in the 
course of performing research, while the US Govern ment receives a royalty-free, "unlimited rights" 
license to use, for government purposes, any data produced by the contractor in the course of 
performing research funded by NASA.1261  Some of the contracts contain "Limited Exclusive Rights 
Data " ("LERD") clauses, which limit the otherwise "unlimited rights" that the US Government would normally have in the data developed in the course of  the contracted research.  As the Panel explained, 
these LERD clauses grant Boeing exclusive rights to exploit critical technologies developed under certain NASA contracts for at least five years from the date the data is reported.  The Panel further 
explained that "{t}he NASA R&D contracts that contained LERD clauses involved 'joint funding 
situations', i.e. contractors were 'contributing a significant amount of their own resources to contract 
research efforts'".
1262  Hence, looking at the output side of the transactions, we do not see a 
straightforward exchange of monetary resources fo r some kind of non-mone tary consideration.  
Instead, the fruits of the research are shared between  Boeing and NASA.  The fact that the results of 
the research may be shared asymmetrically does not  alter the conclusion that the research is a 
collaborative arrangement. 
597. In summary, we see these transactions as involving the provision of funds from NASA and a 
pooling of non-monetary resources (such as access to equipment, facilities, and employees) on the 
input side.1263  As explained above, they also involve some sharing of the fruits of the research on the 
output side.  The transactions are collaborative arrangeme nts that are composite in nature in that they 
involve various elements that are interlinked.  The arrangements are akin to a species of joint venture. 
598. Several of the statements by NASA officials quoted by the Panel emphasize the partnership 
between NASA and the US aerospace industry.1264  While we do not think that it would be appropriate 
to place too much emphasis on these statements—given that NASA officials would have had an 
incentive to overstate the cooperation in order to justify obtaining funding for NASA—they 
                                                      
1258See Panel Report, paras. 7.1288-7.1290;  see also para. 7.1024. 
1259Panel Report, para. 7.1024. 
1260Panel Report, para. 7.1024. 
1261Panel Report, para. 7.1024. 
1262Panel Report, para. 7.1024. 
1263As noted supra , para. 596, it would appear that Boeing contributed its own funds to some of the 
research projects. 
1264See infra , para. 610.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  nevertheless lend further support to the conclusion that the transactions between Boeing and NASA 
are comprised of a number of elements and are collaborative in nature.   
599. For example, the Panel quotes the response of NASA's Administrator to a question from the 
US Senate Committee on Commerce, Science a nd Transportation, in which he states: 
NASA generally performs its research in cooperation with the 
aeronautics industry, thereby providing some direct mechanisms for technology transfer.  However, we are stepping up our efforts to increase and improve industry invo lvement both in planning and 
implementing our programs.  Additi onally, much of the Aeronautics 
investment, beginning in FY 1994, is aimed at developing technologies to a more advanced stage, reducing the risks sufficiently for industry commercialization.  I ndustry's partnership in the NASA 
program should allow manufacturers to easily continue the 
technology development through commercialization, as desired.  
Furthermore, the natural advantage U.S.  industry is afforded through 
direct partnership in the NASA technology development program will be supported by NASA contr acts and cooperative agreements 
... .
1265  
We note that, in the statement quoted above, NA SA's Administrator asser ts that the "direct 
partnership" between NASA and the US aerospace industry is supported by both NASA contracts  and 
cooperative agreements. 
600. In another statement quoted by the Panel, the NASA Administrator downplays the importance 
of the funding provided by NASA and instead highlights the importance of the partnership: 
If the Europeans are going to make small, marginal improvements 
with what we're saying here, we'll whip them. Money is not the 
magic ingredient.  The partnership is. It is absolutely clear.1266 
601. Having reviewed the NASA procurement contract s, we turn next to the USDOD assistance 
instruments. 
                                                      
1265Panel Report, para. 7.988 (quoting Competitiveness of the Aerospace Industry Hearing on S. 419 
before the US Senate Committee on Commerce, Scien ce, and Transportation, 103rd Congress, first session 
(19 May 1993) (Panel Exhibit EC-273), p. 81).  
1266Panel Report, para. 7.987 (quoting statement by NASA Administrator Dan Goldin in testimony to 
Congress at the 24 April 2001 Senate Hearing on  Science, Technology and Space of the Committee on 
Commerce, Science and Transportatio n, FDCH Political Transcripts (Panel Exhibit EC-292), p. 13).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 250 HSBI omitted, as indicated [[HSBI]]  
 
  (b) USDOD assistance instruments 
602. The USDOD assistance instruments before us in clude cooperative agreements and technology 
investment agreements, both of which are consider ed instruments used to provide "assistance" under 
the US federal regulations.  They also include certain "other transactions" entered into by the USDOD 
under section 2371 of Title 10 of the United States Code .  These are transactions other than contracts, 
cooperative agreements, and grants th at may be entered into to carry out basic, applied, and advanced 
research projects.   
603. The Panel noted that US law draws a distinction between "assistance" and "acquisition".  
"Assistance" is  defined as follows: 
§ 21.615   Assistance 
The transfer of a thing of value to a recipient to carry out a public 
purpose of support or stimulation authorized by a law of the 
United States (see 31 USC 6101(3)). Grants, cooperative agreements, 
and technology investment agre ements are examples of legal 
instruments used to provide assistance. 
By contrast, "acquisition" is defined as: 
{t}he acquiring (by purchase, lease, or  barter) of property or services 
for the direct benefit or use of the United States Government (see more detailed definition at 48 CFR 2.101). In accordance with 
31 USC 6303, procurement contracts are the appropriate legal 
instruments for acquiring such property or services.
1267 
604. The first thing that strikes us as we review th e USDOD transactions is that the definition of 
"assistance" in the federal regulations has language that  is similar to that in Article 1.1(a)(1)(i) of the 
SCM Agreement .  Like Article 1.1(a)(1)(i), the definition of "assistance" refers to a "transfer" from the 
government to an enterprise.  It also brings to mind the Appellate Body's statement that the 
"evaluation of the existence of a financial contri bution involves consideration of the nature of the 
transaction through which something of econom ic value is transferred by a government".1268  
Nevertheless, as we have stated above, the particular label that a transaction receives under municipal 
law is not determinative, and we must thus exam ine the principal characteristics of the measures 
before us.  As we did with the NASA procurement contracts, we will look at the input and output 
sides of the transactions under the USDOD assistance instruments.   
                                                      
1267United States Code of Federal Regulations , Title 32, section 21.605. 
1268Appellate Body Report, US – Softwood Lumber IV , para. 52.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  605. A second feature about the assistance instruments that stands out is that both the USDOD and 
Boeing contribute financial resources to the research pr oject.  This is a feature that the United States 
has emphasized in its appeal of the Panel's findings of benefit.
1269  Our review of the assistance 
instruments on record confirms that they commit Boeing to contribute financial resources to the 
project, although, in all cases, the USDOD funds at least 50% of the costs.  In other words, the 
assistance instruments provide for the jo int funding of the research projects. 
606. A further feature to note is the degree of USDOD involvement that is called for under the 
cooperative agreements, one of the instrument s that the Panel included among the assistance 
instruments.  The United States itself distinguished the cooperative agreements from grants by noting 
that "the government will have  'substantial involvement' in the work done under a cooperative 
agreement, including collaboration, participation, or intervention".1270   
607. Moreover, as with the NASA procurement contr acts, the USDOD provides more than funding 
for the projects.  The USDOD al so provides Boeing with access to its facilities under some of the 
assistance instruments.1271  In addition, as the Panel noted in its analysis of serious prejudice, the 
subjects to be researched are often decide d in collaboration between the USDOD and Boeing.1272  
Thus, from the funding perspective, the measures i nvolve a pooling of monetary and non-monetary 
resources. 
608. Turning to the outputs expected from the transactions, we note that the situation is similar to 
that under the NASA procurement contracts.  Scientif ic information is shared between the parties.  
Boeing obtains title to any invent ions and the US Government receives a royalty-free government 
use/purpose licence to use the invention.1273  Boeing also obtains rights over the data.1274  For its part, 
the US Government obtains only " limited rights" over the data.  These rights are more limited in the 
case of the assistance instrument s than the NASA procurement contracts because Boeing co-funds the 
research under the USDOD assistance instruments.  The Panel explained that, in such cases, the 
government generally "may release or disclose the data outside the government  only  for government 
                                                      
1269United States' other appellant's submission, para. 119. 
1270United States' response to Panel Question 20(a), para. 45 (quoting United States Code of Federal 
Regulations , Title 32, section 22.215(a)(2)  (Panel Exhibit US-1214)). 
1271Panel Report, para. 7.1171. 
1272See infra , para. 610. 
1273Panel Report, para. 7.1149. 
1274The Panel noted that, "{a}s a general rule, contractors own all technical data (i.e. data rights) 
produced with U.S. government funding, and may use these for their own commercial purposes". (Panel Report, 
para. 7.1296) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  purposes (government purpose rights)".
1275  It further noted that "the term for these 'government 
purpose rights' is negotiable, with five years bein g the baseline, subject to  negotiation between the 
parties".1276  Therefore, from the perspective of the out puts, these measures involve a sharing of the 
fruits of the research.  
609. Accordingly, the transactions under the USDOD assistance instruments are composite in that 
they involve a combination of funding and access to facilities.  They are collaborative in nature, as 
they involve the USDOD and Boeing pooling moneta ry and non-monetary resources on the input side 
and some sharing of the fruits of the research on the output side.  Indeed, before the Panel, the United States described the assistance instruments as transactions in which the "{US}DOD and the 
contractor both put forward resources to achieve a common goal for the benefit of both".
1277  As we 
have noted earlier, these are not the usual characte ristics of a purchase transaction.  Rather, these 
features resemble a joint venture arrangement.   
(c) The Panel's description of the transactions in its analysis of serious 
prejudice 
610. Although the Panel did not focus in its assessment  of financial contribution on the composite 
nature of the measures and the collaborative relationship between NASA/USDOD and Boeing, the 
Panel did highlight these features in the section of its Report that addresses the European Communities' claims of serious prejudi ce.  The Panel stated that the aeronautics R&D 
subsidies operated as "collaborative research projects".
1278  This collaboration was evident, according 
to the Panel, in how the research priorities were de termined.  For example, the Panel found that "the 
evidence shows that the R&D was often undertaken at  the behest of and in close collaboration with 
the U.S. industry".1279  It further found that "the focus of the research under the aeronautics R&D 
programmes on areas of primary strategic importance to the U.S. civil aircraft industry is hardly 
surprising given that the definition of the scope and programme of research was arrived at in 
collaboration with industry."1280  The Panel also referred to "B oeing's collaboration with NASA in 
                                                      
1275Panel Report, para. 7.1150 (quoting United States Code of Federal Regulations , Title 48, section 
227.7103-4(a)(1) (Panel Exhibit EC-590)). (emphasis added by the Panel)  The Panel clarified, however, that the 
government may "use, modify, release, reproduce, perform, display or disclose" such jointly-funded data "within the Government without restriction". ( Ibid., footnote 2723 to para. 7.1150 (quoting United States Code 
of Federal Regulations , Title 48, section 227.7103-4(a)(1))) 
1276Panel Report, para. 7.1150 (quoting United States Code of Federal Regulations , Title 48, section 
227.7103-5(b)(2) (Panel Exhibit EC-590)). 
1277United States' first written submission to the Panel, para. 97. (original emphasis) 
1278Panel Report, para. 7.1746. 
1279Panel Report, para. 7.1709. 
1280Panel Report, para. 7.1745.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  specifying and planning the research t asks that it would undertake for NASA".
1281 As regards the 
USDOD's ManTech and DUS&T programmes, the Panel observed that these programmes "envisage 
collaboration with industry in developing tec hnologies, including cost reduction processes and 
practices that have application in the civil sector".1282  Furthermore, the Panel made findings as to the 
various components and collaborativ e nature of the learning process.  The Panel found that "the 
evidence before {it was} consistent with a pattern  whereby the technology concepts studied under the 
NASA R&D subsidies and the technologies applied to the 787 are essentially part of the same process 
in which solutions to technological problems are developed (through a collective exercise of 
progressive learning through trial and error invol ving largely the same teams of people over an 
extended period of time)."1283  The Panel again pointed to the collaborative nature of the arrangements 
between Boeing and NASA/USDOD in the conclusi on of its analysis of the operation of the 
aeronautics R&D subsidies: 
For the reasons set forth above, we would characterize the NASA 
R&D subsidies as strategically-focused R&D programmes with a significant and pervasive commercial dimension, undertaken in 
collaboration  with U.S. industry to provide competitive advantages 
to U.S. industry by funding research into high risk, high pay-off research of the sort that individual companies are unlikely to fund on their own.  The {US}DOD R&D s ubsidies funded through the 
ManTech and DUS&T programmes under {US}DOD's RDT&E 
Program are focused on pursuing "dual use" technologies through 
collaborative efforts  with U.S. industry.
1284 (emphasis added) 
Hence, the Panel's discussion of the collaborativ e relationship between Boeing, on the one hand, and 
NASA/USDOD, on the other hand, is consistent with our assessment of the principal characteristics 
and the composite nature of the transactions unde rtaken pursuant to the NASA procurement contracts 
and pursuant to the USDOD assistance instruments. 
(d) Summary of the main characteristics of the measures 
611. We have carefully scrutinized the transacti ons under the NASA procurement contracts and 
under the USDOD assistance inst ruments and have been able to identif y their principal characteristics.  
The transactions are composed of  the following elements.  The NASA procurement contracts and 
USDOD assistance instruments involve  the commitment of resources from both parties.  In the case of 
the NASA procurement contracts, NASA commits to provide financial resources and contributes the 
use of its facilities, equipment, and employees, while  Boeing contributes the work of its scientists and 
                                                      
1281Panel Report, para. 7.1746. 
1282Panel Report, para. 7.1740. 
1283Panel Report, para. 7.1750. 
1284Panel Report, para. 7.1764. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  engineers.
1285  Under the USDOD assistance instruments, the USDOD commits to provide financial 
resources and access to its facilities, and Boeing contri butes the work of its scientists and engineers, 
as well as its own financial resources.  Thus, both types of instruments involve monetary and non-
monetary contributions.  Moreover, the subjects to be researched are often determined collaboratively 
between NASA/USDOD and Boeing.  The fruits of the research are shared between Boeing and 
NASA or Boeing and the USDOD.  Boeing obtains title to  inventions and rights to the data that allow 
use for commercial purposes, while the US Governme nt obtains a royalty-free licence to use the 
technology or data for government purposes only.  Accordingly, the transactions under the NASA 
procurement contracts and under the USDOD assistance instruments are akin to a species of joint 
venture. 
5. The Types of Financial Contributions Covered by Article 1.1(a)(1) of the 
SCM Agreement   
612. We turn now to Article 1.1(a)(1) of the SCM Agreement , which provides: 
Definition of a Subsidy 
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: 
(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{.}  
                                                      
1285As noted supra , para. 596, it would appear that Boeing contributed financial resources to some of 
the research projects.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  613. Beginning with the general architecture and structure of the provision, we note that 
Article 1.1(a)(1) defines and identifies the government conduct that constitutes a financial 
contribution for purposes of the SCM Agreement .  Subparagraphs (i)-(iv) exhaust the types of 
government conduct deemed to constitu te a financial contribution.  This is because the introductory 
chapeau to the subparagraphs states that "there  is a financial contribution by a government …, 
i.e. where :".
1286  Some of the categories of conduct—for in stance those specified in subparagraphs (i) 
and (ii)—are described in general terms with illust rative examples that provide an indication of the 
common features that characterize the conduct referred to more generally.  Article 1.1(a)(1), however, 
does not explicitly spell out the intended rela tionship between the c onstituent subparagraphs.1287  
Finally, the subparagraphs focus primarily on the action taken by the government or a public body. 
614.  Subparagraph (i) of Article 1.1(a)(1) identifi es, as one type of financial contribution, a 
government practice involving "a direct transfer of funds".  It indicates action involving the 
conveyance of funds from the government to the r ecipient.  The Appellate Body has endorsed a 
meaning of "funds" that includes not only money, but also financial resources and other financial 
claims more generally.1288  The direct transfer of funds in subparagraph (i) therefore captures conduct 
on the part of the government by which money, fina ncial resources, and/or financial claims are made 
available to a recipient.  
615. Article 1.1(a)(1)(i) lists in brackets examples of di rect transfers of funds ("e.g. grants, loans, 
and equity infusion").  As the Appellate Body has c onfirmed, the fact that the words "grants, loans, 
and equity infusion" are preceded by the abbreviation "e.g.", indicates that they are cited as examples 
of transactions falling within the scope of Article 1.1(a)(1)(i).1289  These examples, which are 
illustrative, do not exhaust the class of conduct capt ured by subparagraph (i).  The inclusion of 
specific examples nevertheless provides an indication of the types of transactions intended to be 
covered by the more general reference to "direct transfer of funds".1290  Indeed, in Japan – DRAMs 
(Korea) , the Appellate Body found that  transactions that are similar to those expressly listed in 
                                                      
1286Emphasis added.  Neither participant disputed this  interpretation of Article 1.1(a)(1) at the oral 
hearing.  
1287The structure of that provision does not expressly preclude that a transaction could be covered by 
more than one subparagraph.  There is, for example,  no "or" included between the subparagraphs.   
1288See Appellate Body Report, Japan – DRAMs (Korea) , para. 250. 
1289Appellate Body Report, Japan – DRAMs (Korea) , para. 251. 
1290At the oral hearing, the United States referred to the Latin canon of construction, " ejusdem generis ", 
which provides that, when a general word or phrase follows a list of specific persons or things, the general word 
or phrase will be interpreted to include only person s or things of the same type as those listed. ( Black's Law 
Dictionary , 7th edn (West Group, 1999), p. 535)  In our view, the doctrine would equally apply to situations 
where the general word or phrase  precedes the specified list.   WT/DS353/AB/R BCI deleted, as indicated [***] 
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  subparagraph (i)—in that case, debt forgiveness, the extension of a loan maturity, and debt-to-equity 
swaps—are also covered by that provision.
1291   
616. Turning to the first example—a "grant"—we not e that, in such a transaction, money or 
money's worth is given to a recipient, normally wit hout an obligation or expectation that anything will 
be provided to the grantor in return.1292  "Loans" and "equity infusions" are characterized by 
reciprocity.  With a loan, the lender lends money or  money's worth on the basis that the principal, 
along with interest as may be agreed, is repaid.  Under a loan, the lender will usually earn a return on 
the amount borrowed.  In the case of an equity infusion, a government's provision of capital to a recipient is made in return for the acquisition of shares.  The provider of the capital thereby makes an 
investment in the recipient enterprise
1293 and will be entitled to the dividends or any capital gains 
attributable to that investment.  The return s on the investment will depend on the success of the 
recipient enterprise.  At the time the governme nt provides the capital, it does not know how the 
recipient enterprise will perform.  Th e equity investor enjoys a return  on its capital to the extent the 
enterprise succeeds, and suffers losse s in capital to the extent it fails.  
617. It is clear from the examples in subparagraph (i) that a direct transfer of funds will normally 
involve financing by the government to the recipient.  In some instances, as in  the case of grants, the 
conveyance of funds will not involve a reciprocal ob ligation on the part of the recipient.  In other 
cases, such as loans and equity infusions, the r ecipient assumes obligations to the government in 
exchange for the funds provided.1294  Thus, the provision of funding  may amount to a donation or may 
involve reciprocal rights and obligations.  
618. We turn now to subparagraph (iii) of Article 1.1(a)(1), which identifies another type of 
financial contribution.  That subpa ragraph contemplates two distinct types of transaction:  the first is 
where a government "provides goods or services other than general infrastructure";  and the second 
relates to situations in which a government "purch ases goods" from an enterprise.   In the case of the 
provision of goods or services, subparagraph (iii) does not specify whether the goods or services are 
                                                      
1291Appellate Body Report, Japan – DRAMs (Korea) , paras. 251 and 252. 
1292Grants can take many forms.  Some conditional gran ts, for example, require the recipient to use the 
funds for a specific purpose.  Other conditional grants ma y require a recipient to itself raise part of the funds 
needed for a project. 
1293This notion of an investment through an equity infusion is reinforced by Article 14(a) of the 
SCM Agreement , which expressly provides that the determination of whether an equity infusion confers a 
benefit must be made based on whether the "investment decision" is inconsistent  with the "usual investment 
practice" of private investors in  the territory of the Member.  
1294The fact that there is an  element of reciprocity in some of th e transactions listed as examples in 
subparagraph (i) does not mean that what is provided to the government by the recipient in return for the funds must be equivalent to the value of the funds.  That issue becomes relevant in the subsequent assessment of 
benefit under Article 1.1(b) of the SCM Agreement .   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 257  
 
  provided gratuitously or in exchange for money or other goods or services.  Thus, the provision of 
goods or services may include transactions in which the recipient is not required to make any form of 
payment, as well as transactions in which the reci pient pays for the goods or services.  Therefore, 
what is captured in the first sub-clause of subpara graph (iii), as well as in  subparagraph (i), is a 
government's provision or goods or services, or of funds, irrespective of whether this is done 
gratuitously or in exchange for consideration.  The difference between the two types of government 
conduct, however, lies in what is being transferre d by the government.  Under subparagraph (i), the 
government transfers financial resources, while under subparagraph (iii) (first sub-clause), the 
government provides a good or service.   
619. With respect to the second sub-clause of subparagraph (iii)—where a government "purchases 
goods"—we note that the goods are provided to the government by the recipient, in contrast to the 
first sub-clause of that paragraph, where the goods are provided by the government.  There are two 
additional differences between the first and sec ond sub-clauses of subparagraph (iii).  The second 
sub-clause uses the term "purchase", which is usually understood to mean that the person or entity 
providing the goods will receive some consideration in return.  The other difference is that, in contrast 
to the first sub-clause that addresses the provision of goods and services , the second sub-clause refers 
only to purchases of "goods", and not of "services".
1295   
620. The Panel in this dispute interpreted the om ission of the term "services" from the second 
sub-clause of subparagraph (iii) as an indication that the drafters of the SCM Agreement  did not intend 
measures constituting government pur chases of services to be covered as financial contributions under 
Article 1.1(a)(1)(i).1296  This interpretative issue does not need to be resolved by us because it is not 
relevant for purposes of resolving the dispute be fore us, that is, whether the NASA procurement 
contracts and USDOD assistance instruments, whic h we have found to resemble joint ventures, 
constitute financial contribu tions within the meaning of Article 1.1(a)(1) of the SCM Agreement .1297  
We therefore declare  the Panel's interpretation that "tran sactions properly characterized as purchases 
                                                      
1295"Goods" are tangible items.  They are often contra sted against "services", which are intangible. 
There are a number of distinctions usually drawn between services and goods.  As opposed to goods, typical 
features of services include their immaterial, invisible, intangible, non-storable, and transitory nature.  Services 
are usually produced and consumed simultaneously, while goods are not.  However, it may be difficult to separate goods from services, for inst ance where services are an input or processing step in the production of 
goods.   
1296See Panel Report, paras. 7.955, 7.969, and 7.970. 
1297The Appellate Body proceeded in a similar manner in US – Upland Cotton  with respect to the 
interpretation of Article 6.3(d) of the SCM Agreement . WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 258 HSBI omitted, as indicated [[HSBI]]  
 
  of services are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement"
1298 to be moot 
and of no legal effect.  
6. Do the NASA and USDOD Measures Raised on Appeal Constitute  
Financial Contributions within the M eaning of Article 1.1(a)(1) of the 
SCM Agreement ?  
621. Having identified the principal characteristics of  the measures before us and interpreted the 
relevant provisions of Article 1.1(a)(1), we mu st now determine whether the measures fall under one 
of the subparagraphs of Article 1.1(a)(1) of the SCM Agreement .  We begin with subparagraph (i), 
which we recall refers to "a govern ment practice {that} involves a direct transfer of funds (e.g. grants, 
loans, and equity infusion), potential direct transfer s of funds or liabilities (e.g. loan guarantees)".  As 
we have noted above, the examples  listed in subparagraph (i) provide an indication of the types of 
transactions intended to be covered by the more general reference to "direct transfer of funds".   
622. With respect to the examples in Article 1.1(a )(1)(i), we observe several similarities between 
the collaborative undertakings that are the NASA/US DOD measures before us a nd equity infusions.  
We recall that, in the case of an equity infusion, a government's provision of capital to a recipient is 
made in return for the acquisition of shares.  The provider of the capital ther eby makes an investment 
in the recipient enterprise, and will be entitled to the dividends or any capital gains attributable to that 
investment.  The return of the investment will de pend on the success of the recipient enterprise.  At 
the time the government provides the capital, it do es not know how the recipient enterprise will 
perform.  The equity investor enjoys a return on its  capital to the extent the enterprise succeeds, and 
suffers losses in capital to the exte nt it fails.  This type of transact ion can be replicated through other 
arrangements, such as by means of a joint venture.  
623. Like equity investors, NASA and the USDOD pr ovide funding.  This funding is provided in 
the expectation of some kind of return.  In the case of NASA and USDOD funding to Boeing, the 
return is not financial, but rather  takes the form of scientific and technical information, discoveries, 
and data expected to result from the research perform ed.  Again, like equity investors, NASA and the 
USDOD have no certainty at the time they commit the funding that the research will be successful.  
Success will depend on whether any inventions ar e discovered and the usefulness of the data 
                                                      
1298Panel Report, para. 7.970. (emphasis omitted)  Our findings of financial contributions regarding the 
payments and other support provided under the NA SA procurement contracts and USDOD assistance 
instruments are based on the particular characteristics of  those measures.  We also declare moot the Panel's 
finding, in paragraph 7.1171 of its Report, that the US DOD procurement contracts are properly characterized as 
"purchases of services" and thus are not financial contributions under Article 1.1(a)(1).  However, as neither participant has requested us to do so, we do not co mplete the analysis regarding the USDOD procurement 
contracts at issue in this dispute.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  collected, as well as the scientific and technical information produced.  NASA's and the USDOD's 
risks are limited to the amount of money they contri bute and the opportunity cost of the other support 
they provide to the project, much like an equity in vestor.  And like some equity investors, NASA and 
the USDOD contribute to the project by providing access to facilities, equipment, and employees. 
624. In sum, the particular characteristics of the NASA procurement contracts and USDOD 
assistance instruments before us are such that, in our  view, they are most appropriately characterized 
as being akin to a species of joint venture.  Fu rthermore, these joint venture arrangements between 
NASA/USDOD and Boeing have characte ristics analogous to equity infusions, one of the examples of 
financial contributions included in Article 1.1(a)(1)(i) of the SCM Agreement .  We recall that, under 
subparagraph (i), there is a financial contributi on where "a government practice involves a direct 
transfer of funds".  Several examples of direct transfers of funds are provided.  These examples are 
not exhaustive.  Where, as here, there are measure s that have sufficient characteristics in common 
with one of the examples in subparagraph (i), this  commonality indicates to us that the measures fall 
within the concept of "direct tran sfers of funds" in Article 1.1(a )(1)(i).  We have identified two 
contributions by NASA and the USDOD under the r espective joint ventures.  Both NASA and the 
USDOD provided payments to Boeing to undertake the research.  These payments constitute a direct 
transfer of funds within the meaning of Article 1. 1(a)(1)(i).  In addition, Boeing was given access to 
NASA facilities, equipment, and employees and to USDOD facilities, which constitute the provision 
of goods or services within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement .   
625. For these reasons, we find that the payments and access to facilities, equipment, and 
employees provided to Boeing under the NASA procurem ent contracts at issue constitute financial 
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement .  We similarly find that 
the payments and access to facilities provided to Boeing under the USDOD assistance instruments at 
issue also constitute financial contributions w ithin the meaning of Article 1.1(a)(1) of the 
SCM Agreement .
1299  We further recall that we have declared the Panel's interpretation that 
                                                      
1299We note that the United States raised a claim under Article 11 of the DSU concerning the Panel's 
assessment of whether the NASA procurement contracts we re purchases of services.  As explained above, the 
Panel undertook this assessment on the basis of its "principal beneficiary and user" test.  In its appellant's 
submission, the United States also suggests that the Panel's finding of financial contribution relating to the 
access to facilities, equipment, and employees under the NASA procurement contracts did not comply with the 
requirements of Article 12.7 of the DSU because it "would appear" that the Panel failed to set out its findings of 
fact or the basic rationale behind its finding. (United States' other appellant's submission, para. 38)  However, 
the only argument that the United States makes in support of  its Article 12.7 allegation is that the Panel's finding 
as to the access to facilities, equipment, and employees is  dependent on the finding that the NASA procurement 
contracts were not purchases of services.  Because we have not adopted the Panel's "principal beneficiary and 
user" test, nor its conclusions as to whether the NASA pr ocurement contracts are purcha ses of services, there is 
no basis to address the claim of the United States under Article 11 or its fleeting allegation under Article 12.7 of 
the DSU. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 260 HSBI omitted, as indicated [[HSBI]]  
 
  transactions properly characterized as purch ases of services are excluded from the scope of 
Article 1.1(a)(1)(i) of the SCM Agreement  to be moot and of no legal effect.  
B. Benefit 
626. We turn to the United States' appeal of the Panel's findings that the NASA and USDOD 
measures found to be financial contributions confer red a benefit on Boeing within the meaning of 
Article 1.1(b) of the SCM Agreement .
1300  The Panel's findings are su mmarized in subsection 1.   
We review the Panel's assessment  of benefit in subsection 2. 
1. The Panel's Findings 
(a) NASA 
627. The Panel began its analysis by recalling that, w ithin the meaning of Article 1.1(b) of the 
SCM Agreement , a financial contribution confers a benefit if the terms of the financial contribution 
are more favourable than the terms ava ilable to the recipient in the market.1301  Accordingly, the Panel 
stated that it was necessary to compare the terms of  NASA's financial contributions with the terms of 
a market transaction in order to determine whether a benefit was conferred on Boeing.  
628. The Panel also recalled that, in its analysis of the existence of a financial contribution, it had 
already concluded that NASA had made paymen ts to Boeing and granted Boeing access to NASA 
facilities, equipment, and employees " on the condition that Boeing perform aeronautics R&D work 
that is principally for Boeing's own benefit and use , rather than principally for the benefit or use of the 
U.S. Government (or unrelated third parties)".1302  This was, according to the Panel, "the core 'term'" 
upon which the financial contributions were provided.1303  The Panel additionally noted that, with 
                                                      
1300In its Notice of Other Appeal, the United States indicated that it appeals the Panel's finding of 
benefit concerning both the NASA procurement contracts and Space Act Agreements.  However, the United 
States' appeal of the finding of benefit with respect to the NASA measures is merely consequential to its appeal 
of the Panel's finding of financial contribution and that appeal is limited to the NASA procurement contracts.  
The United States does not appeal the Panel's finding  of financial contribution concerning the Space Act 
Agreements challenged by the European Communities.  In fact, the Panel noted that during the Panel proceedings the United States had "accept{ed} that th e provision of (access to) facilities, equipment and 
employees provided to Boei ng through the Space Act Agre ements at issue constitutes a provision of goods or 
services within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement". (Panel Report, para. 7.976)  In the 
light of the above, we limit our review of the Panel's finding of benefit relating to the NASA measures to the 
NASA procurement contracts and do not further address the NASA Space Act Agreements in this section of 
our Report. 
1301Panel Report, para. 7.1037 (referring to paras. 7.30 and 7.31). 
1302Panel Report, para. 7.1038. (original emphasis) 
1303Panel Report, para. 7.1038.  In this regard, the Panel referred to its previous conclusion that 
"a transaction in which the work performed is principally for the benefit and use of the 'seller' cannot properly 
be characterized as a 'purchase of services'." ( Ibid.)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  respect to the financial contributions receive d by Boeing under the NASA R&D programmes, both 
parties agreed that "the relevant market benchmar k would be the terms of a commercial transaction in 
which one entity pays another entity to conduct R&D".
1304   
629. Taking this into consideration, the Panel be lieved that no private entity acting pursuant to 
commercial considerations would provide paymen ts and access to its facilities and personnel to 
another commercial entity on the condition that th e other entity perform R&D activities principally 
for the benefit and use of that other entity.1305  The Panel considered that, "{a}t a minimum, it would 
be expected that some form of royalties or repaym ent would be required in the event that financial 
contributions were provided on such terms."1306  Accordingly, the Panel found that the 
European Communities did not need to present ev idence of the terms and conditions of specific 
market-based R&D financing "in order to establish, at least on a prima facie basis, that these NASA 
transactions conferred a benefit upon Boeing".1307  In the Panel's view, it was for the United States to 
rebut this prima facie  case by means of identifying examples of transactions in which commercial 
entities have paid other commercial entities to perfo rm R&D principally for the latter's benefit and 
use.  The Panel observed that the United States failed to provide any evidence in this regard. 
630. The Panel therefore concluded that the financ ial contributions provided to Boeing under the 
aeronautics R&D contracts and agreements with NAS A conferred a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement .1308 
(b) USDOD 
631. The Panel's reasoning with respect to the paym ents and other support provided to Boeing 
under the USDOD assistance instruments was very sim ilar to that for the NASA measures.  The Panel 
recalled that it is well established that, within the meaning of Article 1.1(b) of the SCM Agreement , a 
financial contribution confers a benefit if the terms of the financial contribution are more favourable 
than the terms available to the recipient in the market.1309  Accordingly, the Panel said that it was 
necessary to compare the terms of the USDOD's financial contributions with the terms of a market transaction in order to determine whet her a benefit was conferred on Boeing. 
                                                      
1304Panel Report, para. 7.1039 (quoting European Communities' response to Panel Question 21, 
para. 76;  and referring to United States' response to Panel Question 136, para. 85). 
1305Panel Report, para. 7.1039. 
1306Panel Report, para. 7.1039. 
1307Panel Report, para. 7.1039. 
1308Panel Report, para. 7.1040. 
1309Panel Report, para. 7.1182 (referring to paras. 7.30 and 7.31, in turn referring to Appellate Body 
Report, Canada – Aircraft , para. 157;  and Panel Report, US – Upland Cotton , para. 7.1142). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 262 HSBI omitted, as indicated [[HSBI]]  
 
  632. The Panel further recalled that, in its analysis of  the existence of a financial contribution, it 
had already concluded that the USDOD had made payments to Boeing and granted Boeing access to 
USDOD facilities " on the condition that Boeing perform aeronautics R&D  work that is principally for 
Boeing's own benefit and use , rather than principally for the benefit or use of the U.S. Government (or 
unrelated third parties)".
1310  This was, in the Panel's view, "t he core 'term'" upon which the financial 
contributions were provided.1311  The Panel noted that both parties agreed that, regarding the financial 
contributions that Boeing received under the USDOD R&D programmes, "the relevant market 
benchmark would be the terms of a commercial trans action in which one entity pays another entity to 
conduct R&D".1312   
633. Taking this into consideration, the Panel be lieved that no private entity acting pursuant to 
commercial considerations would provide payments and access to its  facilities to another commercial 
entity on the condition that the other entity perform  R&D activities principally for the benefit and use 
of that other entity.1313  The Panel again considered that, "{a}t a minimum, it is to be expected that 
some form of royalties or repayment would be require d in the event that financial contributions were 
provided on such terms."1314  In the light of this, the Panel found that the European Communities did 
not have to present evidence of the terms and condi tions of specific market-based R&D financing "in 
order to establish, at least on a prima facie basis, that these {US}DOD transactions conferred a benefit 
upon Boeing".1315  In the Panel's view, it was rather for the United States to rebut this prima facie  case 
by means of identifying examples of transactions  in which commercial entities have paid other 
commercial entities to perform R&D principally for the latter's benefit and use.  However, the 
United States failed to provide any evidence in this respect.  
634. Accordingly, the Panel found that the financia l contributions provided to Boeing under the 
USDOD aeronautics R&D assistance instruments conferred a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement .1316 
                                                      
1310Panel Report, para. 7.1183. (original emphasis) 
1311Panel Report, para. 7.1183.  In this respect, the Panel referred to its previous conclusion that 
"a transaction in which the work performed is principally for the benefit and use of the 'seller' cannot properly 
be characterized as a 'purchase of services'." ( Ibid.) 
1312Panel Report, para. 7.1184 (quoting European Communities' response to Panel Question 21, 
para. 76;  and referring to United States' response to Panel Question 136, para. 85). 
1313Panel Report, para. 7.1184. 
1314Panel Report, para. 7.1184. 
1315Panel Report, para. 7.1184. 
1316Panel Report, para. 7.1185.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  2. Did the Panel Err in Determining Benefit?  
635. In order to constitute a subsidy for purposes of the SCM Agreement , a financial contribution 
must confer a benefit within the meaning of Article  1.1(b).  The Appellate Body has explained that:  
… the word "benefit", 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 c ontribution" makes the recipient 
"better off" than it would otherwise have been, absent that contribution. In our view, the ma rketplace provides an appropriate 
basis for comparison in determini ng 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.
1317 
636. The Appellate Body provided further clarifi cation of the concept of "benefit" in  
EC and certain member States – Large Civil Aircraft .  In that appeal, the Appellate Body approached 
the enquiry of benefit as one that is financial in na ture and in which the behaviour of the grantor and 
recipient of the alleged subsidy at issue are assessed  against the behaviour of  commercial actors in the 
market.1318  The Appellate Body also explained that th e assessment of benefit must examine the terms 
and conditions of the challenged transaction at the ti me it is made and compare them to the terms and 
conditions that would have been o ffered in the market at that time.1319  
637. The United States appeals the Panel's finding of  benefit with respect to both the NASA and 
USDOD measures.  As regards the NASA measures, th e United States submits that the Panel's finding 
that research under the NASA R&D contracts was "principally for Boeing's own benefit and use"1320 
was the sole justification for the finding that  the NASA aeronautics R&D programmes conferred a 
benefit.1321  In the United States' view, since the former finding is erroneous, the latter finding of 
existence of a benefit is equally erroneous.  With respect to the USDOD measures, the United States 
argues that the Panel erred because it failed to cons ider that Boeing funded part of the costs of the 
research undertaken pursuant to the assistance instruments.1322 
                                                      
1317Appellate Body Report, Canada – Aircraft , para. 157. 
1318Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 706 and 836. 
1319Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 838.  This 
means that "the determination of benefit under 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." ( Ibid., 
para. 706) 
1320Panel Report, para. 7.1038. (emphasis omitted) 
1321United States' other appellant's submission, paras. 64 and 65 (referring to Panel Report, 
paras. 7.1038 and 7.1039).  
1322United States' other appellant's submission, para. 116.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 264 HSBI omitted, as indicated [[HSBI]]  
 
  638. The European Union asserts that the United States fails to identify any errors in the Panel's 
evaluation of the existence of financial contributi ons, either with respect to the application of 
Article 1.1(a)(1) of the SCM Agreement  or the consistency of the Pane l's assessment with Article 11 
of the DSU.  Consequently, in view of the fact that  "the US Article 1.1(b) appeal is entirely based on 
its Article 1.1(a)(1) appeal"
1323, it is the European Union's view th at the United States' appeal under 
Article 1.1(b) must likewise fail.  In addition, the European Union states that, in its financial 
contribution analysis, the Panel properly character ized the USDOD's R&D assistance instruments as 
transactions "principally for Boeing's own benef it and use" without "some form of royalties or 
repayment", and, accordingly, the Panel's conc lusion that a benefit exists based on this 
characterization was also proper.1324  The European Union points out that the United States has 
provided no information as to the actual results  of the R&D funded by the USDOD assistance 
instruments, or on how the income generated fro m those results may translate into payments from 
Boeing to the USDOD for the contributions  made by the USDOD towards that R&D.1325   
639. At the outset of its analysis, the Panel observe d that "{a} financial contribution confers a 
benefit within the meaning of Article 1.1(b) of the SCM Agreement if the terms of the financial 
contribution are more favourable than the term s available to the recipient in the market."1326  
According to the Panel, this meant that: 
... in order to determine whet her NASA's {and the USDOD's} 
financial contributions to Boeing confer a benefit upon Boeing within 
the meaning of Article 1.1(b), the Panel must begin by recalling what the terms  of those financial contributions are.  Only then can the 
Panel proceed to compare those  terms with the terms of a market 
transaction.
1327 (original emphasis) 
640. After recalling some of its findings concerning th e terms of the transactions, the Panel further 
elaborated on what it considered to be the relevant  legal question.  The Panel described the question 
as follows: 
In this case, both parties agree that , with regard to the financial 
contributions that Boeing receives under the NASA R&D 
programmes {and under the USDOD programmes}, "the relevant 
market benchmark would be the terms of a commercial transaction in which one entity pays another entity to conduct R&D".  The question, then, is whether, in a commercial transaction, one entity 
                                                      
1323European Union's appellee's submission, para. 93. 
1324European Union's appellee's submission, para. 172 (quoting Panel Report, paras. 7.1183 and 7.1184, 
and referring to para. 7.1185). 
1325European Union's appellee's submission, para. 175. 
1326Panel Report, para. 7.1037 (footnote omitted);  see also para. 7.1182. 
1327Panel Report, para. 7.1037;  see also para. 7.1182.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 265  
 
  would pay another entity to conduct R&D on these same terms, i.e. 
on the term that the entity recei ving the financial contributions 
conducts R&D that is principally for the benefit and use of the entity receiving the payment.
1328 (footnote omitted) 
641. The Panel's benefit test is closely related to the test that the Panel had developed in its 
assessment of financial contribution to determin e whether the NASA and USDOD measures could be 
characterized as purchases of services.1329  Both the test for purchases of services and for benefit 
revolve around the question of which party to the tr ansaction derives the "principal benefit and use" 
from the research.  We see several problems with the Panel's approach.  First, as we have noted 
earlier, it risks conflating what are two separate elemen ts of the definition of "subsidy" in Article 1.1 
of the SCM Agreement .  Under the approach adopted by the Panel, a determination that a transaction 
is not a purchase of services—because the R&D is principally for the benefit of the commissioned 
party rather than the commissioning government—m akes the determination of benefit almost a 
foregone conclusion.1330  A further problem with the Panel's test is that the identification of the 
principal user or beneficiary of the research, on the basis of the five factors relied on by the Panel, does not capture the relevant inquiry under Article  1.1(b), which involves a consideration as to 
whether the measure is consistent with a market benchmark.
1331  Where a panel is confronted with a 
measure in which both the government and the co mmissioned firm have provided funding or made 
other contributions, and the results of their invest ments are shared between them, it may consider the 
relationship between what they have contributed and how the results thereof are shared.  But the 
distribution of the returns under particular NAS A procurement contracts and USDOD assistance 
instruments does not indicate by itsel f what the distribution of those returns would be in the market.  
                                                      
1328Panel Report, para. 7.1039;  see also para. 7.1184. 
1329Panel Report, para. 7.978.  In its analysis of  whether the NASA and USDOD measures constituted 
financial contributions, the Panel said that whether a tran saction could properly be ch aracterized as a purchase 
of service turned on " whether the R&D that Boeing was required to conduct was principally for its own benefit 
and use, or whether it was principally for the bene fit and use of the U.S. Government (or unrelated third 
parties )." (Ibid. (original emphasis)) 
1330It would appear that when the Panel referred to the "principal benefit and use" of the research, in the 
context of its purchases of services test, it was using the term "benefit" in the generic sense, that is, generally 
connoting value received.  Given that th e term "benefit" is used as a legal concept with a distinct meaning in 
Article 1.1(b) of the SCM Agreement , the Panel should have avoided using the term generically in its test.  
1331We note that the thrust of the United States' appeal is that the Panel's findings relating to the NASA 
procurement contracts is focused exclusively on the finding that the research conducted by Boeing under those 
contracts was principally for the benefit of Boeing. (United States' other appellant's submission, para. 65)  We have reversed the Panel's finding of financial contribu tion, but nevertheless found that the payments and other 
support provided under the NASA procurement contracts constitute financial contributions within the meaning 
of Article 1.1(a)(1) of the SCM Agreement .  Our finding that the NASA pr ocurement contracts conferred a 
benefit is not based on the Panel's financial contribution finding, or on the Panel's conclusion that Boeing was 
the principal beneficiary and user of the research  conducted under the NASA procurement contracts. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 266 HSBI omitted, as indicated [[HSBI]]  
 
  642. Second, we have difficulties with the Panel's reasoning about the market benchmark.  With 
respect to both the NASA procurement contracts a nd the USDOD assistance instruments, the Panel 
stated its view that "no commercial entity, i. e. no private entity acting pursuant to commercial 
considerations, would provide payments (and access to its fac ilities and personnel) to another 
commercial entity on the condition that the other entity perform R&D activities principally for the 
benefit and use of that other entity."
1332  The Panel added that "{a}t a minimum, it is to be expected 
that some form of royalties or repayment would be required in the event that financial contributions 
were provided on such terms."1333  The Panel's finding as to the behaviour of a market actor was based 
exclusively on the Panel's own view of how a comme rcial actor would behave and its inferences as to 
what a rational investor would do.  The Panel did not indicate what evidence there was on the record 
to sustain its view that a private entity acting pursuant to commercial considerations would not 
provide payments (and access to its facilities and/or  personnel) to another commercial entity where 
this other entity performs R&D activities principall y for its own benefit and use, and that, at a 
minimum, it would be expected that some form  of royalties or repayment would be required.1334   
643. It is possible that the Panel believed that its view represented common sense, or its own 
conception of economic rationality.  If this were i ndeed the case, we would nevertheless consider the 
Panel's approach unsatisfactory.  We do not believe  that panels can base determinations as to what 
would occur in the marketplace only on their own intuition of what rational economic actors would do.  We recognize that a panel confronted with a me asure of the kind at issue here may have intuitions 
as to the consistency of the measure wi th the market, based on economic theory.
1335  However, we 
would expect that in such circumstances the pane l would at least explain the economic rationale or 
theory that supports its intuition.  The Panel in th is case did not do so.  More importantly, we are of 
the view that a panel should test its intuitions em pirically, especially where the parties have submitted 
evidence as to how market actors behave.  Indeed , in this case, both the European Communities and 
the United States submitted evidence as to how research transactions between two market actors are 
structured.1336  Yet, while the Panel referenced some of that evidence in its summary of the parties' 
arguments, it did not discuss this evidence in its reasoning.   
                                                      
1332Panel Report, paras. 7.1039 (NASA) and 7.1184 (USDOD).  
1333Panel Report, paras. 7.1039 (NASA) and 7.1184 (USDOD). 
1334In paragraph 41 of its additional memorandum follo wing the first session of the oral hearing, the 
United States argues that the Panel er red by "providing no support for its assertion that no market actor would 
enter into the theoretical transaction".  
1335The United States observes that, "if a Panel finds that a financial contribution is economically 
irrational, it may, absent evidence to the contrary, conclude that the transaction confers a benefit." 
(United States' other appellant's submission, para. 121)   
1336This evidence is discussed infra , paras. 650-660.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 267  
 
  644. During the interim review stage, the European Communities went so far as to urge the Panel 
to address this evidence, and the Panel still refused  to do so.  The Europ ean Communities requested 
that the Panel note that the European Commun ities "did, in fact, present such benchmark 
evidence".
1337  The European Communities suggested that the Panel add a footnote to its Report that 
would read:  "Although it was not necessary for the European Communities to present benchmark 
evidence, it did supply such evidence to the Pa nel (e.g. The Declaration of Regina Dieu 
(Exhibit EC-1178))".1338  The Panel declined the request because it considered the change 
"unnecessary", given that the European Communities' arguments regarding the Regina Dieu Declaration were already reflected in the summa ry of its arguments (current paragraph 7.1030).
1339  
We do not see the basis upon which the Panel considered  that it could arrive at a finding as to what 
would occur in the market based merely on its ow n views, while failing to engage with the evidence 
about the market that was submitted by the European  Communities and the United States.  We believe 
that, to the contrary, the Panel could not have arrived at a conclusion as to whether a benefit was conferred within the meaning of Ar ticle 1.1(b) without empirically t esting the views that it had about 
the market on the basis of the evidence submitted by the parties pertinent to relevant market 
benchmarks.
1340  
645. Linked to the above discussion, we have furthe r difficulties with the Panel's treatment of the 
evidence.  As noted in the excerpt quoted above, the Panel stated that "it was not necessary for the 
European Communities to present benchmark evid ence of the terms and conditions of specific 
market-based R&D financing in order to establish, at least on a prima facie basis, that these NASA 
transactions conferred a benefit upon Boeing."1341  The Panel did not explain how it reached the 
conclusion that the European Communities had established a prima facie  case that the transaction 
would not take place in the market (for example, by  referring to evidence on record of what was the 
prevailing commercial practice or otherwise reflects  a market behaviour).  Furthermore, as noted 
                                                      
1337Panel Report, para. 6.53. 
1338Panel Report, para. 6.53. 
1339Panel Report, para. 6.55.  The United States ob jected to the European  Communities' request, 
arguing: 
The United States submits that the In terim Report already reflects the full 
argument and evidence submitted by the European Communities, including a reference to the Declaration of Regina Dieu, in paragraph 7.1029.  As this 
evidence played no role in the Panel's findings, the United States does not 
consider that an additional referen ce to Ms. Dieu, as requested by the 
European Communities, is either necessary or appropriate.  Moreover, the 
particular text proposed by the European Communities would suggest that 
the Panel had found that the evidence submitted by the European Communities constituted a "benchmark".  The United States 
submits that the Panel made no such finding.  
(Ibid., para. 6.54 (footnote omitted)) 
1340See Appellate Body Report, Canada – Aircraft , para. 157.   
1341Panel Report, paras. 7.1039 and 7.1184.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 268 HSBI omitted, as indicated [[HSBI]]  
 
  above, the Panel explained that "it would fall upon the United States, if it wished to rebut this 
prima facie case, to identify examples of transactio ns in which commercial entities have paid other 
commercial entities to perform R&D on these terms, i. e. to perform R&D that is principally for the 
benefit or use of the entity receiving the funding."
1342  The Panel added that "{t}he United States has 
not provided any evidence or examples of commercia l transactions in which one entity pays another 
entity to conduct R&D that is principally for the benefit and use of the entity receiving the 
funding."1343  However, like the European Communities,  the United States had provided evidence of 
market transactions.  The United States certainly  had the burden of demonstrating any factual 
assertions that it had made and to rebut a prima facie  case.  Yet, the Panel's reasoning does not reveal 
that the Panel engaged with the evidence submit ted by the parties, and does not spell out the 
evidentiary basis for its conclusion th at a benefit had been conferred.  
646. In addition to the concerns we have expressed above about the Panel's approach, we are not 
persuaded that, a priori , it can be excluded that two market actors would enter into a transaction with 
each other in circumstances where the returns are unequally distributed between them.  Transactions 
between market actors may take place even when th e returns earned by each party are asymmetric, as 
long as both parties earn a reasonable return on the investment.1344  Thus, it may not always be the 
case that a market actor would refuse to enter into a R&D project if the fruits of the research (which 
provide a reasonable return on the investment) are not distributed between the parties in an exact 
proportion to their contributions to the project.  In  general, how the costs and revenues are divided 
between the parties to a transaction will depend on, among other things, the bargaining strength of the 
parties and the alternatives available to the partie s in the event that the transaction were not to 
proceed.  A market actor could accept a situation where it contributes half of the cost but obtains less than half of the returns, because the altern atives available to that actor would be worse.
1345  In sum, 
there is no presumption as to whether the returns on an investment in the market are evenly 
distributed.  
647. We have explained earlier that the assessment of  benefit requires a comparison with a market 
benchmark.  Our discussion above has identified sever al flaws in the Panel's approach and in its 
reasoning concerning the market benchmark.  These flaws mean that the Panel did not make a proper 
comparison of the terms of the NASA procurement contracts and the USDOD assistance instruments 
                                                      
1342Panel Report, paras. 7.1039 and 7.1184.  
1343Panel Report, paras. 7.1039 and 7.1184. 
1344See J. Watson, Strategy ,  2nd edn (W.W. Norton & Company, 2007), pp. 203-228;  and R. Serrano, 
"Bargaining", in The New Palgrave Dictionary of Economics , 2nd edn, S.N. Durlauf and L.E. Blume (eds) 
(Palgrave Macmillan, 2008). 
1345In some circumstances, the alternative could be that  the project is not pursued at all and thus there 
would be no fruits from the collaboration to share.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 269  
 
  with the terms of a market transac tion as required under Article 1.1(b).
1346  In the light of this, the 
Panel's reasoning as to whether the payments and support provided to Boeing under the NASA 
procurement contracts and the USDOD assistance instru ments conferred a benefit within the meaning 
of Article 1.1(b) of the SCM Agreement cannot be sustained.   
648. The European Union requests that, if we find that  we must "identify a market benchmark", we 
do so based on the uncontested evidence on record.1347  It submits that, on the basis of this evidence, 
"the Appellate Body can easily find that the NASA R&D contracts and {US}DOD assistance 
instruments confer benefits on Boeing, as tho se NASA and {US}DOD transactions (unlike the 
EU benchmarks) are for the principal benefit and u se of the recipient of the funds (i.e., Boeing), and 
do not require transferring the proceeds of this benefit back to NASA and {US}DOD through, e.g., 
royalties or repayment."1348  
649. We have found above that the Panel's appr oach and reasoning were not based on a proper 
market benchmark.  Before the Panel, the Eur opean Communities and the United States had submitted 
evidence and exchanged arguments on the proper market benchmark.1349  In the past, the Appellate 
Body has been able to complete the analysis where there were suffi cient factual findings by the panel 
or undisputed facts on the record to enable it to do so.1350   
650. The European Communities argued before the Pa nel that, in a commercial transaction, one 
entity will pay another entity to conduct R&D only if it can obtain the full rights to the resulting technology.
1351  In support of this argument, the Euro pean Communities submitte d a declaration by 
one of Airbus' attorneys, which states: 
When Airbus fully funds R&D, or purchases engineering product 
design work from a supplier, Airbus exclusively and solely owns all 
foreground intellectual property ("FI P").  FIP is defined in our 
agreements as "any and all Inte llectual Property generated or 
acquired by a Party in connection w ith and during the performance of 
any Order under (the) Agreement".1352   
                                                      
1346See Appellate Body Report, Canada – Aircraft , para. 157.   
1347European Union's additional memorandum following the first session of the oral hearing, para. 42. 
1348European Union's additional memorandum following the first session of the oral hearing, para. 42. 
1349See Panel Report, paras. 7.1030, 7.1031, 7.1036, and 7.1176. 
1350See Appellate Body Report, US – Section 211 Appropriations Act , para. 352.   
1351Panel Report, paras. 7.1030 and 7.1176. 
1352Declaration of Regina Dieu, 8 November 2007 (Panel Exhibit EC-1178), para. 4. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 270 HSBI omitted, as indicated [[HSBI]]  
 
  651. In addition, the European Communities submitte d a contract concluded by Boeing with the 
National Institute for Aviation Resear ch at Wichita State University.
1353  This contract includes the 
following clauses concerning ownership rights over tec hnical work product, inventions and patents, 
and works of authorship and copyrights: 
Note Number 009 (Ownership of Intellectual Property) 
A.  Technical Work Product.     All technical work product, 
including, but not limited to ideas,  information, data, documents, 
drawings, software, designs, specifications, and processes produced 
by or for Seller, either alone or with others, in the course of or as a 
result of any work performed by or  for Seller which is covered by 
this contract will be the exclusive property of Boeing and be delivered to Boeing promptly upon request. 
B.  Inventions and Patents.     All inventions conceived, 
developed, or first reduced to practic e by or for Seller, either alone or 
with others, in the course of or as a result of any work performed by or for Seller which is covered by th is contract, and any patents based 
upon such inventions (both dome stic and foreign), will be the 
exclusive property of Boeing. ... 
C.  Works of Authorship and Copyrights.     All works of 
authorship (including, but not limited to, documents, drawings, 
software, photographs, video tapes,  sound recordings and images) 
created by or for Seller, either alone or with others, in the course of or as a result of any work performed by or for Seller which is covered by the contract, together with all copyrights subsisting therein, will 
be the sole property of Boeing. …
1354 
652. The European Communities also re ferred to an article on intellectual property rights and stem 
cell research1355, an Article on collaborative research1356, and a training course of the World 
Intellectual Property Organization ("WIPO").1357  Referring to the article on stem cell research, the 
                                                      
1353The European Communities subsequently submitted four contracts between "commercial for-profit 
entities" and entities other than Airbus and Boeing.  According to the European Communities, in these contracts, 
title to the intellectual property was allocated to the firm commissioning the research. (See European Communities' response to Pa nel Question 323;  and the followin g four Panel Exhibits: Contract 
Number SHB 98001 of 31 January 1998 between SPACEHAB, Inc. and RSC-Energia (Panel Exhibit EC-1415);  
Development and Supply Agreement of 1 October 1997 between Thermage, Inc. and Stellartech Research 
Corporation (Panel Exhibit EC-1416);  Development Agreement of 27 July 1998 between Cox Interactive 
Media, Inc. and LookSmart, Ltd. (Panel Exhibit EC-417);  and Development Agreement of 25 April 1994 
between Applied Analytical Indu stries, Inc., and GenerEst, In c. (Panel Exhibit EC-1418)) 
1354Contract between Boeing Commercial Airplane Group Wichita Division and Wichita State 
University, Contract No. 000051728, 4 November 2002 (Panel Exhibit EC-1231). 
1355S.M. O'Connor, "Intellectual Property Rights and Stem Cell Research: Who Owns the Medical 
Breakthroughs?" (2005) 39 New England Law Review  665 (Panel Exhibit EC-1212), p. 669.   
1356R. Cooper Dreyfuss, "Collaborative Research : Conflicts on Authorship, Ownership and 
Accountability" (2000) 53 Vanderbilt Law Review  1161 (Panel Exhibit EC-1228), p. 1212. 
1357WIPO-MOST, "Interme diate Training Course on Practical Inte llectual Property Issues in Business", 
13 November 2003 (Panel Exhibit EC-1229), pp. 42-43.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 271  
 
  European Communities noted that, "in a commercial transaction, one entity will pay another entity to 
conduct {R&D} only if it intends to actually utilize the r esearch to some end, i.e. if it can obtain the 
full rights to the resulting technology".
1358  The article on collaborative research states that 
"exclusivity {of ownership over i nventions} is so important, invest ors often want it assured before 
significant costs are incurred".1359   
653. In response to the evidence submitted by th e European Communities, the United States did 
not contest that this evidence indicates that th ere were market transactions in which the entity 
commissioning the R&D obtained ownership of all intellectual property rights.1360  The United States, 
however, argued that the "market does not dictate a single outcome in the negotiation of intellectual 
property rights", and introduced evidence of allege d market transactions showing more "diversity in 
the disposition of rights".1361  This evidence is summarized belo w.  For purposes of completing the 
analysis, we proceed below as if the Panel had tr eated the evidence submitted by the United States as 
accurate and probative.1362  Thus, we will seek to determine whether the evidence submitted by the 
United States shows that the disposition of intellectual property rights under the NASA/USDOD 
measures at issue is consistent with what occurs in  transactions between two market actors.  In other 
words, we consider whether the Panel, even if  it had treated the evidence submitted by the 
United States as accurate and probative, would have concluded that the NASA/USDOD measures at 
issue are not consistent with transactions between two market actors. 
654. The United States initially submitted four contracts between Boeing and "major research 
universities"1363 in which the former pays the latter to co nduct R&D.  We discuss these four contracts 
in more detail below.  Because the contents of the contracts are BCI, some of the text in our 
discussion has been deleted, as indicated by [***].   
                                                      
1358Panel Report, para. 7.1030 (referring to European Communities' second written submission to the 
Panel, para. 376, in turn referring to O'Connor, supra , footnote 1355, p. 669).   
1359Cooper Dreyfuss, supra , footnote 1356, p. 1212.  As for the WIPO training course, one PowerPoint 
slide advises that special care must be taken when outsour cing R&D, particularly by ensuring that "all persons 
involved {in the R&D activities} sign an agreement whereby they give the company sufficient rights to the 
results of their works".  Another slide recommends that  companies ensure that when persons that are not 
employees of the company participate in an R&D project, t hose persons "transfer any and all rights to the results 
of the project to the company". (WIPO-MOST, supra , footnote 1357, slides 42 and 43, respectively) 
1360United States' comments on the European Communities' response to Panel Question 323, para. 45. 
1361United States' comments on the European Communities' response to Panel Question 323, para. 45. 
1362This approach is analogous to the approach adopted by the Appellate Body in EC and certain 
member States – Large Civil Aircraft . (See Appellate Body Report, EC and certain member States – Large Civil 
Aircraft , paras. 925-929, 1175, 1178, and 1180-1202) 
1363Panel Report, para. 7.1036. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 272 HSBI omitted, as indicated [[HSBI]]  
 
  655. [ 
      * * *  
 
            ] :  
[ 
      * * *  
 
          ].
1364 (underlining added) 
[  ***  ]: 
[ 
     * * *   
            ] .
1365 
(underlining added) 
[        1366  
      * * *      1367   
           ] .1368 
656. Under US law and the NASA procurement contracts and USDOD assistance instruments, the 
commissioning party (NASA or the USDOD) does not  obtain ownership rights over the intellectual 
property developed as part of the work conducted unde r those contracts and assi stance instruments.  
Instead, the Panel found that "Boeing, as the contractor , retained rights to any inventions (i.e. patent 
rights) that it conceived of in the course of performing research funded by NASA".1369  A similar 
finding was made by the Panel with r espect to the USDOD assistance instruments.1370  [        
 
                                                      
1364Contract A–Sponsored Research  Agreement #2001-ME-SSG betw een {name of counterparty 
deleted from exhibit} and The Boeing Company, 1 July 2001 (Panel Exhibit US-1208 (BCI)), section 5.1. 
1365Contract B–General Terms Agreement between The Boeing Company and {name of counterparty 
deleted from exhibit}, 5 December 2003 (Panel Exhibit US-1209 (BCI)), section 8.1.  
1366Contract C–General Terms Agreement between Boei ng and {name of counterparty deleted from 
exhibit}, 30 June 2004 (Panel Exhibit US-1210 (BCI)). 
1367Contract D–Framework Agreement between {name of counterparty deleted from exhibit} and The 
Boeing Company, 1 December 2003  (Panel Exhibit US -1211 (BCI)), section 6.2: "[  ***  
  ***  ]". 
1368Contract B–General Terms Agreement between The Boeing Company and {name of counterparty 
deleted from exhibit}, 5 December 2003 (Panel Exhibit US-1209 (BCI)), section 8.1.  
1369Panel Report, para. 7.1024. 
1370See Panel Report, para. 7.1149.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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      * * *  
           ] .  
657. [ 
      * * *     
 
      * * *    
 
      
1371   
   
1372          ] :  
[ 
 
     * * *    
 
     ] .
1373 (footnotes omitted) 
                                                      
1371Contract D, supra , footnote 1367 (Panel Exhibit US-1211 (BCI)), section 6.3.1. 
1372Panel Report, paras. 7.1024 and 7.1276;  see also para. 7.1149. 
1373Panel Report, para. 7.1286 (referring to Europ ean Communities' first written submission to the 
Panel, para. 813 (referring to United States Code , Title 35, section 202(c)(4) (Panel Exhibit EC-558);  and 
United States Code of Federal Regulations , Title 48, section 27.302(c) (Panel Exhibit EC-559)).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 274 HSBI omitted, as indicated [[HSBI]]  
 
  [ 
 
      * * *  
            ] .  
658. In response to the Panel's third set of qu estions, the United States submitted two other 
contracts, identified as contracts E and F.
1374  The United States asserted that these two contracts were 
between Boeing and for-profit entities.1375  [         
      * * *               
1376        
        1377       
                                * * *        
             
                
1378]  
659. [             
             
                   * * *                                  
       
1379      
                  
1380        
             
                                                      
1374Panel Exhibits US-1342 (BCI) (Contract E) and US-1343 (BCI) (Contract F). 
1375As with the other contracts, the names of Boeing's counterparties have been deleted.   
1376Panel Exhibit US-1342 (BCI) (Contract E), para. 1. 
1377Panel Exhibit US-1342 (BCI) (Contract E), para. 8.2. 
1378Panel Exhibit US-1342 (BCI) (Contract E), para. 8.5. 
1379Panel Exhibit US-1343 (BCI) (Contract F), section 4.3. 
1380Panel Exhibit US-1343 (BCI) (Contract F), section 4.3.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 275  
 
         
1381        
             
             
      * * *                                  
             
                                * * *                     
             
               
1382             
      ] .  
660. In sum, even assuming that the Panel had treated  the contracts submitted by the United States 
as evidence of transactions that o ccur on the market as accurate and probative, they show several 
important differences compared to the NASA procurement contracts and USDOD assistance instruments.  [  
 
       * * *    
 
        * * *  
 
                               * * *       
                                                      
1381Panel Exhibit US-1343 (BCI) (Contract F), section 4.3. 
1382Panel Exhibit US-1343 (BCI) (Contract F), sections 4.3.1.3(c) and 4.3.2.3(c). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 276 HSBI omitted, as indicated [[HSBI]]  
 
              
            
   ] .  
661. Indeed, US law constrains NASA's and the US DOD's ability to negotia te ownership over any 
intellectual property developed under the relevant c ontracts and agreements.  We explain in Part VII 
that, pursuant to the Bayh-Dole Act of 1980, th e 1983 Presidential Memorandum, the 1987 Executive 
Order, and the relevant general and NASA-speci fic federal regulations, neither the USDOD nor 
NASA will seek to obtain title to any inventions discovered as part of the work conducted under the 
NASA procurement contracts and USDOD assistance inst ruments.  Rather, it is expected that the 
contractor (Boeing) will obtain ownership over the in tellectual property rights.  The contractor also 
owns "all technical data (i.e. data rights) produced  with U.S. government funding, and may use these 
for {its} own commercial purposes".
1383  Thus, in effect, the allocation of intellectual property rights 
is pre-determined under the US legal framework.1384  Put differently, there is no bargaining over the 
ownership of the intellectual property.1385  Whereas, in a transaction between two market actors, the 
party undertaking the research would have to bargai n to obtain ownership of any intellectual property, 
firms that enter into contracts or agreements w ith NASA and the USDOD need not bargain at all over 
intellectual property rights because they can expect to obtain ownership under the prevailing US legal 
framework.1386  NASA and the USDOD are thus constrained by US law as to the gains that they can 
extract from the transaction.  Meanwhile, the part y undertaking research commissioned by NASA or 
the USDOD—in this case, Boeing—obtains ownership ri ghts over intellectual property that it would 
otherwise have had to bargain for if the counterparty were a market actor. 
662. We recall that the determination of "benefit" under Article 1.1(b) of the SCM Agreement  
seeks to identify whether the financial contribution has made "the recipient 'better off' than it would 
otherwise have been, absent that contribution".1387  Moreover, the Appellate Body has said that "the 
marketplace provides an appropriate basis for compar ison in determining whether a 'benefit' has been 
                                                      
1383Panel Report, para. 7.1296. 
1384In response to a question from the Panel, the United States asserted that the USDOD "does not 
decide who will own the patent to an invention made under a {USDOD} contract.  The policy set out in the 
1983 Presidential Memorandum and effectuated through {USDOD's} regulations decides that question, and 
provides that the rights are split between the government and the contractor in accordance with chapter 38 of 
title 35 of the U.S. Code—the Bayh-Dole rule". (United States' response to Panel Question 22(b), para. 69 
(footnote omitted)) 
1385As we explain  infra , para. 664, there may be bargaining over  the scope of the government licence in 
the sense that the government may accept a more limited licence to use the data produced as part of the research 
if the contractor co -funds the project.   
1386To the extent that NASA and the USDOD obtain a licence for governmental use, they are required 
by US law to ensure that such government use does not interfere with Boeing's commercial use of the R&D. 
1387Appellate Body Report, Canada – Aircraft , para. 157.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 277  
 
  '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 th e recipient in the market."
1388  As we have discussed above, even assuming 
that the evidence submitted by the United States is accurate and uncontested, the allocation of 
intellectual property rights in the examples of mark et transactions on record has been more favourable 
to the commissioning party and less favourable to the commissioned party than under the NASA 
procurement contracts and USDOD assistance instrume nts before us.  This evidence thus indicates 
that transactions in the market r esult in an equilibrium that is mo re favourable to the commissioning 
party than in the measures before us.  In ot her words, Boeing obtained more and NASA and the 
USDOD obtained less than they would have obtained in  the market.  In our view, this conclusion is 
sufficient to establish that the provision by NASA and by the USDOD of funding and other support to 
Boeing on the terms of the joint venture arrangements that are before us conferred a benefit on Boeing 
within the meaning of Article 1.1(b) of the SCM Agreement . 
663. We note that one of the salient features of the assistance instruments is that the USDOD and 
Boeing jointly fund the research projects and share,  to some extent, the results of the research.1389  In 
its appeal, the United States emphasizes that the fund s provided by Boeing to this research must be 
considered in the determination of benefit.1390  These are features of the USDOD measures that should 
be taken into account in identifying a market benc hmark against which to compare those measures for 
purposes of determining whether a benefit has been conferred.1391  Moreover, we note that any 
monetary contribution made by the recipient to a joint research project affects the net value obtained 
by the firm from the project.  If the contribution of the recipient firm to the project is neglected, there 
is a risk of overestimating the value obtained by the firm from the project and, hence, a finding of benefit could be made where a benefit did not in fact exist.  
664. The Panel Report does not indicate that the Pane l considered Boeing's monetary contribution 
in its assessment of whether the USDOD assistance in struments conferred a benefit.  The Panel, 
however, made other findings th at do not support the proposition that Boeing's contribution to the 
project meant that no benefit was conf erred.  As part of its analysis of financial contribution, the Panel 
found that the scope of the government licence ove r data rights varied when both Boeing and the 
                                                      
1388Appellate Body Report, Canada – Aircraft , para. 157. 
1389The European Union does not dispute that Boeing provided part of the funding of the projects 
undertaken pursuant to the USDOD assistance instruments. (European Union's response to questioning at the 
oral hearing) 
1390The United States recognized before the Panel th at "under some circumstances … cost sharing 
arrangements can and do confer a benefit to the private party". (United States' response to Panel Question 194, 
para. 240) 
1391We have explained in section VI.A that, under the USDOD assistance inst ruments, the USDOD and 
Boeing both make monetary contributions and share the outcomes of the research. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 278 HSBI omitted, as indicated [[HSBI]]  
 
  USDOD contributed funding to the project.
1392  More specifically, the Panel found that the 
government received only "limited rights" to the data under the assistance instruments (which were 
cost-sharing transactions), as opposed to the "unlim ited rights" to the data that the government 
receives under USDOD procurement contracts (where there was no cost-sharing).1393  Thus, according 
to the Panel's description, Boeing' s monetary contribution to the r esearch project is not tied to the 
ownership rights over any inventions  and data, which results from the operation of US law.  Rather, 
Boeing's monetary contribution is consideration for the enhanced data rights that it obtains under the 
assistance instruments, which grant more limited right s to the government over the data.  In the light 
of the Panel's finding, it is therefore clear that  Boeing's monetary contribution under the assistance 
instruments does not change the bargain over the ownership of the invent ions and data, it only 
changes the bargain as to the government's licence over the data rights.  
665. The United States also argues that the USDOD opened each of the assistance instruments to 
competitive bidding and that, if Boeing had been seeki ng non-market terms for its participation in the 
research, one of the USDOD's other suppliers  of aeronautics research would have bid less.1394  This 
argument, however, fails to recognize the fact that ownership of any intellectual property is not open 
to bidding;  it is determined by US law.  Becau se each bidder knows in advance that this particular 
aspect of the transaction will not be altered with r espect to its competitors, ownership of any resulting 
intellectual property will not be a determinative el ement in how each bidder structures its proposals.  
666. For these reasons, we find that the funding and other support provided under the NASA 
procurement contracts and the USDOD assistance in struments conferred a benefit on Boeing within 
the meaning of Article 1.1(b) of the SCM Agreement . 
C. Scope of the Panel's Benefit Finding s as regards the NASA Measures  
667. We move to the United States' claim that the Pa nel erred "by basing its valuation of the total 
benefit conferred by NASA research contracts on a combination of transactions covering not only 
'LCA-related research' challenged by the {European Communities}, but also other transactions that 
the {European Communities} did not challenge".1395  In particular, the United States complains that 
the Panel did not exclude $280 million in expenditu res for research that NASA had determined was 
"unrelated"1396 to the European Communities' claims.  Th e United States characterizes this "omission" 
                                                      
1392Panel Report, para. 7.1149. 
1393Panel Report, paras. 7.1149 and 7.1150. 
1394United States' oral statement at the first session of the oral hearing. 
1395United States' other appellant's submission, para. 66.  
1396United States' other appellant's submission, para. 66.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  as an "error inconsistent with Article 1.1(b) becau se it treats transactions that were not part of the 
financial contribution under Article  1.1(a) as conferring a benefit".
1397 
668. The Panel's findings are summarized in subsec tion 1.  In subsection 2, we address the 
European Union's contention that th e United States' claim is outside the scope of this appeal because it 
was not properly identified in the United States' Notice of Other Appeal.  We then examine the 
United States' allegation of error in subsection 3. 
1. The Panel's Findings 
669. The Panel began its analysis of this claim by  reviewing the United States' evidence regarding 
the maximum amount of payments made to Boei ng for aeronautics R&D over the period 1989-2006.  
The Panel noted that the United States had explai ned that NASA had taken the following steps to 
arrive at its estimate of the amount of disburse ments it had made to Boeing:  (i) identifying the 
relevant contracts with Boeing that were awarde d under the eight R&D programmes at issue between 
1989 and 2006 through a search of the Federa l Procurement Data Base ("FPDS"/"FPDS-NG")1398 of 
all awards made to Boeing for the re levant period;  (ii) eliminating aw ards that "clearly did not pertain 
to any NASA Aeronautics programs, such as those related to manned space flight, the International 
Space Station or space science"1399;  and (iii) calculating the amounts disbursed to Boeing for each 
such contract from disbursement information obtai ned from NASA's internal financial databases that, 
prior to 2004, accumulated data, performed checks,  and then fed the information into the FPDS.1400 
670. The Panel observed that "{t}he first, and most important, step in the elimination process was 
to identify awards issued by NASA research centers that perform aeronautics research".1401  In this 
regard, the United States explained that NASA conducts  all of its research activities at nine research 
centres, and that four of those centres (Langl ey Research Center, Glenn Research Center, Ames 
Research Center, and Dryden Research Center) ar e responsible for all aeronautics research conducted 
by NASA.  These four research centres administer the eight R&D programmes at issue in this dispute 
and perform all aeronautics research requir ed in support of NASA's other programmes.1402  The Panel 
took note of the United States' argument that, "{b}ecause the FPDS record for each award contains a 
code that indicates the center that awarded the in strument in question, NASA was able to filter the 
                                                      
1397United States' other appellant's submission, para. 66.  
1398For the years 2004 to 2006, the relevant database  was the Federal Procurement Data Base – Next 
Generation (FPDS-NG), which had superseded the Federal Procurement Data Base (FPDS). (Panel Report, para. 7.1058) 
1399United States' response to Panel Question 7, para. 14. 
1400Panel Report, para. 7.1058. 
1401Panel Report, para. 7.1062. 
1402Panel Report, para. 7.1062. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  FPDS list of Boeing contracts to remove all contracts awarded by the five NASA research centers that 
do not perform aeronautics research."
1403  The Panel further noted that the second part of the 
elimination process involved eliminating contracts th at, "although awarded by one of the four NASA 
research centers that perform aeronautics resear ch, nevertheless pertained to non-aeronautics 
research".1404   
671. The Panel noted that it had sought an explan ation from the United States as to how the Panel 
could be satisfied that "the information subm itted ... as to the universe of R&D contracts and 
agreements between NASA and Boeing {was} accurat e and complete", and that the United States 
responded that NASA had conducted a "verification exercise".1405  The value of the contracts 
identified in the verification exercise was "appr oximately $116 million higher than the value of 
contracts reported by the United States at paragrap h 212 of its first written submission";  a difference 
that the United States considered was "not significant".1406 
672. The Panel then turned to certain criticisms  by the European Communities concerning the 
scope of transactions included in the United States' estimate.1407  In particular, the 
European Communities criticized that the estimate (i) excluded payments made to Boeing as a 
subcontractor, and (ii) did not include the value of goods and services provided to Boeing through the 
Space Act Agreements.  The Panel considered that both criticisms were "without foundation".1408  The 
Panel also addressed the European Communities' ar guments as to the completeness of the relevant 
contract data set and its allegation that "the  FPDS/FPDS-NG database is a flawed and unreliable 
source for identifying the contracts between NASA and Boeing".1409  The Panel, however, was not 
persuaded that the evidence supported the European Communities' contentions in this regard.  Next, 
the Panel addressed the European Communities' allega tion that the United States had failed to include 
four relevant contracts between NASA and Boeing in the list of contracts that formed the basis for the United States' disbursement estimate.  The Panel noted  the United States' explanation that one of the 
contracts in question was included in the list but w as "mislabelled as a different contract", and that, 
although "the other three contracts were 'apparently missed in the initial analys is', they were captured 
                                                      
1403Panel Report, para. 7.1062. 
1404Panel Report, para. 7.1063. 
1405Panel Report, para. 7.1065. 
1406Panel Report, para. 7.1069. (footnote omitted) 
1407Panel Report, para. 7.1070. 
1408Panel Report, para. 7.1070. 
1409Panel Report, para. 7.1072 (referring to European  Communities' response to Panel Question 173(b), 
para. 301).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  in the calculation of the 'maximum value' of Bo eing contracts" in the United States' verification 
exercise.
1410   
673. At this point, the Panel recalled that the Un ited States had explained that, once contracts 
issued by NASA facilities that conduct no aeronautics research were filtered out of the "all Boeing 
contracts" data set, there were only $1.05 billion in contracts remaining for the 1989-2006 period that 
were potentially related to the European Comm unities' claims regarding aeronautics research.1411  The 
Panel noted that the European Communities had not  criticized this aspect of the United States' 
methodology for identifying the relevant contracts.1412  It also took note of the United States' 
confirmation that, as a factual matter, "all contracts that are related to the European Communities' challenges … must have been awarded by the f our NASA centers … that are responsible for all 
aeronautics research conducted by NASA and cannot have been awarded by any other NASA center 
or unit".
1413  
674. Lastly, as regards the accuracy of the disbursement information relating to each of the 
identified contracts, the Panel noted that the Eu ropean Communities had not challenged the use of 
"disbursements" data as a close approximation of th e amount of "payments" made to Boeing under the 
research contracts.1414  The Panel observed, however, that the European Communities had challenged 
the "reliability of NASA's 'financial databases',  which presumably included the {NASA Procurement 
Management System} and the SAP/BW{1415} systems that were the source of the disbursements 
data".1416  Nonetheless, the Panel was not persuade d that "the European Communities ha{d} 
adequately supported its allegations that NASA's fi nancial databases {were} unreliable for purposes 
of estimating the value of NASA's R&D subsidies to Boeing".1417 
675. The Panel concluded that, although it was clear that "NASA ha{d} made mistakes in 
compiling the relevant information, and that NASA's records are not perfect"1418, the 
European Communities had not demonstrated th at the United States' estimate involved any 
methodological errors.  The Panel therefore estimated  that the total amount of payments to Boeing 
                                                      
1410Panel Report, para. 7.1074 (quoting United States' response to Panel Question 184, para. 191). 
1411Panel Report, para. 7.1076 (referring to United St ates' responses to Panel Question 179, para. 180 
and Panel Question 188, para. 219). 
1412Panel Report, para. 7.1076 (referring to Europe an Communities' comments on the United States' 
responses to Panel Questions 179 and 188). 
1413Panel Report, para. 7.1076 (referring to United States' response to Panel Question 339, para. 82). 
1414Panel Report, para. 7.1080. 
1415SAP Business Information Warehouse (BW). 
1416Panel Report, para. 7.1080. 
1417Panel Report, para. 7.1080. 
1418Panel Report, para. 7.1081. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  through R&D contracts under the eight NASA R&D programmes over the period 1989-2006 was 
$1.05 billion.
1419 
676. As regards the value of the access to NASA fa cilities, equipment, and employees provided to 
Boeing, the Panel noted that the United States had in itially tried to estimate this value by tabulating 
the information in certain Space Act Agreements en tered into between NASA and Boeing.  The Panel, 
however, identified two limitations in this informati on.  First, the United States had only been able to 
tabulate information from 21 of the 38 known Sp ace Act Agreements between NASA and Boeing.1420  
Second, the United States had not accounted for the value of the access to facilities, equipment, and 
employees provided by NASA to Boeing "in conjunction with" the procurement contracts.1421   
677. In the light of these "limitations in the inform ation available", the United States advanced an 
"alternative" methodology.1422  The United States proposed that th e Panel use Boeing's share of total 
payments made to all of NASA's R&D contractors,  partners, and grantees to estimate the maximum 
value of the facilities, equipment, and employees provided by NASA to Boeing.1423  The Panel 
accepted the United States' argument that, "if Boeing received only 10.4 per cent of payments made to all programme participants, there is no basis for a llocating to Boeing more than 10.4 per cent of the 
total costs incurred by NASA in maintaining and providing facilities, equipment and employees for 
aeronautics R&D."
1424 
678. Even though the Panel accepted the United Stat es' general approach, it disagreed with the 
value of the payments from NASA to Boeing that the United States used to derive the share of 
Boeing's payments.  The United States used the figure $775 million, which resulted in Boeing having 
received 10.4% of NASA's overall payment under the eight R&D programmes.  The Panel, however, 
pointed out that it had estimated that the total amount  of payments to Boeing to be $1.05 billion.  The 
Panel further explained that using the $1.05 billi on figure "{led} to the conclusion that Boeing 
received 14 per cent, not 10.4 per cent, of payments made to programme participants".1425  Based on 
this share, the Panel then estimated "the valu e of the free access to facilities, equipment and 
employees under the eight R&D progra mmes at issue {to be} $1.55 billion".1426 
                                                      
1419Panel Report, para. 7.1081. 
1420Panel Report, para. 7.1093.  
1421Panel Report, para. 7.1093.  
1422Panel Report, para. 7.1094.  
1423Panel Report, paras. 7.1094 and 7.1095. 
1424Panel Report, para. 7.1096.  The Panel noted that "the European Communities itself sought to 
estimate the value of NASA 'facilities,  equipment and employees' to Boeing based on Boeing's share of NASA 
funding." ( Ibid.) 
1425Panel Report, para. 7.1099. 
1426Panel Report, para. 7.1099.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  2. Is the United States' Claim Properly within the Scope of This Appeal? 
679. We begin with the European Union's contention th at the United States' claim is not within the 
scope of this appeal because the United States fail ed to identify in its Notice of Other Appeal "any 
alleged errors by the Panel under Article 1.1(b) of the SCM Agreement  in valuing  the benefit to 
Boeing from the NASA aeronautics R&D programmes, or reference any of the relevant paragraphs of 
the Panel Report"1427, in accordance with Rule 23(2) of the Working Procedures . 
680. Pursuant to Rule 23(2) of the Working Procedures , a Notice of Other Appeal shall include, 
inter alia , the following information:  
(i) a statement of the issues raised on appeal by another 
participant with which the party joins;  or 
(ii) a brief statement of the nature of the other appeal, including: 
(A) identification of the alle ged errors in the issues of 
law covered in the pa nel report and legal 
interpretations developed by the panel; 
(B) a list of the legal provision(s) of the covered 
agreements that the panel is  alleged to have erred in 
interpreting or applying;  and 
(C) without prejudice to the ability of the other appellant 
to refer to other paragraphs  of the panel report in the 
context of its appeal, an indicative list of the 
paragraphs of the panel re port containing the alleged 
errors. 
681. The Appellate Body has explained that Notices of Appeal and Other Appeal do not only serve 
the purpose of initiating an appeal.  The additional requirements under Rule 20(2), and similarly those 
under Rule 23(2), of the Working Procedures  "serve to ensure that the appellee also receives notice, 
albeit brief, of the 'nature of the appeal' and the 'allegations of errors' by the panel".1428  The Appellate 
Body has elaborated on the requirements of a Notice of Appeal as follows: 
The Working Procedures for Appellate Review  enjoin the appellant to 
be brief  in its notice of appeal in setting out "the nature of the appeal, 
including the allegations of errors". We believe that, in principle, the 
"nature of the appeal" and "the alle gations of errors" are sufficiently 
set out where the notice of appeal adequately identifies the findings 
or legal interpretations of the Pa nel which are being appealed as 
erroneous. The notice of appeal is not expected to contain the reasons why the appellant regards those findings or interpretations as 
                                                      
1427European Union's appellee's submission, para. 96. (original emphasis;  footnote omitted) 
1428Appellate Body Report,  US – Countervailing Measures on Certain EC Products , para. 62. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 284 HSBI omitted, as indicated [[HSBI]]  
 
  erroneous. The notice of appeal is not designed to be a summary or 
outline of the arguments to be made by the appellant. The legal arguments in support of the allegations  of error are, of course, to be 
set out and developed in the appellant's submission.
1429 (original 
emphasis) 
682. In previous appeals, the Appellate Body has also cautioned that, "{i}f an appellee is not 
notified of the claims raised by the appellant or other appellant in the Notice of Appeal or Other 
Appeal, those claims are not properly within the sc ope of the appeal, and the Appellate Body will not 
make findings thereon."1430  
683. In paragraph 3 of its Notice of Other Appeal, the United States included the following claim: 
The United States seeks review by the Appellate Body of the Panel's 
finding that payments made by NASA to Boeing under contracts for the performance of aeronautics research and facilities, equipment, and employees provided to Boeing through research contracts and agreements at issue conferred a benefit.  This finding is in error and is based on erroneous findings on issues of law and related legal 
interpretations, including an incorrect  interpretation of Article 1.1(b) 
of the SCM Agreement.
5  
5Panel Report, paras. 7.1037-7.1040 and 8.3. 
684. In its other appellant's submission, the Unite d States frames its claim as one involving an 
error, under Article 1.1(b) of the SCM Agreement , in the "valuation of the total benefit conferred by 
NASA research contracts".1431  At the oral hearing and in its additional memorandum, the 
United States clarified that its claim is that the Pa nel's finding of benefit is overbroad in that it 
includes contracts for research into topics that we re not part of the European Communities' claim.1432 
685. As the European Union points out, the Unite d States' Notice of Other Appeal does not 
expressly refer to the "alleged errors … in valuin g the benefit to Boeing from the NASA aeronautics 
R&D programmes".1433  Nevertheless, the United States' Notice of Other Appeal refers specifically to 
the Panel's finding of benefit with respect to the payments and other support provided under the 
NASA contracts and agreements at issue.  The Unite d States' allegation to which the European Union 
objects is that the Panel's finding of benefit is overbroad because it encompasses NASA R&D 
                                                      
1429Appellate Body Report, US – Shrimp , para. 95. 
1430Appellate Body Report, EC – Fasteners (China) , para. 582 (referring to Appellate Body Report, US 
– Countervailing Measures on Certain EC Products , para. 72;  Appellate Body Reports, EC – Bananas III 
(Article 21.5 – Ecuador II)/EC – Bananas III (Article 21.5 – US) , para. 285;  and Appellate Body Report, Japan 
– Apples , paras. 124-128). 
1431United States' other appellant's submission, para. 66.   
1432United States' oral statement and responses to ques tioning at the first session of the oral hearing;  
United States' additional memorandum following the first session of the oral hearing, para. 35. 
1433European Union's appellee's submission, para. 96. (emphasis omitted)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  contracts and agreements not challenged by the Eu ropean Communities before the Panel.  In other 
words, it is an allegation that the Panel's fi nding of benefit covers NASA R&D contracts and 
agreements that were not at issue in the di spute, because the European Communities had not 
challenged them.  Therefore, we are of the view that paragraph 3 of the Notice of Other Appeal, particularly the reference to the "contracts and agreem ents at issue", can be read to indicate that the 
United States intended to challenge not only the finding of  benefit, but also the breadth of that finding.  
686. Nonetheless, we must caution that paragraph 3 of  the Notice of Other Appeal is drafted at a 
level of vagueness and imprecision that makes it c onsiderably difficult for the appellee, the third 
participants, and the Appellate B ody to understand easily the full scope of the United States' claim.  
Understanding the full scope of an appellant's clai m should not require such effort.  Drafting the 
Notice of Appeal or Notice of Other Appeal with  greater precision reduces the risk of procedural 
objections and possible dismissal of a claim because it does not comply with the requirements of 
Rule 20 or 23 of the Working Procedures .   
687. We also recognize that the paragraphs of the Panel Report cited in the United States' Notice of 
Other Appeal do not correspond to the sections of the Panel Report where the Panel made the error 
alleged by the United States.  The Notice of Othe r Appeal refers to paragraphs 7.1037-7.1040 
and 8.3.  Paragraphs 7.1037-7.1040 concern the Panel's an alysis of whether the NASA measures 
conferred a benefit.  Paragraph 8.3 is where the Panel set out its conclusions concerning the 
European Communities' claims of adverse effects.  The United States' allegations of over-breadth are 
directed at the Panel's analysis set out in para graphs 7.1055 through 7.1110 of the Panel Report.  
Nevertheless, we recall that Rule 23(2)(c)(ii)(C) of the Working Procedures  requires an other 
appellant to provide an "indicative list" of the pa ragraph numbers of the panel report containing the 
alleged error(s) and that this list is "without prejud ice to the ability of the other appellant to refer to 
other paragraphs of the panel report in the context of  its appeal".  The failure to provide a complete 
and accurate list of paragraph numbers  covered by the allegation of error is not by itself a basis to 
reject a claim.
1434 
688. Therefore, we find that the United States' Notice of Ot her Appeal sufficiently identifies the 
allegation of error and, consequent ly, we reject the European Union's argument that the United States' 
claim is not properly within the scope of this appeal.   
                                                      
1434See Appellate Body Reports, EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III 
(Article 21.5 – US) , paras. 279 and 283, where the Appellate Body refused to dismiss a claim of the 
European Communities, even though the Notice of Appeal did not provide a list of the legal provisions of the covered agreements that the panel was alleged to have erred in interpreting or applying, or an indicative list of 
the paragraphs of the panel report containing the alleged errors. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  3. Did the Panel Err under Article 1.1(b) of the SCM Agreement ? 
689. We recall that the United States' claim is that the Panel did not properly apply Article 1.1(b) 
of the SCM Agreement , because the Panel did not exclude from its estimate of the amount of the 
subsidy the $280 million in expenditures for research  that NASA had determined was "unrelated" to 
the European Communities' claims.1435 
690. The conferral of a benefit is one of the two elements of the definition of a subsidy in 
Article 1.1 of the SCM Agreement .  The Appellate Body has explained that "the word 'benefit', as used 
in Article 1.1(b), implies some kind of comparison", and that "the marketplace provides an 
appropriate basis for comparison in determining wh ether a 'benefit' has been 'conferred', because the 
trade-distorting potential of a 'financial contribut ion' 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."1436  In section VI.B, we reviewed the Pa nel's determination of benefit with 
respect to the NASA measures at issue.  We ob serve that, having found that the NASA measures 
conferred a benefit on Boeing, the Panel did not pr oceed further to estimate the magnitude or amount 
of the benefit.1437 
691. The Panel then proceeded, in a separate section of  its Report, to estimate the "amount of the 
subsidy to Boeing's LCA division".1438  The Panel did not explain what exactly was meant by "amount 
of the subsidy".  It would appear that the estima tion exercise undertaken by the Panel is more closely 
related to the concept of financial contribution1439 under Article 1.1(a)(1) than to the concept of 
benefit under Article 1.1(b) of the SCM Agreement .  This is because the Panel was seeking to identify 
the amount of funds transferred by NASA to Boeing unde r the relevant contracts, as well as the value 
of Boeing's access to NASA facilitie s, equipment, and employees.  Had the Panel sought to estimate 
the amount of the benefit, it would have had to focus on the advantage conferred on Boeing as 
compared to what it would have obtained in a market transaction.1440  We further note that, in 
                                                      
1435United States' oral statement and responses to questi oning at the first session of the oral hearing. 
1436Appellate Body Report, Canada – Aircraft , para. 157. 
1437Panel Report, para. 7.1039. 
1438Panel Report, p. 468, subsection VII.D.5(e). 
1439This comes out explicitly in paragraph 7.1101 of the Panel Report when, in rebutting an argument 
of the European Communities, the Panel stated:  "{T}here  are two reasons why we sh all treat the full amount of 
the financial contributions  provided to Boeing as a subsidy to Boeing's LCA division". (emphasis added) 
1440See section VI.B.2 of this Report.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  explaining its approach, the Panel stated that its an alysis of the amount of the subsidy was "properly 
characterized as one part of the serious prejudice analysis".
1441   
692. Having reviewed the Panel's analysis that is the focus of the United States' allegations, it 
appears to us that the United States' appeal is mi sdirected.  Even assuming, for the sake of argument, 
that the Panel erred in its calculation of the "amount of the subsidy", it is unclear that this would have 
been an error of interpretation or applicati on of "benefit" under Article 1.1(b) of the SCM Agreement .  
The specific allegation made by the United States is  that the Panel failed to exclude from the amount 
of the subsidy certain transactions that NASA ha d determined did not involve research that was 
relevant to LCA.1442   
693. The United States asserted before the Panel th at NASA disbursements to Boeing under the 
challenged programmes amounted to less than $750 million.1443  The methodology used by the 
United States to arrive at this figure was as follo ws.  First, the United States identified all of the 
contracts that were awarded by NASA to Boeing  under the eight R&D programmes at issue during 
the period 1989-2006.1444  For this purpose, the United States ran a search in the FPDS/FPDS-NG data 
base.1445  Second, from this broad pool of Boeing contr acts, the United States eliminated all contracts 
that did not relate to aeronautics research.  This  was done by identifying the awards issued by the 
NASA research centres that perform aeronautics res earch.  The United States explained that NASA 
conducts all of its research activities at nine research centres, but that only four of those centres —Langley Research Center, Glenn Research Center, Ames Research Center, and Dryden Research 
Center—are responsible for all the aeronautics research conducted by NASA.  These four research 
centres administer the eight R&D programmes and perform all the aeronautics research required in support of NASA's other programmes.
1446  This second step yielded a figure of $1.05 billion.1447  In 
the third step, the United States eliminated contracts that, although awarded by one of the four NASA research centres that perform aeronautics research, nevertheless pertained to non-aeronautics research 
(for example, contracts whose subject matter pertained to space, atmospheric science, airspace 
                                                      
1441Panel Report, para. 7.213.  Moreover, the Panel considered that the calculation of the amount of the 
subsidy was not necessary under Article 1 of the SCM Agreement .  The Panel made these remarks in relation to 
certain subsidy measures under Washington State House Bill 2294.  However, we understand the Panel to have 
intended this explanation to apply also with respect to its analysis of the amount of the other subsidies. ( Ibid.) 
 1442The United States alleges that these expenditures re lated to R&D for space, procurement of goods, 
wind turbines and aeroprops, air traffic management, hypersonic flight, vertical take-off and landing/short take-off and landing, and aircraft support (maintenance and upkeep of NASA's aircraft). (United States' other 
appellant's submission, para. 71) 
1443Panel Report, para. 7.1057. 
1444Panel Report, para. 7.1058. 
1445For the period 2004-2006, the United States used the FPDS-NG data base, which superseded 
the FPDS. 
1446Panel Report, para. 7.1062. 
1447Panel Report, para. 7.1076. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  hypersonics, vertical take-off and landing/short take-off and landing,  and aircraft support related to 
the maintenance and upkeep of NASA's aircraft).
1448  Under this third step, the United States excluded 
$280 million in expenditures, resulting in a tota l value of $775 million between 1989 and 2006.1449   
694. The Panel sought further information from the Un ited States to confirm the results of this 
exercise and also addressed some of the specific criticisms levelled by the European Communities 
against the United States' proposed approach.1450  After reviewing the evidence, the Panel concluded: 
It is clear to the Panel that NASA has made mistakes in compiling 
the relevant information, and that NASA's records are not perfect 
(and as we discuss below, in relation to Space Act Agreements, far from perfect).  However, the European Communities has not 
demonstrated that the United States' estimate involved any "methodological" errors.  The Panel therefore estimates that the total 
amount of payments to Boeing through R&D contracts under the 
eight R&D programmes over the period 1989-2006 was $1.05 billion .
1451 (original boldface) 
695. Thus, the Panel decided to rely on the methodology proposed by the United States and 
ultimately accepted the results of the second step of the United States' methodology, that is, the results 
of segregating the contracts awarded to Boeing by the four NASA research centres that conduct 
aeronautics research.  The Panel did not address the third step of the methodology that had been 
proposed by the United States, which involved elimin ating the contracts that, despite being awarded 
by one of these four NASA research centres that perform aeronautics research, NASA had identified as not pertaining to aeronautics research.  In our vi ew, once the Panel had decided to engage with the 
methodological approach and the data provided by  the United States, it should not simply have 
stopped at the second step without explaining the r easons for not engaging with the third step.  The 
Panel should have explained why it di sagreed with the third step or why it did not find it probative:  
for instance, because the results of the manual revi ew, by NASA personnel, of the descriptions of the 
research conducted under each Boeing contract awarde d by the four research centres could not be 
verified.
1452   
696. Having said that, we note that the Panel's cons ideration of the amount of the subsidy was 
eminently a factual exercise that involved scrutin izing factual evidence submitted by the parties and 
focused on what was the most appropriate methodol ogy to segregate the contracts that involved 
                                                      
1448Panel Report, para. 7.1063 (referring to United States' response to Panel Question 179, para. 181). 
1449Panel Report, para. 7.1068;  United States' response to Panel Question 188, para. 223.  Some of 
these figures have been rounded off, thus the discrepancy when the figures are added up. 
1450See Panel Report, paras. 7.1064-7.1080. 
1451Panel Report, para. 7.1081.  
1452Panel Report, para. 7.1068.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  aeronautics R&D from the other transactions entered into between NASA and Boeing.  This kind of 
factual assessment falls within a panel's authority as the initial trier of facts and should be reviewed by 
the Appellate Body only under Article 11 of the DS U, a claim the United States has not raised with 
respect to the Panel's estimate of the amount of the subsidy provided by NASA to Boeing.   
697. We note that there is no obligation in the SCM Agreement  to quantify the precise amount of 
the subsidy for purposes of an adverse effects claim, and the Panel's finding of benefit under 
Article 1.1(b) in this case does not depend on the Pa nel's quantification of the amount of the subsidy 
provided by NASA.  The Appellate Body has previous ly stated that, while the magnitude of a subsidy 
may be relevant to the assessment of a claim of ser ious prejudice, a "precise, definitive quantification 
of the subsidy is not required" for purposes of a serious prejudice analysis.
1453  In the absence of such 
an obligation, it is not clear on what basis the Pane l's reluctance to go further in its calculations could 
constitute legal error.  Furthermor e, the Panel never purported that its calculations would be precise, 
since it indicated that the amount is an estimate.1454   
698. The United States additionally submits that th e Panel's error in estimating the amount of 
payments made by NASA to Boeing also affected th e value estimated by the Panel for the free access 
to facilities, equipment, and employees provided by NASA to Boeing.1455  The Panel estimated the 
amount of the subsidy provided to Boeing's LCA di vision in the form of such free access to be 
$1.55 billion over the period 1989-2006.1456  The Panel's estimation of the value of this access was 
based on a methodology proposed by the United States that used Boeing's share of overall payments 
made to the eight R&D programme participants to estimate the maximum value of the access to 
facilities, equipment, and employees provided by NASA to Boeing.1457  Although the Panel accepted 
the United States' general approach, it disagreed with the value of the payments from NASA to 
Boeing that the United States used to derive Boeing's share of the overall payments.  The 
United States used the figure $775 million, whic h resulted in Boeing having received 10.4% of 
NASA's overall payment under the eight R&D programme s at issue.  The Panel, however, pointed out 
that it had estimated the total amount of payments to Boeing through R&D contracts to be $1.05 billion.  The Panel further explained that usin g the $1.05 billion figure "{led} to the conclusion 
that Boeing received 14 per cent, not 10.4 per cent,  of payments made to programme participants".
1458  
                                                      
1453Appellate Body Report, US – Upland Cotton , para. 467. 
1454See Panel Report, paras. 7.1081, 7.1109, and 7.1110. 
1455United States' other appellant's submission, para. 76. 
1456Panel Report, para. 7.1109. 
1457Panel Report, paras. 7.1094 and 7.1095. 
1458Panel Report, para. 7.1099. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 290 HSBI omitted, as indicated [[HSBI]]  
 
  Based on this share, the Panel then estimated "the  value of the free access to  facilities, equipment and 
employees under the eight R&D progra mmes at issue {to be} $1.55 billion".
1459 
699. We agree with the United States that the amount  of the subsidy provided through the access to 
NASA facilities, equipment, and employees was estimat ed as a function of the value of the payments 
that had been estimated by the Panel.  The amount of the payments provided by NASA to Boeing estimated by the Panel ($1.05 billion) was used to  derive Boeing's share of the overall payments 
(14%).  We have declined above to disturb th e Panel's finding as to the estimated amount of the 
subsidy provided through the payments made by NA SA to Boeing.  As a consequence, there is no 
basis for us to interfere with the Panel's estimat e of the value of Boeing's access to NASA facilities, 
equipment, and employees. 
700. We recall that the United States' claim on appeal is that the Panel erred in the application of 
the concept of benefit under Article 1.1(b) of the SCM Agreement  because the Panel did not exclude 
from its estimate of the amount of the subsidy the $280 million in expenditures for research that 
NASA had determined was unrelated to  the European Communities' claims.
1460  We have found that 
the Panel's consideration of the amount of the subs idy was a factual assessment that fell within the 
Panel's authority as the initial trier of facts.  The United States, however, did not raise a claim under 
Article 11 with respect to the Panel's considerati on of the amount of the subsidy provided under the 
NASA measures at issue.  We have additionally e xplained above that the United States' appeal is 
misdirected, because the Panel did not attempt to estim ate the value of the benefit conferred to Boeing 
under the NASA measures at issue.  Accordingly, we reject  the United States' claim that the Panel 
erred in estimating the amount of the subsidy pr ovided to Boeing's LCA division pursuant to the 
NASA contracts and agreements under the eight R&D programmes at issue to be $2.6 billion over the 
period 1989-2006.1461  We emphasize that this figure is only an estimate and should be treated as such.  
D. Article 11 of the DSU – Amount of USDOD R&D Funding Potentially Relevant 
to LCA 
701. We now address the United States' claim that the Panel acted inconsistently with Article 11 of 
the DSU by stating, in paragraph 7.1205 of the Pane l Report, that it "{did} not consider it credible 
that less than 1 per cent of the $45 billion in aeronautics R&D funding that {US}DOD provided to 
Boeing over the period 1991-2005 had any potential re levance to LCA".  The United States submits 
that the Panel acted inconsistently with Article 11 of the DSU because the Panel's statement lacks an 
                                                      
1459Panel Report, para. 7.1099. 
1460United States' oral statement and responses to questi oning at the first session of the oral hearing. 
1461Panel Report, paras. 7.1081, 7.1109, and 7.1110.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  evidentiary basis.
1462  The Panel's findings are summarized in subsection 1.  We assess the 
United States' claim in subsection 2. 
1. The Panel's Findings 
702. Having determined that the payments and access to facilities provided by the USDOD to 
Boeing under the assistance instruments constitute specific subsidies, the Panel then sought to 
determine the total amount of the subsidy to Boeing's LCA division.   
703. The European Communities estimated that the USDOD had provided Boeing with 
$4.3 billion in funding and support for "dual-use"  R&D over the period 19 91-2006, and argued that 
$2.4 billion of that total should be treated  as a subsidy to Boeing's LCA division.1463  T h e  
United States responded that the European Commu nities had overestimated the amount of dual-use 
research conducted under the R&D programmes at issue.   According to the United States, the total 
amount of any subsidy to Boeing's LCA division under USDOD R&D contracts and agreements "is 
significantly less than $308 million over the period 1991-2006".1464   
704. The Panel noted that the parties did not dispute that the USDOD had provided Boeing 
$45 billion in total RDT&E funding between 1991 and 2005.1465  However, the Panel explained that 
the "European Communities {did} not assert that the entirety of this funding constitutes a subsidy to Boeing", but rather "the European Communities'  claim relate{d} to {US}DOD R&D funding and 
support to Boeing for 'dual use' R&D".
1466   
705. The Panel then observed that "there is no pub licly available information setting forth the 
amount of {US}DOD 'dual use' R&D funding to Boeing"1467 and noted, therefore, that the 
European Communities' subsidy amount was onl y an estimate based upon a "detailed expert 
report".1468  Taking account of the European Communities'  argument that its estimate should be 
adopted unless the United States provided evidence of  the actual value of the payments and access to 
USDOD facilities, the Panel decided that, if the United States provided the "actual information and 
                                                      
1462United States' other appellant's submission, paras. 123-125. 
1463Panel Report, para. 7.1199 (referring to Panel Exhibit EC-25, containing a compilation of charts 
setting out NASA/USDOD/USDOC aeronautics R&D subsidie s to Boeing's LCA division, table at p. 20, 
containing data on USDOD RDT&E). 
1464Panel Report, para. 7.1200. 
1465Panel Report, para. 7.1202 (referring to European Communities' second written submission to the 
Panel, para. 471;  and Top Contractors' Share of DOD RDT&E, FY 1991-FY 2005 (Panel Exhibit EC-29), p. 1). 
1466Panel Report, para. 7.1202. 
1467Panel Report, para. 7.1203.  
1468Panel Report, para. 7.1203 (referring to CRA International, "U.S. Department of Defense (DoD) 
Research, Development, Test and Evaluation (RDT&E) Funding Support to The Boeing Company for Dual-Use 
Aircraft R&D", CRA Project No. D08745-00 (November 2006) (Panel Exhibit EC-7)).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 292 HSBI omitted, as indicated [[HSBI]]  
 
  figures" relating to the USDOD subsidy, then its amount would "prevail over the 
European Communities' estimate".
1469  
706. The Panel thus turned to the United States'  subsidy calculations and noted that the 
United States claimed that the "maximum am ount" of the subsidy was "only $308 million".1470  The 
Panel observed that the United States had redu ced the amount during the proceedings from the 
$529 million it had initially indicated due to "several mistakes" in Exhibit US-41 that contained a list 
of 43 USDOD R&D contracts and agreements.1471  The Panel further observed that the United States 
had indicated that its estimate concerned the total amount of the subsidy to Boeing "as a whole".1472  
The Panel noted that, in the end, the United States claimed that the subsidy to Boeing's LCA division 
"would be significantly less than $308 million, and,  it seems, significantly less than $100 million over 
the period 1991-2006".1473   
707. The Panel rejected the United States' "estimate"  of the total amount of the subsidy to Boeing 
on four grounds.1474  First, the United States' calculations excluded funding under the military aircraft 
RDT&E programmes, which made up $3.1 billion of the European Communities' $4.3 billion 
estimate.  Second, the United States did not provide similar "argument or evidence"1475 for a 
maximum subsidy amount as it did with the NASA aer onautics R&D subsidy calculations.  Third, the 
United States did not include the value of Boeing's access to USDOD facilities.  Fourth, the Panel did 
not find it "credible that less than 1 per cen t of the $45 billion in aeronautics R&D funding"1476 to 
Boeing "had any potential relevance to LCA".1477  Without taking a definitional position itself, the 
Panel noted that the United States applied a broad de finition of "dual-use" that included "'theoretical' 
or 'potential' civil applications" of R&D, and not  one limited to tangible technologies actually applied 
on civil aircraft.1478  
                                                      
1469Panel Report, para. 7.1203. 
1470Panel Report, para. 7.1204 (referring to United States' response to questions regarding US Panel 
exhibits (10 January 2008), p. 2).  
1471Panel Report, para. 7.1204. 
1472Panel Report, para. 7.1204.  
1473Panel Report, para. 7.1204.  
1474Panel Report, para. 7.1205. 
1475Panel Report, para. 7.1205.  
1476Panel Report, para. 7.1205. 
1477Panel Report, para. 7.1205. (footnote omitted) 
1478Panel Report, footnote 2796 to para. 7.1205.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  708. At the same time, the Panel said it could not accept the European Communities' estimate of 
the subsidy provided to Boeing's LCA division, as its "methodology and analysis"
1479 did not 
distinguish payments and access to USDOD fac ilities provided under procurement contracts from 
those made under assistance instruments.  In the light of the conflicting estimates of the parties and its own analysis, the Panel held that it was not po ssible to isolate payments and access to facilities 
provided under procurement contracts from th e payments and access provided under assistance 
instruments.
1480   
709. The Panel next stated that the Appellate Body report in US – Upland Cotton  stood for the 
proposition that, "while a panel shoul d endeavour to arrive at an estimate of the order of the 
'magnitude' of the subsid(ies) alleged to cause pri ce suppression within the meaning of Article 6.3(c) 
of the SCM Agreement, a 'precise, definitive quantification … is not required'".1481  The Panel 
considered that this principle also applied to ot her forms of serious prejudice in Article 6.3.   
710. The Panel concluded: 
In this case, where we have determ ined that a measure constitutes a 
specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, we have attempte d to determine the amount of the 
subsidy that is properly allocated to Boeing's "LCA division".  
However, in the case of {US}DOD R&D subsidies to Boeing, while 
we do not accept the United States' estimate that the total amount of 
any {US}DOD subsidy to Boeing for "dual use" R&D is significantly less than $308 million over the period 1991-2006, we also cannot accept the European Communities' estimate, and any attempt by the Panel to go further and arrive at our own estimate of 
the amount of the subsidy to Boeing's LCA division would be 
speculative.
1482 (footnote omitted) 
2. Did the Panel Make an Objective Asse ssment of the Matter under Article 11 
of the DSU in Making the Challenged Statement? 
711. The United States claims that the Panel acted in consistently with Article 11 of the DSU in 
stating that it "{did} not consider it credible that less than 1 per cent of the $45 billion in aeronautics 
R&D funding that {US}DOD provided to Boeing  over the period 1991-2005 had any potential 
relevance to LCA".1483  According to the United States, the Pa nel acted inconsistently with Article 11 
                                                      
1479Panel Report, para. 7.1206.  
1480Panel Report, para. 7.1207. 
1481Panel Report, para. 7.1208 (quoting Appellate Body Report, US – Upland Cotton , para. 467).  
1482Panel Report, para. 7.1209. 
1483Panel Report, para. 7.1205. (footnote omitted) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 294 HSBI omitted, as indicated [[HSBI]]  
 
  of the DSU because the Panel's fi nding lacks an evidentiary basis.
1484  The United States explains that 
"{t}he Panel cited no evidence in support of its comment about the amount of {USDOD} R&D of 
'potential relevance to LCA'."1485  Furthermore, the United States submits that the Panel's statement 
"is inconsistent with the Panel's ultimate finding that  'any attempt by the Panel to go further and arrive 
at {its} own estimate of the amount of the subsidy to Boeing's LCA division would be 
speculative'."1486  The United States also refers to the Panel's statement that it would not take a 
position on whether "dual-use" shoul d be understood narrowly or broadly.1487  The United States 
therefore requests the Appellate Body to reverse the Panel's finding. 
712. The European Union rejects the allegations that the Panel acted inconsistently with Article 11 
of the DSU in making the statement challenged by the United States.1488  First, the European Union 
argues that this statement should not be subject to  appellate review, as it is not a legal finding or 
conclusion within the meaning of Article 17.13 of  the DSU and had no effect on the Panel's ultimate 
conclusions that the aeronautics R&D subsidies prov ided to Boeing amounted to at least $2.6 billion 
and caused adverse effects to the Eu ropean Communities' LCA industry.1489  Second, the 
European Union asserts that, if this statement is subjec t to appellate review, it is really in the nature of 
a conclusion as to the Panel's evid ence-based rejection of the United  States' claim that dual-use R&D 
funding to Boeing was no greater than $308 million.1490   
713. Article 11 of the DSU requires a panel to "make an objective assessment of the matter before 
it, including an objective assessment of the facts of  the case".  The Appellate Body has previously 
explained that, as the initial triers of facts, panels have discretion in the appreciation of the evidence, 
and the Appellate Body has said it "will not interfe re lightly" with a panel's exercise of this 
discretion.1491  The Appellate Body has noted that it w ill not "base a finding of inconsistency under 
Article 11 simply on the conclusion that {it} migh t have reached a different factual finding".1492  
Instead, for a claim under Article 11 to succeed, the A ppellate Body must be satisfied that the panel 
                                                      
1484United States' other appellant's submission, paras. 123-125 (referring to Appellate Body Report,  
US – Carbon Steel , para. 142).  
1485United States' other appellant's submission, para. 125. 
1486United States' other appellant's submission, para. 125 (quoting Panel Report, para. 7.1209). 
1487United States' other appellant's submission, para. 125 (referring to Panel Report, footnote 2796 to 
para. 7.1205).  
1488European Union's appellee's submission, para. 185. 
1489European Union's appellee's submission, para. 186 (referring to Appellate Body Report, US – Wool 
Shirts and Blouses , p. 17, DSR 1997:I, 323, at 338). 
1490European Union's appellee's submission, para. 187. 
1491Appellate Body Report, US – Wheat Gluten , para. 151;  see also Appellate Body Report, US – 
Carbon Steel , para. 142. 
1492Appellate Body Report, US – Wheat Gluten , para. 151.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  has exceeded its authority as trier of facts.
1493  As initial trier of facts, a panel must provide "reasoned 
and adequate explanations  and coherent reasoning"1494, base its finding on a sufficient evidentiary 
basis1495, and treat evidence with "even-handedness".1496 
714. The United States' challenge involves a remark made by the Panel in attempting to estimate 
the amount of the subsidy provided by the USDOD to Boeing.  As it did when it estimated NASA's subsidies, the Panel looked first at the evidence provided by the United States, because it considered 
that, "if the United States were able to provide the Panel with the actual information and figures 
regarding the amount of {US}DOD R&D subsidi es to Boeing, or information from which the 
maximum amount of those subsidies could be deri ved, then such information would necessarily 
prevail over the European Communities' estimate."
1497  It is in the context of reviewing the evidence 
presented by the United States that the Panel made th e challenged statement.  We therefore focus 
below on this part of the Panel's analysis. 
715. The United States presented the Panel with an exhibit1498 that had a list of 43 USDOD R&D 
contracts and agreements and indicated that $ 308 million was the maximum possible amount of the 
USDOD's subsidy to Boeing.1499  In addition, the United States argued that the $308 million 
concerned the funding provided to Boeing "as a whol e", that is, both to Boeing's military and LCA 
divisions.1500  The United States proposed that the amount of $308 million be divided in half to arrive 
at the subsidy provided to Boeing's LCA division, in line with the methodology employed by the European Communities.
1501  Thus, the Panel observed that, "while the United States has never 
provided an exact figure regarding the actual am ount of any {US}DOD subsidy to Boeing's LCA 
                                                      
1493Appellate Body Report, US – Wheat Gluten , para. 151. 
1494Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , footnote 618 to para. 293. 
1495Appellate Body Report, US – Carbon Steel , para. 142. 
1496Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 292. 
1497Panel Report, para. 7.1203. 
1498Panel Exhibit US-41 contains a list of 43 US DOD R&D contracts and ag reements that total 
$529 million.  However, the United States subsequently indicated that the list in Panel Exhibit US-41 contains 
several mistakes, and that the actual maximum amount is only $308 million. (See Panel Report, para. 7.1204) 
1499The United States asserted that many of the R& D contracts and agreemen ts that composed the 
$308 million estimate did not, in fact, involve any dual-use R&D.  Furthermore, the United States argued that 
some of the contracts and agreements on the list had "e lements" with "no civil applicability". (Panel Report, 
para. 7.1204 (referring to United States' first written submi ssion to the Panel, paras. 161 and 162;  United States' 
response to Panel Question 208, para. 290;  United States' comments on the European Communities' response to 
Panel Question 190(b), para. 326;  and United States' response to Panel Question 208(b), para. 290 and footnote 
376 thereto)) 
1500Panel Report, para. 7.1204. 
1501Panel Report, para. 7.1204. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  division, it is clear that any such estimate would be significantly less than $308 million, and, it seems, 
significantly less than $100 million over the period 1991-2006."
1502   
716. The Panel said that it could not accept the Unite d States' estimate and gave the following 
reasons for its position.  First, the Panel explai ned that the United States' estimate only included 
funding provided by the USDOD to Boeing under th e 13 "general aircraft" RDT&E programmes and 
"completely exclude{d}" all funding provided to  Boeing under the 10 "military aircraft" RDT&E 
programmes at issue.1503  The Panel noted that funding under the military aircraft RDT&E 
programmes accounted for $3.1 billion out of the $4 .3 billion that the European Communities had 
estimated was the total amount of the subsidy prov ided by the USDOD to Bo eing for dual-use R&D.  
The second reason given by the Panel concerned the quality of the evidence provided by the 
United States.  It appears that the Panel attribut ed less probative weight to the evidence put forward 
by the United States in relation to USDOD funding than to the evidence it submitted in connection 
with NASA funding.  In particular, the Panel cr iticized the United States for failing to provide 
arguments or evidence with respect to the maximum amount of USDOD R&D dual-use funding provided to Boeing.
1504  Third, the Panel pointed out that the United States' estimate of the total 
amount of USDOD aeronautics R&D subsidy to Boeing did not account for the value of any access to 
USDOD facilities granted to Boeing.  We recall that the Panel had found that access to USDOD 
facilities provided to Boeing was also a subsidy w ithin the meaning of Article 1.1(a)(1) of the 
SCM Agreement .1505  Finally, the Panel made the statement challenged by the United States that it 
"{did} not consider it credible that less than 1 per cent of the $45 billion in aeronautics R&D funding 
that {US}DOD provided to Boeing over the pe riod 1991-2005 had any potential relevance to 
LCA".1506   
717. It is true that the Panel, in making the statem ent challenged by the United States, did not cite 
specific evidence in support of its position.  As we have explained above , Article 11 of the DSU 
requires panels not to make findings without a sufficient evidentiary basis.1507  Certainly it would have 
been preferable for the Panel to have cited to ev idence or referred to earlier factual findings when it 
made the challenged statement.  Yet, other parts of the Panel's analysis lend support to the Panel's 
statement.  We recall that the Panel examined  the 23 USDOD RDT&E programmes at issue in its 
                                                      
1502Panel Report, para. 7.1204. 
1503Panel Report, para. 7.1205.   
1504Panel Report, para. 7.1205.  The Panel noted that, by contrast, the United States had provided 
evidence demonstrating that the maximum amount of the NASA payments to Boeing for aeronautics R&D 
could not be more than $1.05 billion.   
1505See Panel Report, para. 7.1171. 
1506Panel Report, para. 7.1205. (footnote omitted) 
1507See Appellate Body Report, US – Carbon Steel , para. 142.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  assessment of whether the measures constituted purchases of  services.  In the context of that analysis, 
the Panel looked at the benefits to be derived from the research by the USDOD and Boeing, which 
would have been germane to the issue of the " potential relevance to LCA" of the funding provided 
under the RDT&E programmes.  The Panel made severa l findings that seem to question the view that 
the research had limited appli cability to LCA development and production.  The Panel found that, 
while the R&D performed by Boeing was of "some be nefit and use" to the USDOD, it noted that of 
the 13 different "general aircraft" programmes at issue, "it would appear that at least two had the 
explicit objective of developing 'dual use' R&D."
1508 
718. More importantly, in this analysis, the Panel sp ecifically rejected the United States' argument 
that "technologies developed under the {US}DO D R&D programmes are {not} 'technologically 
applicable' to commercial aircraft (because of the different missions and cost-sensitivities of military 
and commercial aircraft)".1509  Further, the United States explained that " there are some small areas 
of overlap, which produce 'dual-use' technologies, but in these areas, {US}DO D generally tries to use 
the potential civil application  to motivate commercial companies to contribute their resources to 
lessen {US}DOD's cost of reaching its military objective".1510  Moreover, the Panel noted that the 
United States elsewhere explained that "where a {USDOD} contracting agency sees additional direct 
applications  for purchased technology, it seeks to obtain private sector contribution for the 
development of the technology".1511  The United States also stated  that "the incentive for private 
participation is the opportunity to share the cost of  developing some technology of mutual interest to 
both the contractor and the government".1512  For these reasons, the Panel found that the United States 
had failed to substantiate "its assertion that only a miniscule amount of the R&D conducted by Boeing 
under the {US}DOD R&D programmes at issue w as 'technologically applicable' to commercial 
                                                      
1508Panel Report, para. 7.1148.   
1509Panel Report, para. 7.1158.  The Panel provided two reasons for rejecting this argument.  First, the 
Panel said that the United States' ar gument "overlooks the fact that at l east some of the {US}DOD programmes, 
for example, the ManTech Composite s Affordability Initiative related to Advanced Fibre Placement, had the 
explicit objective  of funding R&D to be applied towards both military and civil aircraft and emphasized the 
development of lower cost technologies." ( Ibid., para. 7.1159 (original emphasis))  Second, the Panel recalled 
the United States' explanation that "there exists a link between 'assistance instruments' and 'dual use' 
technologies:  according to the United St ates, the reason that Boeing and ot her firms agree to enter into cost-
sharing cooperative agreemen ts with {US}DOD is because  of the benefit (or poten tial benefit) of the R&D for 
their commercial operations ." (Ibid. (original emphasis)) 
1510Panel Report, para. 7.1159 (quoting United States ' response to Panel Question 208, para. 266). 
(emphasis added by the Panel)   
1511Panel Report, para. 7.1159 (quoting United States' first written submission to the Panel, para. 132). 
(emphasis added by the Panel) 
1512Panel Report, para. 7.1159 (referring to United Stat es' first written submission to the Panel, footnote 
119 to para. 104).  See also United States' fi rst written submission to the Panel, para. 112. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  aircraft."
1513  This finding is consiste nt and supportive of the Panel's refusal to accept the 
United States' proposition that less than 1% of the total aeronautics R&D funding that the USDOD 
provided to Boeing over the period 1991-2005 had any potential relevance to LCA.   
719. We additionally note that the Panel had other ev idence before it that supported the view that 
more than 1% of the total funding provided to Boeing over the period 1991-2005 had potential relevance to LCA.  The European Communities had provided the Panel with its own estimate of the 
subsidy provided by the USDOD, which was b ased on calculations made by a firm called CRA 
International.
1514  The amount of the subsidy to Boeing's LCA division was estimated by the 
European Communities to be $2.4 billion.  This is approximately 5% of the total R&D funding 
provided by the USDOD to Boeing.  The Panel di d not accept the European Communities' estimate 
because it did not distinguish between payments and access to USDOD facilities provided to Boeing 
under assistance instruments, on the one hand, and procurement contracts, on the other.1515  However, 
in the statement challenged by the United States, the Panel did not appear to be distinguishing 
between funding provided under procurement c ontracts and that provided under assistance 
instruments.  Instead, the Panel seemed to be re ferring to all aeronautics R&D funding provided to 
Boeing that had any potential relevance to LCA.  T hus, the Panel's statement is coherent with the 
general estimate provided by the European Communiti es and is not undermined by the fact that the 
European Communities' estimate may have incl uded funding under both assistance instruments and 
procurement contracts. 
720. In addition, we note that the statement challe nged by the United States was the final remark 
made by the Panel in explaining why it was not persuaded by the estimate provided by the 
United States.  When it made the challenged statem ent, the Panel had already provided three reasons 
why it could not accept the United States' estimate.  Therefore, had the Panel refrained from making 
the challenged statement, it would have made little di fference to the outcome of the Panel's analysis, 
nor would it have made much difference in terms of  the underlying support for the Panel's decision to 
reject the United States' estimate.  The United States has not appealed the three other reasons given by 
the Panel, nor the Panel's decision to reject the estimate put forward by the United States. 
                                                      
1513Panel Report, para. 7.1159.  The Panel also found th at the United States had failed to substantiate its 
assertion that the ITAR make it effectively impossible for Boeing to utilize any of the R&D performed under 
USDOD R&D contracts and ag reements towards LCA. ( Ibid., para. 7.1160) 
1514Panel Exhibit EC-7, supra , footnote 1468.  
1515Panel Report, para. 7.1206.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  721. We further recall that the Panel ultimately declin ed to provide a figure for its estimate of the 
total subsidy amount because the evidence on record did not allow it to segregate the payments and 
access to USDOD facilities provided under the assist ance instruments from payments and access 
provided under the procurement contracts.
1516  The Panel's rejection of the estimate proposed by the 
United States, as well as the one proposed by the European Communities, could be understood to 
constitute a finding by the Panel as to the range w ithin which the amount of the subsidy would fall.1517  
However, this range does not depe nd for support on the statement challenged by the United States.  
As noted above, the Panel's conclusion that it c ould "not accept the United St ates' estimate that the 
total amount of any {US}DOD subsidy to Boeing for 'dual use' R&D is significantly less than $308 million over the period 1991-2006"
1518 is supported by three other reasons, none of which has 
been challenged by the United States on appeal.  In any event, the precise amount of the subsidy, or 
the range between the United States' and the Europe an Communities' estimates, was not critical for 
the Panel's subsequent analysis of the European Communities' claims of serious prejudice.  In its 
analysis of serious prejudice, the Panel stated that  the aeronautics R&D subsidies amounted to at least 
$2.6 billion.1519  The figure of $2.6 billion was the amount of  the subsidy that the Panel had estimated 
for the payments and the access to facilities, equipment, and employees provided under the NASA 
contracts and agreements.  In other words, th e precise amount of subsidy provided under the USDOD 
assistance instruments did not play a determinative role in the Panel's assessment of the European Communities' serious prejudice claims.   
722. Finally, the Appellate Body recently clarified in EC – Fasteners (China)  that "not every error 
allegedly committed by a panel amount s to a violation of Article 11 of the DSU" but, rather, "{i}t is 
incumbent on a participant raising a cl aim under Article 11 on appeal to explain why the alleged error 
meets  the standard of review under that provision."
1520  In particular, the Appellate Body referred to a 
situation where an appellant alleges that a panel ignor ed a piece of evidence, and stated that "the mere 
                                                      
1516Panel Report, para. 7.1207. 
1517The Panel concluded: 
In this case, where we have determined that a measure constitutes a specific 
subsidy within the meaning of Article s 1 and 2 of the SCM Agreement, we 
have attempted to determine the amount of the subsidy that is properly allocated to Boeing's "L CA division".  However, in the case of {US}DOD 
R&D subsidies to Boeing, while we  do not accept the United States' 
estimate that the total amount of any {US}DOD subsidy to Boeing for "dual use" R&D is significantly less than $308 million over the period 1991-2006, 
we also cannot accept the European Communities' estimate, and any attempt 
by the Panel to go further and arrive at our own estimate of the amount of the subsidy to Boeing's LCA division would be speculative.  
(Panel Report, para. 7.1209 (footnote omitted)) 
1518Panel Report, para. 7.1205;  see also para. 7.1209.   
1519Panel Report, para. 7.1760.   
1520Appellate Body Report, EC – Fasteners (China) , para. 442. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 300 HSBI omitted, as indicated [[HSBI]]  
 
  fact that a panel did not explicitly refer to that evidence in its reasoning is insufficient to support a 
claim of violation under Article 11."
1521  Instead, the appellant "must explain why such evidence is so 
material to its case that the panel's failure e xplicitly to address and rely upon the evidence has a 
bearing on the objectivity of the panel's factual assessment".1522  We believe that this rationale applies 
equally to the case before us, where the United States is challenging the evidentiary basis of a 
statement by the Panel under Article 11 of the DS U but has not demonstrated or explained how the 
error vitiates the Panel's substantive findings.  In our  view, it is insufficient for an appellant simply to 
disagree with a statement or to assert that it is not supported by evidence.  To succeed in its challenge 
under Article 11, an appellant must show that th e statement was material to the panel's legal 
conclusion.  In this case, the United States has not  demonstrated that the challenged statement was 
material to the Panel's conclusion as to the total amount of the subsidy provided to Boeing through the 
USDOD measures.  This is because, as explained a bove, other elements of the Panel's analysis do 
support that conclusion.   
723. In the light of the above, we reject  the United States' claim that the Panel acted inconsistently 
with Article 11 of the DSU when it stated, in paragr aph 7.1205 of the Panel Report, that it "{did} not 
consider it credible that less than 1 per cent of  the $45 billion in aeronautics R&D funding that 
{US}DOD provided to Boeing over the period 1991- 2005 had any potential relevance to LCA".   
VII. NASA/USDOD Allocation of Patent Rights – Specificity 
A. Introduction 
724. We turn now to the European  Union's claim concerning the Panel's finding that, on the 
assumption that the allocation of patent rights under the contracts and agreements between NASA/USDOD and Boeing constitutes a s ubsidy under Article 1.1 of the SCM Agreement , it would 
not be specific within the meaning of Article 2.1 of  that Agreement.  We provide a summary of the 
Panel's findings in section B.  Next, we discuss the Panel's arguendo  approach in section C.  The 
European Union's claims on appeal are assessed in sections D, E, and F.   
725. Before proceeding, we wish to clarify three aspects about the scope of the appeal that is 
before us.  First, we note that, before the Pane l, the European Communities challenged:  (i) the 
allocation of patent rights  under NASA/USDOD contracts and agreem ents;  and (ii) the allocation of 
rights over the data produced under the relevant NASA /USDOD contracts and agreements.
1523  The 
                                                      
1521Appellate Body Report, EC – Fasteners (China) , para. 442. 
1522Appellate Body Report, EC – Fasteners (China) , para. 442. 
1523See Panel Report, paras. 7.1258-7.1265.  The Panel noted that trade secrets are a subset of data 
rights. ( Ibid., para. 7.1265)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Panel rejected both claims.
1524  The European Union's appeal is directed only at the Panel's finding 
concerning the patent rights  and does not include the Panel's finding on the data rights .  This was 
confirmed by the European Union during the oral hearing. 
726. Second, we observe that the European Comm unities challenged the patent rights allocation 
under NASA/USDOD contracts and agreements independe ntly from its challenge to the payments and 
other support provided to Boeing unde r certain NASA/USDOD contract s and agreements.  However, 
as discussed in Part VI, the allocation of patent rights was one of the features of the NASA/USDOD 
contracts and agreements on which the European Communities focused its argumentation that these 
transactions are not purchases of services.  It was also  one of the five evidentiary elements on which 
the Panel relied in concludi ng that the transactions are not purchases of services.1525  Thus, the 
allocation of patent rights played a central role in the characterization of the contracts and agreements 
between NASA/USDOD and Boeing and this, in turn, was determinative for the conclusion that the 
payments and other support provide d under the contracts and agreemen ts constitute subsidies.  The 
allocation of patent rights was also a central aspect of the European Communities' arguments on 
benefit, as well as the Panel's analysis of the issue.1526  It is also an important element in our analyses 
of financial contribution and benefit.1527   
727. This gives rise to the following question:   Was there an overlap between the 
European Communities' claims and, if so, does this have any legal consequences?  The Panel resolved 
this question in relation to the European Communiti es' claim concerning the allocation of data rights 
(which the Panel dismissed because it consider ed that the claim "involve{d} double-counting"1528).  
By contrast, the Panel dismissed the European Comm unities' claim concerning the allocation of patent 
rights on the basis that the allocation of patent  rights under NASA/USDOD contracts and agreements 
is not specific.  Nevertheless, during the interim re view, the Panel suggested that its reasoning on the 
data rights claims "is applicable to any kind of intellectual property".1529 
728. We had a brief exchange with the participants during the oral hearing about the issue of 
potential overlap.  The European Union explained th at its claims do not overlap completely because 
its challenge to the allocation of patent rights concerned a broader set of NASA/USDOD contracts 
                                                      
1524See Panel Report paras. 7.1294 and 7.1311, respectively. 
1525See section VI.A of this Report. 
1526The Panel observed that, "{a}t a minimum, it would be expected that some form of royalties or 
repayment would be required in the event that financial contributions were provided" on the terms reflected in the NASA procurement contracts an d USDOD assistance instruments awarded to Boeing. (Panel Report, 
paras. 7.1039 and 7.1184)   
1527See sections VI.A and VI.B of this Report. 
1528Panel Report, para. 7.1309. 
1529Panel Report, para. 6.101. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  and agreements with Boeing than its claim relating to the payments and other support.
1530  The 
United States, for its part, expressed the view that so mething that allegedly is the product of a subsidy 
cannot itself constitute a subsidy.   
729. Neither participant, however, has appealed th e Panel's approach to the potential overlap 
between the European Communities' claims.  We do not need to resolve the differences between the 
participants' views, because the Panel proceeded on the assumption that the allocation of patent rights 
is in some respects a self-standing subsidy that is separate from the payments and other support 
provided under the NASA/USDOD contracts and agreements.1531  To the extent that such a 
self-standing subsidy could exist, we will assess the Pa nel's finding of specificity on the basis of the 
Panel's assumption. 
730. Third, we recall that the Panel found that th e payments and other support provided under the 
NASA/USDOD contracts and agreements at issue cons titute specific subsidies within the meaning of 
Article 2.1 of the SCM Agreement .  In the case of the NASA payments and other support, the 
United States "d{id} not dispute that each of the eight aeronautics R&D programmes at issue would, 
if found to provide subsidies within the meaning of  Article 1, be specific under Article 2.1(a) of the 
SCM Agreement".1532  The Panel found that the payments and other support provided by the USDOD 
under the assistance instruments are specific subsid ies under Article 2.1(a) because of "the fairly 
narrow focus of R&D performed under the 23 indi vidual programmes (i.e. {programme elements}) 
                                                      
1530Before the Panel, the European Communities explained that it was challenging "all patents 
transferred/waived to Boeing under any and all R&D cont racts and agreements that Boeing entered into with 
NASA and {US}DOD, including but not limited to thos e entered into under the specific NASA and {US}DOD 
R&D programmes listed in the European Communities' pa nel request". (Panel Report, para. 7.1263)  The 
European Communities stated: 
{F}rom the outset of this dispute, the European Communities has been 
challenging as a specific subsidy the provision of all patents to Boeing by 
NASA and {US}DOD pursuant to all NASA and {US}DOD contracts, even 
if they derive from programmes that are not being specifically challenged.  
(Ibid. (quoting European Communities' response to Panel Question 216, para. 386 (original italics)) (emphasis 
added by the Panel underlined)) 
1531We are aware that there is some contradicti on between the Panel's assumption concerning the 
allocation of patent rights and its remarks on the European Communities' data rights claim, which the Panel 
suggested during the interim review would also be relevant to other intellectual property.  
1532Panel Report, para. 7.1045.  The only argument put forward by the United States was that NASA's 
wind tunnel services are "used by a wide range of  industries across the U.S. economic spectrum". ( Ibid., 
para. 7.1046 (quoting United States' first written submission to the Panel, para. 251))  The Panel rejected this 
argument because it did not consider that it was supported by the evidence submitted by the United States.  
(Ibid., para. 7.1047)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  challenged by the European Communities".
1533  Therefore, any findings we make in connection to the 
specificity of the allocation of patent rights do not traverse the Panel's findings of specificity relating 
to the payments and other support provided unde r the NASA/USDOD contracts and agreements.1534 
B. The Panel's Findings 
731. The Panel found that it was not necessary to reso lve the issue of whether the allocation of 
patent rights under NASA and USDOD R&D contr acts and agreements constitutes a financial 
contribution that conferred a benefit with in the meaning of Article 1.1 of the SCM Agreement .1535  In 
the Panel's view, it was clear that the allocation of patent rights under NASA and USDOD contracts 
and agreements is not specific to a "group of enterprises or industries" within the meaning of Article 2 
of the SCM Agreement .  This is because the Panel considered that the allocation of patent rights is 
"uniform under all U.S. government R&D contracts, agreements, and grants, in respect of all U.S. 
government departments and agencies, for all enterprises in all sectors".1536  Indeed, the Panel noted 
that, in all cases, the contractor owns any invent ions—and the patent rights—that it conceives in the 
course of performing research funded by the US G overnment, whereas the US Government receives a 
royalty-free, "government use/purpose" licence to use the subject invention.1537  
732. The Panel took note that, prior to 1980, the US Government had a general policy of taking all 
rights to patents over inventions produced by cont ractors under federally funded R&D contracts.  The 
US Government would then grant non-exclusive lic ences to any applicant, including the contractor, 
that wished to use the subject invention.1538  In 1980, however, the US Government changed its policy 
regarding the allocation of patent rights, and st arted granting ownership of patents to government 
contractors over any invention that they produ ced with federal funding under R&D contracts.1539  In 
accordance with this new policy, the US Governme nt would receive a limited "government use" 
                                                      
1533Panel Report, para. 7.1196.  The Panel made an a lternative finding in the event "it {was} necessary 
to examine specificity at the level of  the 'RDT&E Program' as a whole". ( Ibid., para. 7.1197)  The Panel found 
that the European Communities had demonstrated de facto  specificity under Article 2.1(c) of the 
SCM Agreement , because it had substantiated its assertion that Boeing, Lockheed Martin, Northrop Grumman, 
Raytheon, and United Technologies had received on average 45.2% of total USDOD RDT&E funding over the period 1991 through 2005.  According to the Panel, this  evidence demonstrates that almost half of all RDT&E 
funding went to five enterprises, all of which form part of the same industry.  In the Panel's view, "this is more 
than enough to confirm that RDT&E funding goes 'predominantly' to firms in the defense industry, and this is enough to establish de facto specificity under Article 2.1(c)." ( Ibid. (footnote omitted)) 
1534We further note that the United States has not  appealed the Panel's findings of specificity 
concerning the NASA/USDOD payments and other support.   
1535Panel Report, para. 7.1276.  
1536Panel Report, para. 7.1276.  
1537Panel Report, para. 7.1276.  
1538Panel Report, para. 7.1277.  
1539Panel Report, para. 7.1277.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 304 HSBI omitted, as indicated [[HSBI]]  
 
  licence to use the subject invention without having to pay the contractor any royalties.
1540  The Panel 
also acknowledged that this new policy originally applied only to non-profit organizations and small 
business firms, and that subsequently it was exte nded so as to accord the same treatment to all 
government contractors, regardless of size and profit/non-profit status.1541  
733. The Panel noted that this new government polic y concerning allocation of patent rights was 
implemented through a number of different legal in struments.  The following five instruments were 
highlighted as the "relevant" ones1542:  (i) the Bayh-Dole Act, which implemented this new 
government policy in 1980;  (ii) the 1983 Presi dential Memorandum to the heads of Executive 
departments and agencies that extended the scope of the policy to include all government contractors, 
regardless of size and profit/non-profit status;  (iii) the 1987 Executive Order into which the terms of the aforementioned Memorandum were eventually incorporated;  (iv) the corresponding general 
federal regulations implementing the Bayh-Dole Act, the 1983 Presidential Memorandum, and the 
1987 Executive Order
1543;  and (v) the NASA-specific regulations.1544  The Panel observed that the 
rules governing the allocation of patent rights under US Government-funded R&D contracts and 
agreements have remained essentially unchanged since the passage of the Bayh-Dole Act in 1980.1545   
734. The Panel turned next to examine how these US  laws and regulations actually operate, and 
noted that they grant government contractors the opti on to retain patent rights, with some limitations, 
to inventions that arise from a funding agreement with the US Government.1546  These patent rights 
authorize contractors to prevent all other entiti es from exploiting the technologies claimed by the 
patent and allow companies to grant commercial lice nces for the technology to others in exchange for 
compensation.1547  The Panel noted that the government receives a "nonexclusive, nontransferable, 
irrevocable, paid-up licence to practice … for or on behalf of the United States any subject invention 
throughout the world".1548  Notably, this licence does not extend to any right to develop patented 
                                                      
1540Panel Report, para. 7.1277.  
1541Panel Report, para. 7.1277.  
1542Panel Report, para. 7.1278. 
1543United States Code of Federal Regulations , Title 48, sections 27.300-27.306 (Patent Rights under 
Government Contracts) (Panel Exhibit EC-559). 
1544United States Code of Federal Regulations , Title 14, section 1245 (Patents and Other Intellectual 
Property Rights, Subpart 1: Patent Waiver Regulations) (Panel Exhibit EC-572). 
1545Panel Report, para. 7.1283. 
1546Panel Report, para. 7.1284. 
1547Panel Report, para. 7.1285. 
1548United States Code , Title 35, section 202(c)(4) (Panel Exhibit EC-558);  United States Code of 
Federal Regulations , Title 48, section 27.302(c) (Panel Exhibit EC-559).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  technology for commercial sale but, ra ther, is limited to the use of the invention for any "government 
use".
1549 
735. When addressing the Space Act, the Panel first observed that it provides that any invention 
made pursuant to a contract with NASA "shall be th e exclusive property of the United States, and if 
such invention is patentable  a patent therefore shall be issued to the United States"1550 unless waived 
by NASA.  The Panel noted, however, that, pursuan t to NASA-specific regulations, NASA generally 
waives its patent rights to large co mpanies, such as Boeing, for inventions developed in the course of 
NASA-funded research in order to comply  with the 1983 Presidential Memorandum.1551 The Panel 
acknowledged that, unlike NASA, the USDOD does not have its own detailed regulations regarding 
patent transfers to large companies.  Instead, the USDOD generally relies on the relevant portion of 
the Bayh-Dole Act and the 1983 Presidential Me morandum expanding the policy to large business 
firms, as well as the corresponding general regulations implementing these instruments.1552   
736. The Panel rejected the Europ ean Communities' argument that whether other US Government 
agencies follow the same practices as NASA and the USDOD with regard to the allocation of 
intellectual property rights is not relevant for the purpose of a specificity analysis.  In the Panel's 
view, NASA's agency-specific regulations for impl ementing this US Government-wide policy cannot, 
for purposes of Article 2 of the SCM Agreement , be analyzed in isolation from the broader policy and 
legal framework that they implement.1553  The Panel found that the specificity analysis cannot be 
dependent upon how the complaining party chooses to  define the measure that it is challenging, 
because accepting such an approach would lead to anomalous results.1554 
737. The Panel therefore found that, assuming arguendo  that the allocation of patent rights under 
NASA and USDOD R&D contracts and agreements with Boeing involves a subsidy within the 
meaning of Article 1.1 of the SCM Agreement —that is, a financial contribution that confers a 
benefit—the European Communities had failed to demons trate that any such subsidy is specific within 
the meaning of Article 2 of the SCM Agreement .1555 
                                                      
1549Panel Report, para. 7.1286. 
1550Panel Report, para. 7.1287 (quoting United States Code , Title 42, section 2457(a) (Panel Exhibit 
EC-571)). 
1551Panel Report, para. 7.1287. 
1552Panel Report, para. 7.1291. 
1553Panel Report, para. 7.1293. 
1554Panel Report, para. 7.1293. 
1555Panel Report, para. 7.1294. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  C. The Panel's Arguendo Approach  
738. The Panel used an arguendo  assumption to avoid having to address whether the allocation of 
patent rights to Boeing is a financial contributio n that confers a benefit within the meaning of 
Article 1.1 of the SCM Agreement .
1556   
739. The chapeau of Article 2.1 of the SCM Agreement  states that the analysis of specificity is 
directed at "a subsidy, as defined in paragraph 1 of  Article 1".  We understand that this is a reference 
to the measure that has been determined to be a subsidy under Article 1.1 because the measure is a 
financial contribution that confers a benefit.  This suggests that the "subsidy, as defined in paragraph 1 
of Article 1" is the starting point of the assessment of specificity.  The analysis of specificity called 
for in Article 2.1 presupposes that the subsidy has already been found to  exist.  No such finding was 
made here given that the Panel ne ver performed an analysis under Article 1 but, rather, chose to start 
its assessment with the issue of specificity.  The Panel thought that its adoption of an arguendo  
approach was consistent with the Appellate Body's guidance in China – Publications and Audiovisual 
Products .1557  However, in that case, the Appellate Bo dy identified precisely the same problem that 
arises here when it said that recourse to an arguendo  approach "may also be problematic for certain 
types of legal issues, for example, issues that go to  the jurisdiction of a panel or preliminary questions 
on which the substance of a s ubsequent analysis depends."1558  As we have explained, the assessment 
of specificity under Article 2.1 depends on how the subsidy was defined under Article 1.1, leaving 
little, if any, room for the adoption of an arguendo  approach. 
740. The Panel's failure to make an assessment under Article 1.1 of the SCM Agreement  is 
problematic in this case because there may be some  overlap in the claims put forward by the 
European Communities.1559  This potential overlap added to the importance of clearly identifying the 
subsidy that would be the subject of the assessm ent of specificity under Article 2.1 of the 
SCM Agreement .  As noted above, neither participant h as requested on appeal that we address the 
potential overlap between the Eu ropean Communities' claims.1560  However, the open question as to 
the precise relationship between the claims of th e European Communities illustrates the problems that 
may arise when a panel does not conduct a thorough examination of the subsidy at issue under 
Article 1.1 before turning to the assessment of  specificity pursuant to Article 2.1 of the 
SCM Agreement .  Indeed, at the oral hearing, the Europ ean Union and the United States had different 
                                                      
1556Neither participant has challenged the Panel's arguendo  approach on appeal. 
1557Panel Report, footnote 2933 to para. 7.1294 (referring to Appellate Body Report, China – 
Publications and Audiovisual Products , para. 213). 
1558Appellate Body Report, China – Publications and Audiovisual Products , para. 213. 
1559See supra , paras. 726-729. 
1560See supra , para. 729.    BCI deleted, as indicated [***] WT/DS353/AB/R 
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  views as to what precisely the Panel "assumed" to  be a self-standing subsidy for purposes of its 
assessment of specificity.  The European Union argue d that the measure consisted of the allocation of 
patent rights under the NASA/USDOD R&D contr acts and agreements with Boeing.  The 
United States responded that, in its view, the Pa nel's assumption was broader and included the Bayh-
Dole Act, the 1983 Presidential Memorandum, and the 1987 Executive Order. 
741. Another problem with the arguendo  approach adopted by the Pane l in this case is that, were 
the Appellate Body to disagree with the Panel's finding, it could lead to the claim remaining 
unresolved.  If in this case we were to reverse the Panel and find instead that the allocation of patent 
rights under NASA/USDOD contracts and agreements is specific within the meaning of Article 2.1 of 
the SCM Agreement , there would be no Panel findings as to whether or not the allocation of patent 
rights under those contracts and agreements cons titutes a subsidy.  In order to resolve the 
European Communities' claim, we would have to  be in a position to complete the analysis 
ourselves.
1561  Article 3.3 of the DSU provides that one of the purposes of the WTO dispute settlement 
system is the "prompt settlement of situations in which a Member considers that any benefits accruing 
to it directly or indirectly under the covered agre ements are being impaired by measures taken by 
another Member".  This purpose is frustrated wh en, upon completion of the adjudication, a Member's 
claim is left unresolved because the Appellate Body was unable to complete the analysis of aspects of 
the claim with respect to which the panel had adopted an arguendo  approach.  An arguendo  approach 
may initially appear to be more efficient, but  ultimately may result in inefficient outcomes.1562  
742. With these reservations about the Panel's arguendo  approach in mind, we turn to the Panel's 
assessment of specificity and the claims raised agai nst it by the European Union.  We examine, in 
sections D and E, the European Union's claim that th e Panel erred in the inte rpretation and application 
of Article 2.1(a) of the SCM Agreement .  We then turn to the European Union's allegation that the 
Panel failed to address its claim of de facto  specificity under Article 2.1(c) in section F. 
                                                      
1561The European Union has not requested that we comple te the analysis with respect to Article 1.1 of 
the SCM Agreement  if we reverse the Panel and find that the allocation of patent rights under the NASA and 
USDOD measures at issue is specific w ithin the meaning of Article 2.1.  In the past, the Appellate Body has 
completed the analysis where there were sufficient undisp uted facts or factual findings by the panel to enable it 
to do so. (See Appellate Body Report, US – Section 211 Appropriations Act , para. 343)  In doing so in a recent 
case, the Appellate Body was able to complete the analysis by considering evidence put forward by the 
responding Member, that is, by examining the claim of  the complaining Member on the assumption that the 
evidence proffered by the responding Member was accurate and uncontested.  (See Appellate Body Report,  
EC and certain member States – Large Civil Aircraft , para. 925)  See also Part VI of this Report. 
1562In justifying its use of the arguendo  approach, the Panel also note d that, having found that the 
alleged subsidies are not specific under Article 2 of the SCM Agreement , its reliance upon the arguendo  
assumption created no issues or difficulties from the point of view of the implementation of DSB 
recommendations and rulings. (Panel Report, footnote 2933 to para. 7.1294)  This holds true only once a finding 
of non-specificity has been made, which cannot be known at the outset of the analysis.  The Panel's reasoning seems to have been based on an anticipated result, whether or not such a result would have been arrived at on 
the basis of its analysis.  The Panel therefore seems to have gotten its logic backwards.   WT/DS353/AB/R BCI deleted, as indicated [***] 
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  D. Did the Panel Err in the Interpretation of  Article 2.1(a) of the SCM Agreement? 
743. The European Union alleges that the Panel e rred by considering that the US Government 
"as a whole" can be a "granting authority" for purposes of Article 2.1 of the SCM Agreement .  The 
European Union asserts that, in this case, the granting authorities are NASA and the USDOD.   
744. The United States responds that th e European Union misinterprets Article 2.1 in calling for an 
analysis based on a subset of the US legislati on relating to the challenge d financial contributions.
1563  
The United States submits that, if multiple author ities participate in the process of granting the 
subsidy, nothing in the text of Article 2.1(a) preven ts a panel from considering all of them to be part 
of "the granting authority".  Before the Panel, th e United States argued that the granting authority with 
respect to the allocation of patent rights under both the NASA and USDOD me asures is the President 
of the United States.1564  
745. The issue before us concerns the scope of the assessment of specificity under Article 2.1(a) of 
the SCM Agreement  and, in particular, the scope of the inquiry where a subsidy is provided by 
different granting authorities pursuant to an overall scheme set out by a higher domestic authority.  The position of the European Union is that the inquiry  must limit itself to the granting authority that 
actually provides the subsidy being challenged by the complaining Member.  The United States, for 
its part, submits that the inquiry must  look at the broader legal framework. 
746. Article 2.1 of the SCM Agreement  provides: 
In order to determine whether a subs idy, 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 jurisdicti on 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. 
                                                      
1563United States' appellee's submissi on, p. 45, heading III.D.1.  
1564United States' response to Panel Question 144(k), para. 127, which included Panel Exhibit US-1268.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (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.  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 size of enterprise.  
747. The chapeau of Article 2.1 refers to "a subsidy,  as defined in paragraph 1 of Article 1".  As 
we have noted above, we understand th at this is a reference to the me asure that has been determined 
to be a subsidy under Article 1.1 because the measure is  a financial contribution that confers a benefit.  
This confirms that the starting point of the analys is of specificity is the measure that has been 
determined to constitute a s ubsidy under Article 1.1 of the SCM Agreement . 
748. Subparagraph (a) of Article 2.1 calls for a dete rmination of whether access to a subsidy is 
limited to "certain enterprises".  Th e focus of this inquiry is thus on the class of subsidy recipients, 
and the manner in which access to that subsidy is lim ited to that class.  These limitations must be 
"explicit", which the Appellate Body has previously  explained means that they must be "express, 
unambiguous, or clear from the content of the rele vant instrument, and not merely 'implied' or 
'suggested'".1565  Moreover, the Appellate Body has observe d that the reference in subparagraphs (a) 
and (b) of Article 2.1 to "the granting authority,  or the legislation pursuant to which the granting 
authority operates", is critical because it situat es the analysis for assessing any limitations on 
eligibility in the particular legal instrument or  government conduct e ffecting such limitations.1566  In 
other words, the source of any limitation is the legislation pursuant to which the granting authority 
operates, or the granting authority itself. 
749. Article 2.1(a) refers to limitations on access to "a subsidy".  Although the use of this term in 
the singular might suggest a limited conception, we note that, if construed too narrowly, any individual subsidy transaction would be, by definition, specific to the recipient.  Other context in 
                                                      
1565Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 372. 
1566Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 368;  
Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 943.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 310 HSBI omitted, as indicated [[HSBI]]  
 
  Article 2.1 suggests a potentially broader framework within which to examine specificity.  As we 
have noted, subparagraphs (a) and (b ) of Article 2.1 refer to "the granting authority, or the legislation 
pursuant to which the granting authority operates".  The second sentence of subparagraph (c) refers 
both to "a subsidy" and to "a s ubsidy programme".  Similarly, exam ining economic diversification or 
the duration of a subsidy programme under the last sentence of Article 2.1(c) also entails consideration of the broader framework pursuant to which a particular challenged subsidy has been 
issued.  We do not consider that the use of the te rm "granting authority" in the singular limits the 
inquiry.  The use of the term "granting authority", in our view, does not preclude there being multiple granting authorities.  Rather, this is likely wher e a subsidy is part of a broader scheme.   
750. The foregoing indicates that the scope of the inquiry called for under Article 2.1(a) is not 
necessarily limited to the subsidy as defined in Ar ticle 1.1.  Although th e subsidy as defined in 
Article 1.1 is the starting point of the analysis under Article 2.1(a), the scope of the inquiry is broader 
in the sense that it must examine the legislation pur suant to which the granting authority operates, or 
the express acts of the granting authority.  We note that a granting authority will normally administer 
subsidies pursuant to legislation.  Thus, we woul d expect that most claims of specificity under 
Article 2.1(a) would focus on limitations set out in  the legislation pursuant to which the granting 
authority operates.  Members may design the legal framework for the distribution of subsidies in 
many ways.  However, the choice of the legal fra mework by the respondent cannot predetermine the 
outcome of the specificity analysis.  For instance,  a Member may choose to authorize the distribution 
of subsidies to eligible enterprises or industries in  the same legal instrume nt.  In such cases, the 
inquiry may focus solely on that legal instrument.  In other circumstances, a Member may set up a 
more complex regime by which the same subsidy is provided to different recipients through different 
legal instruments.  It may also be that a Member may administer the distribution of subsidies through 
multiple granting authorities.  In these cases, the in quiry may have to take into account this legal 
framework.  This framework may be set out in laws , regulations, or other official documents, all of 
which may be part of the "legislation" pursuant to  which the granting authority operates.  We find 
support for this reading of "legislation" in Article  2.1(b), which provides that, "{w}here the granting 
authority, or the legislation pursuant to which the granting authority operates, establishes objective 
criteria or conditions governing the elig ibility for, and the amount of, a subsidy"
1567, these criteria or 
conditions "must be clearly spelled out in law, regul ation, or other official document, so as to be 
capable of verification". 
                                                      
1567Footnote omitted.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 311  
 
  751. Having said that, the chapeau of Article 2.1 makes it clear that the assessment of specificity is 
framed by the particular subsidy f ound to exist under Article 1.1.  This means that the assessment of 
specificity under Article 2.1 should not examine subs idies that are different from those challenged by 
the complaining Member.  A subsidy, access to wh ich is limited to "certain enterprises", does not 
become non-specific merely because there are other subsidies that are provided to other enterprises 
pursuant to the same legislation.
1568 
752. Determining whether multiple subsidies are part of  the same subsidy is not always a clear-cut 
exercise.  As we have explained, it requires careful scrutiny of the relevant legislation 
—whether set out in one or several instruments—or  the pronouncements of the granting authority(ies) 
to determine whether the subsidies are provided pursu ant to the same subsidy scheme.  Another factor 
that may be considered is whether there is an overarching purpose behind the subsidies.  Of course, 
this overarching purpose must be something more  concrete than a vague policy of providing 
assistance or promoting economic growth.  
753. Once the proper subsidy scheme is identified, th en the question is whether that subsidy is 
explicitly limited to "certain ente rprises", defined in the chapeau of Article 2.1 as "an enterprise or 
industry or group of enterprises or industries".  To be clear, such examination must seek to discern 
from the legislation and/or the express acts of the gr anting authority(ies) which enterprises are eligible 
to receive the subsidy and which are not.  This inquiry focuses not only on whether the subsidy was 
provided to the particular recipients identified in th e complaint, but focuses also on all enterprises or 
industries eligible to receive that same subsidy.  Thus, even where a complaining Member has focused 
its complaint on the grant of a subsidy to one or mo re enterprises or industries, the inquiry may have 
to extend beyond the complaint to determine what othe r enterprises or industries also have access to 
that same subsidy under that subsidy scheme.   
754. We further recall that an assessment of specificity may not end with a consideration of 
Article 2.1(a).  The Appellate Body has cautioned against examining specificity on the basis of the 
application of a particular subpa ragraph of Article 2.1 "when the potential for application of other 
subparagraphs is warranted in the light of the nature and content of measures challenged in a 
                                                      
1568In EC and certain member Stat es – Large Civil Aircraft , the Appellate Body was faced with the 
question of whether the panel's specificity analysis should have focused on the challenged research and technological development ("R&TD") grants to the aeronautics sector, or on the broader European-wide R&TD 
programme pursuant to which these grants were issued.  The Appellate Body stated that it did not consider that 
explicit limitations on access to a subs idy to entities active in on e sector of the economy will necessarily yield a 
finding of non-specificity under Article  2.1(a) simply because separate gr oupings of entities have access to other 
pools of funding under that programm e.  The Appellate Body added that, "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'." (Appellate Body 
Report, EC and certain member States – Large Civil Aircraft , para. 949)   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 312 HSBI omitted, as indicated [[HSBI]]  
 
  particular case".
1569  Thus, following an assessment under Article 2.1(a), a panel must also consider 
whether Article 2.1(b) and/or Article 2.1(c) are applicable.  
755. The European Union's claim on appeal centr es on the proposition that the term "granting 
authority" in Article 2.1 can refer to only the au thority that provides the challenged subsidy.  
756. As we have explained, the analysis under Article 2.1 focuses on ascertaining whether access 
to the subsidy in question is limited to a particular class of eligible recipients .  While the scope and 
operation of the granting authorit y is relevant to the question of whether such an access limitation 
with respect to a particular class of recipients exis ts, it is important to keep in mind that it is not the 
purpose of a specificity analysis to determine whether the authorities involved in granting the 
subsidies constitute a single subsidy grantor  or several grantors .1570   
757. A limitation on the access to the subsidy (o r the absence of one) may result from the 
legislation pursuant to which the granting author ity operates or from pronouncements or other actions 
of the granting authority.  There may be a broad le gislative framework and several authorities that are 
involved in its implementation;  it is also conceiva ble that one granting authority administers several 
specific programs.  Thus, regardless of how a co mplainant frames the subsidy measure it seeks to 
challenge, a panel must examine the broader legal fr amework pursuant to which the particular subsidy 
is granted and the relevant granting authorities opera te.  In this way, a panel can determine how a 
challenged measure operates, and whether one or mo re instruments or authorities individually or 
collectively limit access to a subsidy to particular r ecipients within the meaning of Article 2.1.   
758. The European Union also asserts that the scope of the inquiry is constrained by the distinction 
drawn in Article 2.1(a) between the granting author ity and the legislation pursuant to which that 
granting authority operates.  The European Union emphasizes that specificity under Article 2.1 may 
be assessed either from the perspective of "the gran ting authority" or from the perspective of "the 
legislation pursuant to which the granting authority operates".1571 
                                                      
1569Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 371;  
Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 945. 
1570Whether the entire US Government, the President, or each agency or department involved should be 
deemed a "granting authority" within the meaning of Artic le 2.1(a) is not dispositive of the question of whether 
access to patent rights are expressly limited to specific groups of subsidy recipients .  We note, in this respect, 
that the Panel itself ultimately decided the question of whether the allocation of patent rights is specific based on 
the relevant legislative acts and regulations;  its views on whether NASA, the USDOD, the US President, or the 
US Government were a single or several granting authorities were not determinative for its finding of non-specificity. 
1571European Union's appellant's submission, para. 77.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 313  
 
  759. We do not see such a mutually exclusive choice established in Article 2.1.  Nor do we think 
that the use of the word "or" in Article 2.1(a) wa rrants such a reading.  In the majority of cases 
involving an allegation of an express limitation,  the alleged limitation will be reflected in the 
legislation pursuant to which the granting authority ope rates.  It is difficult to conceive of many 
situations in which an express limitation can be iden tified from the decisions or actions of the granting 
authority where it is not explicit in the corresponding legislation.  Furthermore, even where the focus 
is on the pronouncements or actions of the granting authority, these pronouncements or actions would 
have to be examined in the light of the corresponding legislation.  For this reason, it is our view that 
the assessment of specificity under Article 2.1 s hould not proceed on the basis of a binary choice 
between looking at the granting authority or looking at the legislation pursuant to which that granting 
authority operates.  Rather, the assessment should norma lly look at both.  At the same time, we agree 
that, once a panel has analyzed both elements, it ma y consider, in the circumstances of a given case, 
that the question of specificity or non-specificity can be more appropriately resolved on the basis of 
the pronouncements or actions of the granting auth ority or the legislation pursuant to which the 
authority operates. 
760. In sum, the granting authority (which may amount to a number of such authorities) and the 
legislation pursuant to which such granting authority( ies) operate(s) must be assessed within the legal 
framework of the WTO Member concerned at va rious levels of government, legislation, and 
regulation.  Thus, we do not believe  that the Panel erred in the inte rpretation of Article 2.1 of the 
SCM Agreement  by assessing the alleged subsidies provided by NASA and the USDOD against the 
legal framework that exists in the United States fo r the allocation of patent rights under government 
R&D contracts and agreements and pursuant to which these granting authorities operate.  
Accordingly, we reject this aspect of the European Union's appeal.   
E. Did the Panel Err in the Application of  Article 2.1(a) of the SCM Agreement? 
761. The European Union also alleges that the Panel er red in the application of Article 2.1(a) of the 
SCM Agreement  to the relevant NASA and USDOD measures.  The arguments put forward by the 
European Union in this part of its appeal are di rected at demonstrating that the Panel should have 
considered NASA and the USDOD to be the granti ng authorities for purposes of the analysis of 
specificity.  We have explained above that, in our view, the question of whether one or more granting 
authorities exist is not dispositive of and does not exhaust the analysis of whether a subsidy is 
specific.  In the analysis that follows, we examine whether, assuming the allocation of patent rights 
under NASA/USDOD contracts and agreements is in some respects a self-standing subsidy, access to WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 314 HSBI omitted, as indicated [[HSBI]]  
 
  such subsidy is explicitly limited to certain en terprises in the light of the interpretation of 
Article 2.1(a) of the SCM Agreement  that we have set out above.   
762. The United States has explained that, under its pa tent regime, the inventor is the initial owner 
of any rights to his/her inventions.
1572  A person that obtains a patent is authorized "to prevent all 
other entities from exploiting the technologies claimed by the patent", and the patent holder is 
"allow{ed} … to license the technology to others in exchange for compensation".1573  M o r e  
specifically, the US patent regime accords the patent  holder the right to "exclude others from making, 
using, offering for sale, or selling" the invention in the United States, or "importing" the invention into the United States, for a limited period of time (cur rently, a minimum of 20 years from the date of 
application).
1574  In addition, a patent holder has the right to assign, or transfer by succession, the 
patent and to conclude licensi ng contracts with third parties.1575   
763. The European Union's claims on appeal concern a particular aspect of the US patent regime, 
namely, the allocation of patent rights when an i nvention is discovered in the course of R&D work 
being performed by an enterprise under a contract or  agreement with the US Government, and more 
particularly with NASA and the USDOD.   
764. As regards this aspect of the US patent regime , the Panel explained that, prior to 1980, the 
US Government had a general policy of taking all rights to patents over inventions produced by 
contractors under federally funded R&D contracts (a nd then granting non-exclusive licences to any 
applicant, including the contractor, that  wished to use the subject invention).1576  In 1980, the 
government changed its policy, and started allowing government contr actors to retain ownership of 
patents over any invention that they produced w ith federal funding under R&D contracts (with the 
government receiving a "government use" licence to use the subject invention without having to pay 
the contractor any royalties).1577  This new government policy was implemented through the following 
legal instruments, which are discussed in more detail below1578:  
                                                      
1572United States' response to questi oning at the oral hearing. 
1573Panel Report, para. 7.1285. 
1574Panel Report, para. 7.1285 (quoting European Communities' first written submission to the Panel, 
para. 812 (referring to United States Code , Title 35, section 154(a)(2) (Panel Exhibit EC-562), and 
section 271(a) (Panel Exhibit EC-563)).   
1575Panel Report, para. 7.1285. 
1576Panel Report, para. 7.1277 (referring to Europ ean Communities' first written submission to the 
Panel, para. 806;  and United States' first written submission to the Panel, para. 314). 
1577Panel Report, para. 7.1277. 
1578See Panel Report, para. 7.1278.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 315  
 
  (a) the Bayh-Dole Act , which was adopted in 1980 and which is codified at Title 35 of 
the United States Code , sections 200-212 (entitled "Paten t Rights in Inventions Made 
with Federal Assistance")
1579; 
(b) the 1983  Presidential Memorandum  to the heads of Executive departments and 
agencies (entitled "Government Patent Polic y") that extended the scope of the policy 
to all government contractors, regard less of size and profit/non-profit status1580; 
(c) the 1987  Executive Order  (entitled "Facilitating access to  science and technology") 
into which the terms of the 1983 Presi dential Memorandum were eventually 
incorporated1581; 
(d) the corresponding general federal regulations  implementing the Bayh-Dole Act, the 
1983 Presidential Memorandum, and the 1987 Executive Order, which are codified at 
Title 48 of the United States Code of Federal Regulations , sections 27.300-27.306 
(entitled "Patent Rights Under Government Contracts")1582;  and 
(e) the NASA-specific regulations  (entitled "Patents and Other Intellectual Property 
Rights", with subpart 1 entitled "Patent Waiver  Regulations") codified at Title 14 of 
the United States Code of Federal Regulations , section 1245.1583 
765. Under the Bayh-Dole Act, the new policy initially applied only to non-profit organizations  
and small business firms .  The objectives pursued by the Bayh-Dole Act are described in the 
legislation as follows: 
Policy and objective. 
It is the policy and objective of the Congress to use the patent system 
to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firm s in federally supported research 
and development efforts; to promote collaboration between 
commercial concerns and nonpro fit organizations, including 
universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to promote the commercialization and 
public availability of inventions made in the United States by 
                                                      
1579Supra , footnote 243. 
1580Supra , footnote 244. 
1581Supra , footnote 245. 
1582Panel Exhibit EC-559. 
1583Panel Exhibit EC-572. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 316 HSBI omitted, as indicated [[HSBI]]  
 
  United States industry and labor; to ensure that the Government 
obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area.
1584 
766. As for the allocation of patent rights, the Bayh-Dole Act provides, in relevant part: 
Disposition of rights. 
(a)     Each nonprofit organization or small business firm may, within 
a reasonable time after disclosure as required by paragraph (c)(1) of 
this section, elect to retain title  to any subject invention … {1585}  
… 
(c)(4)     With respect to any inve ntion in which the contractor elects 
rights, the Federal agency shall ha ve a nonexclusive, nontransferable, 
irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world: Provided, That the funding agreement may provide for such 
additional rights, including the right to assign or have assigned foreign patent rights in the subject invention, as are determined by 
the agency as necessary for m eeting the obligations of the 
United States under any treaty, international agreement, arrangement of cooperation, memorandum of  understanding, or similar 
arrangement, including military ag reements relating to weapons 
development and production.
1586 
                                                      
1584United States Code , Title 35, section 200 (Panel Exhibit EC-558). 
1585United States Code , Title 35, section 202(a). This disposition of rights is subject to the following: 
That a funding agreement may provide ot herwise (i) when the contractor is 
not located in the United States or does  not have a place of business located 
in the United States or is subject to the control of a foreign government, (ii) 
in exceptional circumstances when it is  determined by the agency that 
restriction or elimination of the right to retain title to any subject invention 
will better promote the policy and objectives  of this chapter, (iii) when it is 
determined by a Government authority which is authorized by statute or Executive order to conduct foreign intelligence or counterintelligence 
activities that the restriction or elimination of the right to retain title to any 
subject invention is necessary to protect the security of such activities, or (iv) when the funding agreement includes the operation of a Government-
owned, contractor-operated facility of the Department of Energy primarily 
dedicated to that Department's naval nuclear propulsion or weapons related programs and all funding agreement limitations under this subparagraph on 
the contractor's right to elect title to a subject invention are limited to 
inventions occurring under the above two programs of the Department of Energy. The rights of the nonprofit organization or small business firm shall 
be subject to the provisions of paragraph (c) of this section and the other 
provisions of this chapter. 
(Ibid.) 
1586United States Code , Title 35, section 202(a) and (c )(4) (Panel Exhibit EC-558).  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 317  
 
  767. The policy concerning allocation of patent rights introduced in the Bayh-Dole Act was 
subsequently expanded by President Ronald Reagan to all government contractors.  The expansion of 
the policy's coverage was effected through the 1983 Presidential Memorandum and the 1987 
Executive Order.  The 1983 Preside ntial Memorandum reads as follows: 
THE WHITE HOUSE 
WASHINGTON 
February 18, 1983 
MEMORANDUM TO THE HEADS OF EXECUTIVE 
DEPARTMENTS AND AGENCIES 
SUBJECT: GOVERNMENT PATENT POLICY 
To the extent permitted by law, agency policy with respect to the 
disposition of any invention made in  the performance of a federally-
funded research and development contract, grant or cooperative 
agreement award shall be the same or substantially the same as 
applied to small business firm s and nonprofit organizations under 
Chapter 38 of Title 35 of the United States Code. 
In awards not subject to Chapter 38 of Title 35 of the United States 
Code, any of the rights of the Government or obligations of the performer described in 35 U.S.C. 202-204 may be waived or omitted 
if the agency determines (1) that th e interests of the United States and 
the general public will be better served thereby as, for example, where this is necessary to obtain a uniquely or highly qualified performer; or (2) that the award i nvolves co-sponsored, cost sharing, 
or joint venture research and development, and the performer, co-
sponsor or joint venturer is making substantial contribution of funds, 
facilities or equipment to the work performed under the award. 
In addition, agencies should protect the confidentiality of invention 
disclosure, patent applications a nd utilization reports required in 
performance or in consequence of aw ards to the extent permitted by 
35 U.S.C. 205 or other applicable laws.
1587 
768. The objectives pursued by the 1983 Presidentia l Memorandum are described in a Fact Sheet 
attached to the Memorandum, which states, in relevant part:  
FACT SHEET 
Inventions developed under G overnment support constitute a 
valuable national resource. With appropriate incentives, many of 
these inventions will be further developed commercially by the private sector. The new products and processes that result will 
improve the productivity of the U.S. economy, create new jobs, and 
                                                      
1587Supra , footnote 244. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 318 HSBI omitted, as indicated [[HSBI]]  
 
  improve the position of the U.S. in world trade.  The policy 
established by the Memorandum is designed to provide such incentives.  
Experience has shown that, in most instances, allowing inventing 
organizations to retain title to i nventions made w ith Federal support 
is the best incentive to obtain the risk capital necessary to develop 
technological innovations. The new policy provides that, with limited exceptions, the inventing organizations may retain title to the invention, subject to license right s in the Government which will 
enable the Government to use the invention in its own programs. ... 
To the extent permitted by law, this  Memorandum is applicable to all 
statutory programs including those that provide that inventions be made available to the public. Those agencies, such as National 
Aeronautics and Space Administration and the Department of 
Energy, which continue to operate under statutes which are 
inconsistent in respects with the Memorandum, are expected to make 
maximum use of the flexibility available to them to comply with the 
provisions and spirit of the Memorandum .
1588 (emphasis added) 
769. The Executive Order of 1987 instru cts the heads of each Executive department and agency to:  
... promote the commercialization, in accord with {the 1983 
Presidential} Memorandum to the He ads of Executive Departments 
and Agencies of February 18, 1983, of patentable results of federally 
funded research by granting to all contractors, regardless of size, the 
title to patents made in whole or in part with Federal funds, in 
exchange for royalty-free use by or on behalf of the government{.}
1589 
770. The general regulations, which apply to the USDOD, and the NASA-specific regulations are 
described in turn below. 
771. The allocation of rights over inventions disc overed during the course of work performed for 
the USDOD is determined by sections  27.300-27.306 of Title 48 of the United States Code of Federal 
Regulations , which give effect to the 1983 Presidentia l Memorandum and the 1987 Executive Order.  
Section 27.302(b) of Title 48 of the United States Code of Federal Regulations  provides: 
Under the policy set for in {the Bayh-Dole Act, the 1983 Presidential 
Memorandum, and 1987 Executive Order}, each contractor may, after disclosure to the Government as required by the patent rights clause included in the contract, elect to retain title to any invention 
made in the performance of work under the contract.
1590 
                                                      
1588Supra , footnote 244. 
1589Supra , footnote 245, section 1(b)(4). 
1590Panel Exhibit EC-559.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 319  
 
  772. This means that the contractor may file a pate nt application over the invention and exercise all 
rights that this entails.  The regulations, however, provide that the US Government shall receive at 
least a non-exclusive, non-transferable, irrevocable, paid-up license to practice, or have practiced for 
or on behalf of the United States, any subject invention throughout the world.
1591  The government 
also obtains "march-in" rights, which empower th e federal department or agency to compel the 
contractor, in certain limited circumstances, to  grant a license to applicants on terms that are 
reasonable under the circumstances, or to grant the license itself.1592  The Panel, however, observed 
that "{n}o U.S. government department or agency has ever exercised  these march-in rights for any 
patent under any contract."1593   
773. The same regulations that apply to the USDOD apply to all other US Government 
departments and agencies, with the excepti on of NASA, which has its own regulations.1594  
774. Under the Space Act, the legislation that creat ed NASA, the rights over inventions discovered 
in the course of work performed under a contract with NASA belong to the United States.  The Space 
Act is codified in Title 42 of the United States Code .  Section 2457(a) of Title 42 provides: 
(a)  Exclusive property of United States; issuance of patent 
Whenever any invention is made in the performance of any work 
under any contract of the Administration, and the Administrator determines that— 
(1)  the person who made the invention was employed or 
assigned to perform research, devel opment, or exploration work and 
the invention is related to the work he was employed or assigned to perform, or that it was within the scope of his employment duties, 
whether or not it was made during working hours, or with a  contribution by the Government of the use of Government facilities, equipment, materials, allocated f unds, information proprietary to the 
Government, or services of Government employees during working 
hours; or 
                                                      
1591The US Government may require additional rights in order to comply with treaties or other 
international agreements.  In such cases, these rights shall be made a part of the contract. ( United States Code of 
Federal Regulations , Title 48, section 27.302(c) (Panel Exhibit EC-559)) 
1592Panel Report, para. 7.1286 (referring to Europ ean Communities' first written submission to the 
Panel, para. 814, in turn referring to United States Code , Title 35, section 203(a) (Panel Exhibit EC-558)). 
1593Panel Report, para. 7.1286 (referring to Europ ean Communities' first written submission to the 
Panel, para. 814). 
1594We explain below why, despite the formal differences, we consider NASA's regulations to be 
functionally equivalent to those applicable to other government departments and agencies. 
At the oral hearing, the United St ates noted that there are specific re gulations that apply to research 
funded by the US Department of Energy.  Nonetheless, it has not been claimed before the Panel or in this appeal 
that those regulations provide a basis for a finding of specificity with respect to the allocation of patent rights 
under the NASA or USDOD measures.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 320 HSBI omitted, as indicated [[HSBI]]  
 
  (2) the person who made the invention was not employed or 
assigned to perform research, devel opment, or exploration work, but 
the invention is neverthele ss related to the contract, or to the work or 
duties he was employed or assigned to perform, and was made during working hours, or with a contribution from the Government of the 
sort referred to in clause (1), 
such invention shall be the exclus ive property of the United States, 
and if such invention is patentable a patent therefor shall be issued to the United States upon application made by the Administrator, unless the Administrator waives all or any part of the rights of the 
United States to such invention in conformity with the provisions of 
subsection (f) of this section.
1595 
775. The waiver of patent rights is addressed in subsection 2457(f) of Title 42 of the United States 
Code , which reads: 
(f)  Waiver of rights to inventi ons; Inventions and Contributions 
Board 
Under such regulations in conform ity with this subsection as the 
Administrator shall prescribe, he may waive all or any part of the rights of the United States under this section with respect to any invention or class of inventions ma de or which may be made by any 
person or class of persons in the performance of any work required 
by any contract of the Administration if the Administrator determines that the interests of the United St ates will be served thereby. Any 
such waiver may be made upon such  terms and under such conditions 
as the Administrator shall determine to be required for the protection 
of the interests of the United Stat es. Each such waiver made with 
respect to any invention shall be subject to the reservation by the Administrator of an irrevocable , nonexclusive, nontransferable, 
royalty-free license for the practice of  such invention throughout the 
world by or on behalf of the United States or any foreign government pursuant to any treaty or agreemen t with the United States. Each 
proposal for any waiver under this subsection shall be referred to an 
Inventions and Contributions Board which shall be established by the Administrator within the Administra tion. Such Board shall accord to 
each interested party an opportunity for hearing, and shall transmit to the Administrator its findings of fact with respect to such proposal 
and its recommendations for action to be taken with respect 
thereto.
1596 
                                                      
1595Panel Exhibit EC-571. 
1596Panel Exhibit EC-571.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 321  
 
  776. The procedures for the waiver of patent rights are further elaborated in NASA's regulations.  
These regulations describe the policy ob jectives of the waiver as follows: 
Policy. 
(a) In implementing the provisions of section 305(f) of the 
National Aeronautics and Space Act of 1958, as amended (42 U.S.C. 
2457(f)), and in determining when th e interests of the United States 
would be served by waiver of all or any part of the rights of the United States in inventions made in the performance of work under NASA contracts, the Administrator will be guided by the objectives 
set forth in the National Aerona utics and Space Act of 1958, as 
amended (42 U.S.C. 2451-2477) and by the basic policy of the Presidential Memorandum and Stat ement of Government Patent 
Policy to the Heads of the Executiv e Departments and agencies dated 
February 18, 1983. Among the most important goals are to provide 
incentives to foster inventiveness and encourage the reporting of 
inventions made under NASA contracts, to provide for the widest practicable dissemination of new technology resulting from NASA programs, and to promote early utilization, expeditious development, and continued availability of this new technology for commercial purposes and the public benefit. In applying this regulation, both the 
need for incentives to draw forth private initiatives and the need to 
promote healthy competition in industry must be weighed.
1597 
777. NASA regulations allow for requests for waivers to  be made at two points in time:  "(i) in 
advance of the invention, as to any and all of the inventions that may be made under a contract;  and 
(ii) after the reporting of an invention, subsequent to the invention being made".1598  Requests for 
waivers are examined by the NASA Inventions a nd Contributions Board (the "Board").  The 
regulations provide that the Board will "norma lly" recommend that the request for waiver be 
granted.1599  Under a waiver, NASA "waives the propert y rights of the United States government" in 
the United States and other countries and "conveys to  the waiver recipient the entire right, title, and 
                                                      
1597United States Code of Federal Regulations , Title 14, section 1245.103(a) (Panel Exhibit EC-572). 
1598Panel Report, para. 7.1287 (referring to United States Code of Federal Regulations , Title 14, 
sections 1245.104 and 1245.105 (Panel Exhibit EC-572)). 
1599See United States Code of Federal Regulations , Title 14, sections 1245.104(b) and 1245.105(b)(1) 
(Panel Exhibit EC-572).  NASA's regulations provide that, in certain situations, the Board may reject the waiver 
request because it "finds that the interests of the United St ates will be better served by restricting or eliminating 
all or part of the rights of the contractor". (Panel Report, para. 7.1289 (quoting United States Code of Federal 
Regulations , Title 14, section 1245.104(b) (Panel Exhibit EC- 572))) The regulations then list situations where 
this could be the case, namely:  (i) when the contractor  is not located in the United States or does not have a 
place of business in the United States or is subject to the co ntrol of a foreign gove rnment;  (ii) when a 
determination has been made by the government authority that is authorized by statute or Executive order to 
conduct foreign intelligence or counterintelligence activities that the restriction or elimination of the right to retain title to any inventions made in  the performance of work under the co ntract is necessary to protect the 
security of such activities;  or (iii)  where the Board finds that exceptional circumstances exist, such that 
restriction or elimination of the right to retain title will better promote certain objectives. ( United States Code of 
Federal Regulations , Title  14, section 1245.104(b) (Panel Exhibit EC-572))  See also, section  1245.105(b)(1) 
(Panel Exhibit EC-572). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 322 HSBI omitted, as indicated [[HSBI]]  
 
  interest in and to each invention".
1600  There is evidence on record indicating that NASA routinely 
grants waivers when requested.1601 
778. It is undisputed that, within the framework of  the US patent regime, NASA's patent waiver 
regulations are formally different and separat e from the regulations that apply to other 
US Government departments or agencies.  While on e set of regulations concerning the allocation of 
patent rights applies to other government departme nts and agencies, the regulations described above 
are specific to NASA.  There are also differenc es in how the regulati ons operate.  Under the 
legislation and general regulations  that apply to other departments and agencies, a contractor may 
"elect to retain title" in the invention.1602  By contrast, NASA's statutory framework provides that title 
to any invention initially rests on the govern ment, but NASA can waive title upon request.   
779. However, the waiver provisions of the NASA regul ations are linked to the broader legislative 
and regulatory framework established under the Bayh-Dole Act, the 1983 Presidential Memorandum, 
and the 1987 Executive Order.  More specifically, th e record indicates that the flexibility provided 
under the waiver provisions has been used to gi ve effect to the 1983 Presidential Memorandum and 
the 1987 Executive Order.  For example, as noted  above, the Fact Sheet explaining the 1983 
Presidential Memorandum states that "agencie s, such as National Aeronautics and Space 
Administration ... are expected to make maximum u se of the flexibility available to them to comply 
with the provisions and spirit of the Memorandum".1603  NASA's regulations provide that, in making 
waiver determinations, NASA's Administrator will  be guided by the objectives of the Space Act of 
1958 and "by the basic policy of the Presidential Memorandum and Statement of Government Patent 
Policy to the Heads of the Executive Departme nts and agencies dated February 18, 1983".1604  
780. Moreover, the result of a waiver of patent ri ghts by NASA would appear to be the same as 
where a contractor elects to retain title under the ge neral regulations.  Whether a contractor requests a 
waiver under the NASA regulations, or the contr actor elects to retain title under the general 
                                                      
1600NASA, Instrument of Waiver (Domestic and Foreign Rights), Structures and Materials Technology 
for Aerospace Vehicles (Panel Exhibit EC-1 227), para. 1.  This language is us ed where it is an advance waiver.  
The standard contract clauses used by NASA in relation to the issue of patent rights are contained in United States Code of Federal Regulations , Title 48, section 52.227-12 (Patent Rights – Retention by the 
Contractor), and section 1852.227-70 (New Technology). 
1601The Panel noted that the study, which was conducted by the National Bureau of Economic 
Research, stated that, by the early 1980s, patent "waivers were essentia lly automatically granted" by NASA. 
(Panel Report, para. 7.1289 (referring to National Bureau of Economic Research, "Evidence from Patents and 
Patent Citations on the Impact of NASA and other Federal Labs on Commercial Innovation" (May 1997) (Panel Exhibit EC-574), p. 8)) 
1602Panel Report, para. 7.1291 (quoting United States Code , Title 35, sections 200-212 (Patent Rights in 
Inventions Made with Federal Assistance) and section 202(a) (Panel Exhibit EC-558)). 
1603See supra , para. 768. 
1604See supra , para. 776.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 323  
 
  regulations applicable to the USDOD, the contr actor in both instances will obtain title to the 
invention, that is, will be able to claim sole owne rship over it.  As the titleholder, the contractor can 
exploit the invention commercially, for instance, by  licensing the technology or incorporating it into 
its own products, without having to pay any royalties to the government.  The contractor may also file 
for a patent that will give it the right to prev ent others from using the technology without its 
permission.
1605  The government, for its part, obtains the ri ght to use the invention free of charge for 
government use.  The key point is that, both und er the general regulations, which apply to the 
USDOD and other departments, and under a NASA wa iver, ownership rights (title) over the invention 
will belong solely to the contractor through the allocation of patents under NASA and USDOD 
contracts and agreements, even though the mechanis m for the initial allocation of patent rights is 
formally somewhat different.  
781. At the oral hearing, the European Union explaine d that its claim of specificity is "the explicit 
limitations in the types of R&D that NASA a nd {US}DOD could fund, and consequently the 
enterprises that could benefit from the patent waiv ers and transfers for inventions deriving from the 
R&D".1606 
782. The thrust of the European Union's argumen t is that, because aerospace companies are the 
only ones eligible to receive NASA and USDOD f unding, the patents that may result under the 
NASA/USDOD R&D contracts and agre ements must also be specific.  We have explained above, 
however, that the allocation of patent rights under NASA/USDOD contracts and agreements is a 
reflection of the broader legislative and regulatory fra mework that applies to the allocation of patent 
rights in US Government R&D contracts and agreem ents.  This legislative and regulatory framework 
is set out in the Bayh-Dole Act and then extended to large and medium businesses by the 1983 Presidential Memorandum, the 1987 Executive Or der, and the general and NASA-specific 
regulations.  Once the legal framework for the allo cation of patent rights under R&D contracts and 
agreements with the government is taken into account , it becomes clear that the eligibility to receive 
the alleged subsidy is not lim ited to the class of enterprises that conducts aerospace R&D.  
783. The European Union also argues that the patent  rights allocated in this case are a feature of 
the R&D contracts and agreements entered into between NASA/USDOD and Boeing.
1607  T h e  
European Union explains that, in the same way th at it is not the US Government as a whole that 
provides the R&D funding and support for NASA/USDOD R&D, it is also not the US Government as 
                                                      
1605See Panel Report, para. 7.1285. 
1606European Union's oral statement at th e first session of the oral hearing. 
1607European Union's appellant's submission, paras. 82 and 90. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 324 HSBI omitted, as indicated [[HSBI]]  
 
  a whole that waives/transfers the patent rights resulting from those same contracts.
1608  We have 
rejected above the European Union's argument that th e analysis of specificity must be limited to the 
authority actually granting the alleged subsidy—in  this case, NASA or the USDOD—in isolation 
from the legislative and regulatory framework within  which it operates.  The retention of title by 
contractors, under the USDOD regulations, and th e waiver of patent rights, under the NASA 
regulations, are based on a broader US legisla tive and regulatory framework pursuant to which 
enterprises that perform R&D work for the US G overnment get to enjoy the patent rights over 
inventions discovered. 
784. As regards NASA, the European Union emphasiz es that "the Panel specifically found that 
NASA has its own specific legislation and regulations related to patent waivers".1609  T h e  
European Union asserts that the Space Act and its im plementing regulations cons titute "the legislation 
pursuant to which the granting authority operates", within the meaning of Article 2.1(a) of the 
SCM Agreement1610, and adds that the Space Act explicitly limits the scope of NASA's aeronautics 
R&D activities to aeronautics and space.  We have  explained above that the Space Act and NASA's 
regulations cannot be viewed in isolation but, rath er, should be viewed against the broader framework 
of legislation and regulations setting out the po licy for the allocation of patent rights under 
government R&D contracts.  Even if only certain  enterprises perform aerospace research, and thus 
would enter into contracts or agreements with NASA, this has to be analyzed in the broader context, 
in which patent rights are also allocated to cont ractors under all R&D contr acts and agreements with 
other government departments and agencies.1611   
785. The European Union additionally points out that, "when NASA waives patent rights, it does 
so in response to a request".1612  As noted in the previous paragraph, the waiver cannot be considered 
in isolation from the general US legislative and re gulatory framework that ap plies to all enterprises 
that perform work for all departments and agencies  of the federal government.  The fact that NASA 
patent waivers are granted only upon request does not change our assessment. 
                                                      
1608European Union's appellant's submission, paras. 82 and 90. 
1609European Union's appellant's submission, para. 80 (referring to Panel Report, paras. 7.1287-7.1289). 
1610European Union's appellant's submission, para. 81. 
1611We recall that the Panel found that: 
... the allocation of patent rights is uniform under all U.S. government R&D 
contracts, agreements, and grants, in  respect of all U.S. government 
departments and agencies, for all enterpri ses in all sectors.  In all cases, the 
contractor/partner/recipient owns any inventions (i.e. patent rights) that it 
conceives in the course of performing research funded by the U.S. Government;  however the U.S. Go vernment receives a royalty-free, 
"government use/purpose" license to use the subject invention. 
(Panel Report, para. 7.1276) 
1612European Union's appellant's submission, para. 83 (referring to Panel Report, para. 7.1287).  See 
also Panel Report, para. 7.1288.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 325  
 
  786. Turning to the USDOD, the European Union st ates that, "as the entity that grants the R&D 
contracts, {US}DOD need not waive or grant rights in  favour of a contractor to inventions arising 
from {US}DOD-funded contracts."
1613  There are three shortcomings in the European Union's 
argument.  First, the authority of the USDOD to "r emove" a contractor's ability to keep title to any 
inventions would appear to be more limited than sugg ested by the European Union.  This authority is 
to be exercised only in "exceptional circumstances".1614  Second, this authority applies to all 
US Government departments and agencies.1615  Third, the European Union has not asserted that the 
USDOD exercised this authority in a manner that re sulted in limiting the alleged subsidy to certain 
enterprises.1616 
787. During the oral hearing, the participants referre d to the findings of the Appellate Body in  
US – Anti-Dumping and Countervailin g Duties (China) and in EC and certain member States – Large 
Civil Aircraft.1617  In US – Anti-Dumping and Countervailing Duties (China), China argued that it was 
undisputed that State-owned commercial banks al so provided loans to the industries under the 
"permitted" category that encompassed "the entire ra nge of economic activity in China that {did} not 
fall within the {encouraged, restricted and eliminated} categories".1618  The Appellate Body, however, 
observed that the panel had not found that the pr ojects/industries under the "permitted" category were 
eligible to receive the same loans as the "encouraged" projects/industries.1619  By contrast, in this case, 
the Panel has made an explicit finding that "the  allocation of patent rights is uniform under all 
U.S. government R&D contracts, agreements, an d grants, in respect of all U.S. government 
departments and agencies, for all enterprises in all sectors".1620  In EC and certain member States – 
Large Civil Aircraft, the basis for the finding  of specificity was that the funding under the 
EC Framework Programmes was divided into separate compartments, and each compartment targeted 
                                                      
1613European Union's appellant's submission, para. 88 (referring to Panel Report, para. 7.1291). 
1614Panel Report, para. 7.1291 (referring to United States Code , Title 35, section 202(a)(ii) (Panel 
Exhibit EC-558)).  See also United States' appellee's submission, para. 144. 
1615See Panel Report, paras. 7.1291 and 7.1292.  See also United States' appellee's submission, 
para. 144. 
1616European Union's responses to questioning at the oral hearing. 
1617Neither participant has asserted that the factual ci rcumstances of this case are similar to those in US 
– Anti-Dumping and Countervailing Duties (China) or EC and certain member States – Large Civil Aircraft .   
1618Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 382 (quoting 
China's appellant's submission in that appeal, para. 241). 
1619Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 385.  In that 
case, the Appellate Body also noted that the United St ates had expressed disagreement with China's assertion 
that it was an "undisputed fact" that the industries falling under the "permitted" category received loans from 
State-owned commercial banks, arguin g that, according to Article 13 of the Implementing Regulation of the 
11th Five-Year Plan (2006-2010), the "permitted" category was expressly excluded from the Guiding Catalogue 
of the Industrial Restructuring (2005) and, therefore, from the Government  of China's policy priorities for 
lending. ( Ibid., footnote 326 thereto (referring to United States' responses to questioning at the oral hearing in 
that appeal)) 
1620Panel Report, para. 7.1276. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  certain enterprises.  In the case before us, the allocation of patent rights or waivers under the 
NASA/USDOD contracts and agreements operates w ithin the legislative and regulatory framework 
that applies to R&D activities performed by all enterprises for US Government departments and 
agencies.  Thus, the patent rights alloca tion in this case does not present the same 
"compartmentalization" of funding to aeronau tics R&D as under the EC Framework Programmes at 
issue in EC and certain member States – Large Civil Aircraft.
1621 
788. An additional argument of the European Union is  that "an interpretation of Article 2.1 that 
looks to government-wide policies of a Member, ra ther than the actions and legislation of the 
authority that actually provides the subsidy, could frustrate the object and purpose of the SCM Agreement , i.e. 'to impose multilateral disciplines on subsid ies which distort international trade' 
in goods".
1622  As explained above, our analysis is not based on "a government-wide policy" but, 
rather, it is focused on the legislative and regulat ory framework regulating the allocation of patent 
rights arising from R&D funded by the US Government.  The European Union's contention also ignores the fact that a general legislative framewo rk may be administered by a number of granting 
authorities and that authority-specific regulations may merely be measures implementing the broader 
legislation pursuant to which those authorities operate.  The SCM Agreement  imposes disciplines on 
subsidies that are specific to a particular class (t hat is, certain enterprises).  Where a legislative 
framework exists that does not explicitly limit the eligibility of the subsidy to a certain class of 
enterprises or industries, as is the case here, it is not the type of subsidy that the drafters intended to 
make "specific" under Article 2.1(a) of the SCM Agreement .  Thus, we cannot see how the object and 
purpose of the SCM Agreement  would be frustrated. 
789. In sum, proceeding on the Panel's assumption that the allocation of patent rights is in some 
respects a self-standing subsidy that is separate from the payments and other support provided under 
the NASA/USDOD contracts and agreements to the exte nt that such self-standing subsidy could exist, 
we do not see a basis to find that such subsidy is explicitly limited to certain enterprises, and therefore 
specific within the meaning of Article 2.1(a) of the SCM Agreement .   
                                                      
1621Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 948.  In that 
dispute, "each of the EC Framework Pr ogrammes appear{ed} to divide up fund ing into those research areas that 
are sector-specific—such as the allo cations to 'aeronautics' and 'aeronau tics and space'—and those that {were} 
'of a general horizontal nature, potentially cutting across a variety of business segments'.   Thus, each 
EC Framework Programme target{ed} funding to economic activities "at both horizontal and sector specific 
levels". ( Ibid. (quoting and referring to Panel Report, EC and certain member States – Large Civil Aircraft , 
paras. 7.1517, 7.1526, 7.1536, 7.1546, and 7.1557)) 
1622European Union's appellant's submission, para. 76 (quoting, inter alia , Panel Report, Brazil – 
Aircraft , para. 7.26).  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 327  
 
  F. Did the Panel Err by Failing to Address the European Communities' Allegation of 
De Facto Specificity under Article 2.1(c) ?   
790. The European Union argues that the Pane l erred by failing to adjudicate the 
European Communities' arguments of de facto  specificity under Article 2.1(c) of the 
SCM Agreement .
1623  The European Union explains that NASA and the USDOD have some discretion 
in deciding to allocate patent rights to contractors, and whether to enter into the R&D contracts in the 
first place.  This means, according to the Eu ropean Union, that, "even if there is no de jure  specificity 
under Article 2.1(a) of the SCM Agreement , there is, at a minimum, the considerable potential for 
Article 2.1(c) de facto  specificity based on how those authorities actually implement the legislation or 
policy".1624 
791. Before the Panel, the European Communities argued that the allocation of intellectual 
property rights under the NASA and US DOD contracts and agreements is de jure  specific within the 
meaning of Article 2.1(a).1625  The European Communities also put forward arguments of de facto  
specificity under Article 2.1(c) "{s}hould th e Panel consider NASA and {US}DOD intellectual 
property right waivers/transfers not to be specific under Article 2.1(a)".1626  T h e  
European Communities based its claim of spec ificity under Article 2.1(c) on the alleged 
"disproportionate" amount of NASA contracts ente red into and USDOD funding received by Boeing.  
More specifically, the European  Communities argued as follows: 
Boeing has received a disproportionate amount of all contracts 
awarded by NASA, including R&D contracts.  In particular, from FY 1991 through FY 2004, Boeing has r eceived on average 23.4% of all 
NASA contracts awarded, and as much as 31.4% of all such contracts in FY 1998.  Further, Boeing's active participation at the highest levels of the NASA Advisory C ouncil and its subcommittees reveals 
that NASA exercises discretion in granting subsidies in a manner that 
takes full account of Boeing's views and needs.   
Boeing has also received a disproportionate amount of {US}DOD 
RDT&E funding over the years.  In  particular, from FY 1991 through 
FY 2005, Boeing has received on average 12.6% of all {US}DOD 
RDT&E awards, and as much as 17.7% of all such funding in FY 
2001.  Moreover, the European Co mmunities estimates that five top 
US aerospace companies—Boeing,  Lockheed Martin, Northrop 
Grumman, Raytheon, and United Technologies—have received, on average, 45.2% of total {US}DOD RDT&E funding over this same period.   
                                                      
1623European Union's oral statement at th e first session of the oral hearing. 
1624European Union's oral statement at th e first session of the oral hearing. 
1625European Communities' first written submission to the Panel, para. 852. 
1626European Communities' first written submission to the Panel, para. 854. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 328 HSBI omitted, as indicated [[HSBI]]  
 
  In other words, the number of enterprises receiving NASA and 
{US}DOD contracts, and the resultant intellectual property right waivers/transfers, is extremely sm all in relation to the number of 
enterprises that enter into contractual relations with the US Government.  Thus, NASA a nd {US}DOD intellectual property 
right waivers/transfers are specific within the meaning of 
Article 2.1(c) of the SCM Agreement .
1627 (footnotes omitted) 
792. In US – Anti-Dumping and Countervailing Duties (China) , the Appellate Body stated that 
"{t}he reference in Article 2.1(c) to 'any appear ance of non-specificity' resulting from the application 
of Article 2.1(a) and (b) supports the view that th e conduct or instruments of a granting authority may 
not clearly satisfy the eligibility requirements of Arti cle 2.1(a) or (b), but may nevertheless give rise 
to specificity in fact."1628  The Appellate Body added that, "{i}n  such circumstances, application of 
the factors under Article 2.1(c) to factual features of a challenged subsidy is warranted.  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) of the SCM Agreement , this reinforces our view that the principles in Article 2.1 are to 
be interpreted together."1629  Based on this, the Appellate Bo dy concluded that "a proper 
understanding of specificity under Article 2.1 must  allow for the concurrent application of these 
principles to the various legal and factua l aspects of a subsidy in any given case."1630 
793. In this case, the Panel included the European Communities' arguments on de facto  specificity 
in its summary of the parties' arguments.1631  However, the Panel did not refer to Article 2.1(c) in its 
analysis of the European Communities' claim of  specificity.  Nor did the Panel provide any 
explanation as to why it chose not to address the Eu ropean Communities' claim under Article 2.1(c).  
The Panel's analysis is incomplete and cannot be su stained.  The principles of Article 2.1 must be 
applied concurrently.  By its very  terms, subparagraph (c) recogni zes that a subsidy may be specific 
even where there is an "appearan ce of non-specificity resulting from th e application of the principles 
laid down in subparagraphs (a) a nd (b)".  A finding of non-specificity under subparagraphs (a) and (b) 
does not provide license to a panel to refrain from examining claims made under subparagraph (c).  
The Panel in this case should have at the very least explained the reasons why it rejected the 
European Communities' arguments  under Article 2.1(c) of the SCM Agreement .   
794. The Panel's ultimate conclusion of non-specifi city under Article 2.1 therefore rests on an 
incomplete analysis.  Thus, while we agree with th e Panel that the allocation of patent rights under the 
legislative and regulatory framework of the Bayh-Dole Act, the 1983 Presidential Memorandum, 
                                                      
1627European Communities' first written submission to the Panel, paras. 854-856. 
1628Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 370. 
1629Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 370. 
1630Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 371. 
1631Panel Report, para. 7.1270.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 329  
 
  the 1987 Executive Order, and general and NASA-speci fic federal regulations, to the extent it could 
constitute a self-standing subsidy, is not, in itself, spec ific under Article 2.1(a) of the SCM Agreement , 
we cannot sustain the Panel's overall finding under Artic le 2.1.  We turn to consider ourselves whether 
the alleged subsidy is specific under subparagraph (c).   
795. We recall that Article 2.1(c) of the SCM Agreement  provides: 
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 consider ed.  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 sha ll 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. 
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. 
796. The language of Article 2.1(c)—particularly the initial clause "notwithstanding any 
appearance of non-specificity resulting from the application of the principles laid down in 
subparagraphs (a) and (b)"—indicates that the applic ation of this provision will normally follow the 
application of the other two subpa ragraphs of Article 2.1.  We recall that the subparagraphs of 
Article 2.1 are "principles", and that the Appe llate Body has previously said that a proper 
understanding of specificity under Article 2.1 must allow for their concurrent application.1632  Yet, the 
structure of Article 2.1 suggests a sequence for their application in which application of the principles 
in subparagraphs (a) and (b) precedes the application of the principle in subparagraph (c).  In other 
words, one will normally reach subparagraph (c) after it has been determined that there are no explicit 
limitations as to which enterprises or industries have access to the subsidy.  
797. The analysis under Article 2.1(c) proceeds wh ere there are "reasons to believe that the 
subsidy may in fact be specific".  While a conclusi on that there is "an appearance of non-specificity" 
under Article 2.1(a)-(b) does not provide a panel license to refrain from examining claims under 
Article 2.1(c), a panel must consider whether, in th e light of the arguments made by the parties, there 
                                                      
1632Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 371;  
Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 945. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 330 HSBI omitted, as indicated [[HSBI]]  
 
  are "reasons" for it to believe that an assessmen t under Article 2.1(c) is warranted.  These "reasons" 
would have to relate to the factors mentioned in subparagraph (c).  The panel, in turn, would be 
expected to assess objectively the reasons and argume nts provided by the parties.  Where the panel 
finds that the arguments and evidence submitted by the parties do not sufficiently demonstrate reasons 
to indicate specificity under Article 2.1(c), a more exhaustive analysis of the specificity factors set out in that provision may not be warranted.  
798. In this appeal, the European Union has describ ed what it considers to be the discretionary 
authority that NASA and the USDOD have with resp ect to the allocation of patent rights.  For 
example, the European Union has referred to the authority that NASA has to deny a request for a 
waiver and to the USDOD's authority to preclude a contractor from electing to retain patent rights 
over an invention.  Yet, the European Union has not presented or pointed to the evidence on the Panel 
record showing that NASA or the USDOD have exercised their discretionary authority in such a 
manner.  The Panel referred to a study by the Na tional Bureau of Economic Research, according to 
which, "by the early 1980s patent 'waivers were  essentially automatically granted' by NASA."
1633  At 
the oral hearing, the European Union did not dis pute that the USDOD had not exercised its discretion 
to preclude a particular contractor from electing to  retain title, nor did it assert that NASA had denied 
a request for a waiver.  
799. Instead, the European Union has sought to sup port its claim under Article 2.1(c) by referring 
to the share of NASA contracts and USDOD funding received by Boeing.  We recall that the Panel 
proceeded on the assumption that the allocation of patent rights is in some respects a self-standing 
subsidy that is separate from the payments and other support provided under the NASA/USDOD 
contracts and agreements.  In the light of this assu mption, any findings that the Panel made as to the 
specificity of the payments and other support provided under the NASA/USDOD contracts and agreements cannot speak to the specificity of the a llocation of patent rights to the extent it constitutes 
a self-standing subsidy.  Therefore, we are not persuaded that the arguments presented by the 
European Union demonstrate that, on the assumpti on that the allocation of patent rights is a 
self-standing subsidy, it is, "in fact", specific within the meaning of Article 2.1(c).   
800. We recall that we have proceeded on the Pane l's assumption that the allocation of patent 
rights is in some respects a self-standing subsidy that  is separate from the payments and other support 
provided under the NASA/USDOD contracts and ag reements.  Proceeding as we have on that 
assumption, we have found that, to the extent that such self-standing subsidy exists, such subsidy is 
                                                      
1633Panel Report, para. 7.1289 (quoting National Bureau of Economic Research, "Evidence from 
Patents and Patent Citations on the Impact of NASA and other Federal Labs on Commercial Innovation" 
(May 1997) (Panel Exhibit EC-574), p. 8).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  not explicitly limited to certain enterprises w ithin the meaning of Article 2.1(a) of the 
SCM Agreement .  Nevertheless, we have found that th e Panel erred by failing to examine the 
European Communities' arguments under Article 2.1( c) and therefore concluded that the Panel's 
overall finding under Article 2.1 co uld not be sustained.  However, on the basis of these arguments, 
we are not persuaded that, on the assumption that the allocation of patent rights is a self-standing 
subsidy, it is, "in fact", specific within  the meaning of Article 2.1(c) of the SCM Agreement , and thus 
decline  to make such a finding.  
VIII.  Washington State Business and Occu pation (B&O) Tax Rate Reduction 
A. Financial Contribution – Revenue Foregone 
801. We next turn to the United States' appeal of  the Panel's finding that the reduction in the 
Washington State B&O tax rate applicable to commercial aircraft and component manufacturers
1634 
under Washington State House Bill 2294 c onstitutes a financial contribution under 
Article 1.1(a)(1)(ii) of the SCM Agreement .  In subsection 1, we set out a summary of the Panel's 
findings.  In subsection 2, we consider the circ umstances in which government revenue otherwise due 
is foregone within the meaning of Article 1.1(a)(1 )(ii).  Finally, in subsection 3, we assess the 
United States' claim on appeal.1635  
1. The Panel's Findings 
802. The Panel reviewed the Appellate Body's reasoning in US – FSC and US – FSC 
(Article 21.5 – EC)  concerning the administration of tax and the foregoing of government revenue that 
is otherwise due within the meani ng of Article 1.1(a)(1)(ii) of the SCM Agreement .  The test applied 
by the panel in US – FSC  involved "examining the situation th at would have existed but for the 
measure in question and determining whether there would have been a higher tax liability in the 
absence of the measure".1636  The Panel observed that the Appellate Body in that dispute expressed 
some reservations about whether the "but for" test is  an appropriate general test that should apply in 
                                                      
1634The Panel referred in its analysis to the tax rate  applicable under House Bill 2294 to "manufacturers 
of commercial aircraft and components for such aircraft". (Panel Report, para. 7.126)  Under section 13(b), this tax rate applies to businesses engaged in "making sales, at retail or wholesale, of commercial airplanes, or 
components of such airplanes, manufactured by that person ". (emphasis added)  The tax rate under House Bill 
2294 therefore applies to commercial aircraft and component manufacturers, whether they engage in manufacturing, wholesaling, or retailing activities. 
1635Although relevant details concerning the B&O ta x rate reduction for co mmercial aircraft and 
component manufacturers set out in Hous e Bill 2294 are described in this secti on of our Report, Part IV contains 
a more detailed description of the challenged measure.  
1636Panel Report, para. 7.117 (referring to Panel Report, US – FSC , para. 7.45).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 332 HSBI omitted, as indicated [[HSBI]]  
 
  all situations.
1637  As the Panel further noted, the Appellate Body clarified in US – FSC (Article 21.5 – 
EC) that there may be situations where it is possibl e to apply a "but for" test, namely, where the 
measure at issue is an "exception" to a "general" rule of taxation.1638  The Appellate Body noted, 
however, that a panel is not always required to iden tify the general rule of taxation, and that, in many 
situations, it may be difficult to do so.1639  On the basis of its review, the Panel summarized its 
understanding of the Appellate Body's analysis as s uggesting that, "where it is possible to identify a 
general rule of taxation applied by the Member in question, a 'b ut for' test can be applied".1640  The 
Panel added that, "{i}n other situations, the cha llenged taxation measure should be compared to the 
treatment applied to comparable income, for taxpayers  in comparable circumst ances in the jurisdiction 
in issue".1641 
803. Turning to the B&O tax rate reduction for co mmercial aircraft manufacturing activities, the 
Panel concluded that "there is indeed a general ra te of taxation applicable to manufacturing activities 
in the State of Washington and that the tax re duction provided to aircraft manufacturing activities 
constitutes an exception to this rule".1642  The Panel considered that the Washington State statutory tax 
provisions establish a general rule applying a tax rate of 0.484% to "every person engaging … in 
business as a manufacturer"1643, as well as certain exceptions from this general rate as set out in other 
provisions of the tax code.  The Panel furthe r considered that House Bill 2294 provides that 
commercial aircraft manufacturing, and the manufactur ing of components for such aircraft, would be 
subject to an exceptional tax rate that differed from the general rate of 0.484%.1644  In particular, the 
Panel noted that House Bill 2294 refers to the ta x rate applicable to aircraft and component 
manufacturing—0.4235% between 1 October 2005 and 30 June 2007, and 0.2904% thereafter1645—as 
a "preferential tax rate".1646  House Bill 2294 also provides that, if a manufacturer availing itself of the 
preferential tax rate fails to submit an annua l report detailing certain employment and wage 
information, the Washington State Department of  Revenue "shall declare the amount of taxes … 
reduced in the case of the preferential {B&O} tax ra te, for that year to be immediately due and 
                                                      
1637Panel Report, para. 7.117 (referring to Appellate Body Report, US – FSC , para. 91).  
1638Panel Report, para. 7.119 (referring to Appellate Body Report, US – FSC (Article 21.5 – EC) , 
para. 91).  
1639Panel Report, para. 7.119 (referring to Appellate Body Report, US – FSC (Article 21.5 – EC) , 
para. 91).  
1640Panel Report, para. 7.120.   
1641Panel Report, para. 7.120.  
1642Panel Report, para. 7.121.  
1643Revised Code of Washington , section 82.04.240 (2004) (Panel Exhibit EC-83).  The Panel found 
that "{s}imilar provisions apply in relation to taxes on wholesaling and retailing activities". (Panel Report, 
para. 7.124) 
1644Panel Report, paras. 7.125 and 7.126.  
1645Panel Report, paras. 7.48 and 7.49. 
1646Panel Report, para. 7.126 (quoting House Bill 2294, section 16(2)(a)).  Section 16(2)(b) of House 
Bill 2294 refers to the rate as a "prefere ntial business and occupation tax rate".   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  payable".
1647  The Panel considered that this supported its  conclusion that "the reduced rate is an 
exceptional rate, and if certain requirements are not met, the amount by which the taxes were reduced 
must be repaid".1648   
804. The Panel also noted that the United States' written submissions and a number of documents 
produced by Washington State refer to four major tax classifications based on the following activities:  
manufacturing, wholesaling, retailing, and services.1649  These four tax classifications "account for 
90 percent of total B&O tax liability".1650  Moreover, the Panel cited a study prepared by the 
Washington State Revenue Department that described a "preferential tax rate" for commercial aircraft 
and component manufacturers, as compared to the "general tax rate for manufacturing" of 0.484%.1651  
The Panel added that, in other parts of the study, the Washington State Revenue Department refers to 
the "normal" or the "general" manufacturing tax rate of 0.484%.1652  The Panel concluded, therefore, 
that the evidence confirmed that there are "gener al" or "normal" B&O tax rates of 0.484% for 
manufacturing and wholesaling activities and 0.471% for retailing activities, and that deviations from 
these rates are an "exception" or a "preferential rate".1653  
805. Having concluded that the challe nged tax rate reduction reflects an  exception to a general rule 
of taxation, the Panel considered it appropriate to determine whether, "but for" the tax rate reduction, 
a higher B&O tax rate would otherwise apply to co mmercial aircraft and component manufacturers.  
The Panel concluded that, were it not for the "p referential rate" introdu ced by House Bill 2294, 
commercial aircraft and component manufacturers would be subject to the rates of 0.484% for 
manufacturing and wholesaling activities and 0.471% fo r retailing activities.  Accordingly, the Panel 
                                                      
1647House Bill 2294, section 16(2)(b). 
1648Panel Report, para. 7.127.  The Panel observed that the Final Bill Report concerning House 
Bill 2294 stated that, if the reporting requirements were  not met, "full taxes" would be immediately due and 
payable. ( Ibid. (quoting Final Bill Report, House Bill 2294, C1L03E2, undated (Panel Exhibit EC-90), p. 3))  
The Panel also cited other documents produced by Washington State that referred to the reduced rate as a 
"special" or "preferential" tax rate. ( Ibid., para. 7.128 (referring, respectively, to the Washington Administrative 
Code , section 458.20.136 (2000) (Panel Exhibit EC-80) and Washington State's response to Project Olympus 
Legal Questionnaire (Schedule 2 of the Project Olympus Master Site Agreement), 3 October 2003 (Panel 
Exhibit EC-91)))  
1649Panel Report, para. 7.129 (referring to United States' first written submission to the Panel, 
para. 430;  and Business and Occupation Tax, Revised Code of Washington , section 82.04 (Panel Exhibit 
US-179), pp. 97-98).  These tax classifications consist of the following: (i) manufacturing (0.484%);  (ii) wholesaling (0.484%);  (iii) retailing (0.471%);  and (iv) services (1.5%).  
1650Panel Report, para. 7.129 (quoting Business and Occupation Tax, Revised Code of Washington , 
section 82.04 (Panel Exhibit US-179), p. 98). 
1651Business and Occupation Tax – Differential Tax Rates, Revised Code of Washington , section 82.04 
(Panel Exhibit US-191), description of section 82.04.260(13).   
1652Panel Report, para. 7.131 (referring to Busine ss and Occupation Tax – Differential Tax Rates, 
Revised Code of Washington , section 82.04 (Panel Exhibit US-191)).   
1653Panel Report, para. 7.132.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 334 HSBI omitted, as indicated [[HSBI]]  
 
  found that the B&O tax rate reduction results in th e foregoing of revenue otherwise due, and therefore 
constitutes a financial contribution un der Article 1.1(a)(1)(ii) of the SCM Agreement .
1654 
2. When Does a Government Forego Revenue Otherwise Due?  
806. We begin our analysis by recalling the core aspects of the Appellate Body's reasoning in  
US – FSC and US – FSC (Article 21.5 – EC)  as they relate to the interpretation of Article 1.1(a)(1)(ii) 
of the SCM Agreement .  The Appellate Body observed that the foregoing of revenue otherwise due 
implies that less revenue has been raised by the gove rnment than would have been raised in a different 
situation, and that the word "foregone" suggests that the government has given up an entitlement to 
raise revenue that it could "otherwise" have rai sed.  This purported entitlement, however, cannot exist 
in the abstract.  There must be "some defined, normative benchmark against which a comparison can 
be made between the revenue actually raised a nd the revenue that would have been raised 
'otherwise'".1655  Moreover, the basis of comparison mu st be the "prevailing domestic standard" 
established by the tax rules applied by the Member in  question, because "{w}hat is 'otherwise due' … 
depends on the rules of taxation that each Member, by its own choice, establishes for itself".1656 
807. In the compliance proceedings in US – FSC (Article 21.5 – EC) , the Appellate Body further 
elaborated its understanding of the standard set ou t in Article 1.1(a)(1)(ii).  The Appellate Body 
underscored that a financial contribution does not ar ise under Article 1.1(a)(1)(ii) simply because a 
government does not raise revenue that it could have  raised.  Although a government might be said to 
"forego" revenue when it chooses not to tax certain in come, this alone is not determinative of whether 
the revenue foregone is "otherwise due".  In other wo rds, the Appellate Body stated that "the mere 
fact that revenues are not 'due' from a fiscal persp ective does not determine that the revenues are or 
are not 'otherwise due' within the meaning of Article 1.1(a)(1)(ii)".1657 
808. The Appellate Body again emphasized that th e term "otherwise due" implies a comparison 
between the challenged measure and a "defined, normative benchmark".1658  The Appellate Body 
remarked that, because Members, in principle, have  the sovereign authority to determine their own 
rules of taxation, the comparison under Article 1.1(a )(1)(ii) must necessarily be between the rules of 
taxation contained in the challenge d measure and other rules of taxa tion of the Member concerned.  
                                                      
1654Panel Report, para. 7.133. 
1655Appellate Body Report, US – FSC , para. 90.  
1656Appellate Body Report, US – FSC , para. 90.   
1657Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 88.  
1658Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 89 (referring to Appellate Body 
Report, US – FSC , para. 90).    BCI deleted, as indicated [***] WT/DS353/AB/R 
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  As the Appellate Body explained, such a comparis on enables panels and the Appellate Body "to reach 
an objective conclusion, on the basis of th e rules of taxation established by a Member".
1659   
809. The Appellate Body further recognized that it may be difficult to identify the appropriate 
benchmark for comparison under Article 1.1(a)(1)(ii) , because domestic rules of taxation are varied 
and complex.  The Appellate Body stated that, "{i}n identifying the appropriate benchmark for 
comparison, panels must obviously ensure that they  identify and examine fiscal situations which it is 
legitimate to compare"1660, and that this will be the case when there is "a rational basis for comparing 
the fiscal treatment of the income subject to the contested measure and the fiscal treatment of certain 
other income".1661  The Appellate Body added that, in gene ral terms, "like will be compared with 
like"1662, and that it is important to ensure that the ex amination under Article 1.1(a)(1)(ii) "involves a 
comparison of the fiscal treatment of the relevant income for taxpayers in comparable situations".1663   
810. In both US – FSC  and US – FSC (Article 21.5 – EC) , the Appellate Body considered that 
there may be situations where the measure at issue might be described as an "exception" to a general 
rule of taxation.  In such cases, the Appellate Body  said that it may be possible to apply a "but for" 
test to examine the fiscal treatment of income in the absence of the challenged measure.  At the same 
time, the Appellate Body expressed concerns about the application of such an approach.  In US – 
FSC, the Appellate Body stated that it had certain "abiding reservations"1664 about applying any legal 
standard, such as a "but for" standard, in the pl ace of actual treaty language, and expressed its concern 
that the application of a single standard would give rise to problems of circumvention.  In US – FSC 
(Article 21.5 – EC) , the Appellate Body added that, "{g}iven  the variety and complexity of domestic 
tax systems, it will usually be very difficult to isol ate a 'general' rule of taxation, and 'exceptions' to 
that 'general' rule", and that an examination under Article 1.1(a)(1)(ii) "must be sufficiently flexible to 
adjust to the complexities of a Memb er's domestic rules of taxation".1665  The Appellate Body 
affirmed that "panels should seek to compare the fi scal treatment of legitimately comparable income 
                                                      
1659Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 89.   
1660Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 90. 
1661Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 90. 
1662Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 90.  By way of example, the Appellate 
Body indicated that, if the measure at issue involves income earned in sales transactions, it might not be 
appropriate to compare the treatment of  this income with employment income. 
1663Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 92.  By way of further example, the 
Appellate Body stated that, if the measure at issue is concerned with the taxation of foreign-source income in the 
hands of a domestic corporation, it might not be appropri ate to compare the measure w ith the fiscal treatment of 
such income in the hands of a foreign corporation.   
1664Appellate Body Report, US – FSC , para. 91.  
1665Appellate Body Report, US – FSC (Article 21.5 – EC) , footnote 66 to para. 91. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 336 HSBI omitted, as indicated [[HSBI]]  
 
  to determine whether the contested measure involv es the foregoing of revenue which is 'otherwise 
due', in relation to the income in question".
1666 
811. In sum, the SCM Agreement  recognizes that WTO Members ar e sovereign in determining the 
structure and rates of their domestic tax regimes.  Also, because tax systems are not static, Members must have some flexibility to make adjustment s to their systems.  At the same time, the 
SCM Agreement  recognizes that tax regimes may be used to achieve outcomes equivalent to the 
results that are achieved where a government provid es a direct payment.  This explains why the 
Agreement includes the foregoing of government revenue otherwise due among the measures that 
constitute financial contributi ons under Article 1.1(a)(1). 
812. The identification of circumstances in which government revenue that is otherwise due is 
foregone requires a comparison between the tax tr eatment that applies to the alleged subsidy 
recipients and the tax treatment of comparable income of comparably situated taxpayers.  
Accordingly, a panel examining a claim under Article 1.1(a)(1)(ii) of the SCM Agreement  should first 
identify the tax treatment that applies to the income  of the alleged recipients.  Identifying such tax 
treatment will entail consideration of the objective reasons behind that treatment and, where it 
involves a change in a Member's tax rules, an ass essment of the reasons underlying that change.   
813. As a second step, the panel should identify a benchmark for comparison—that is, the tax 
treatment of comparable income of comparably situated taxpayers.
1667  We recognize that this is not 
always a straightforward exercise, and may in some circumstances be exceedingly difficult.  
Identifying a benchmark involves an examination of the structure of the domestic tax regime and its 
organizing principles.  In some cases, the principl es will be ones well recognized in the tax regimes of 
Members;  in other cases, they will be unique to the particular domestic regime.  It may be that 
disparate tax measures, implemented over time, do not  easily offer up coherent principles serving as a 
benchmark.  In any event, the task of the panel is  to develop an understanding of the tax structure and 
principles that best explains that Member's tax re gime, and to provide a reasoned basis for identifying 
what constitutes comparable income of comparably situated taxpayers.  Evidence relied upon in such 
an analysis must be located in the "rules of taxation that each Member, by its own choice, establishes 
                                                      
1666Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 91. 
1667Although the Appellate Body has previously referred to the tax treatment of "comparable income", 
we understand that the same  approach would apply to identifying any comparable taxable activity, transaction, 
or property of comparably situated taxpayers. (See Revenue Statistics, 1965-2010, Annex A, The OECD 
Classification of Taxes and Interpretative Guide  (OECD, 2011) (referring to the following categories of 
taxation:  taxes on income, profits, and capital gains;  social security contributions;  taxes on payroll and 
workforce;  taxes on property;  taxes on goods and services;  and other taxes))  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  for itself".
1668  In doing so, a Member will be held to account for the tax structure and principles that it 
itself employs.  This is akin to the approach undertak en in the field of public finance for purposes of 
estimating what are known as "tax expenditures".1669   
814. Finally, as a third step, the panel should compar e the reasons for the challenged tax treatment 
with the benchmark tax treatment it has identified af ter scrutinizing a Member's tax regime.  Such a 
comparison will enable a panel to determine whether, in the light of the treatment of the comparable 
income of comparably situated taxpayers, the govern ment is foregoing revenue that is otherwise due 
in relation to the income of the alleged recipients.  
815. In the light of the demands of this inquiry , we recall the reservations expressed by the 
Appellate Body about the limitations inherent in id entifying a general rule and exception relationship.  
In doing so, a panel might artificially create a rule and an exception where no such distinction exists.  
In addition, an approach that focuses too narrowl y on the change effected by a tax measure could 
result in a finding that government revenue otherw ise due has been foregone anytime the tax rate 
applicable to a recipient is lowered.  This under scores the risk in identifying a benchmark solely by 
reference to historical rates, the very departur e from which may reflect evidence of shifting norms 
within that regime.  Moreover, we note that a domest ic tax system may be so replete with exceptions 
that the rate applicable to the general category of  income in fact no longer represents the "general 
rule" but, rather, the "exception".  The Appe llate Body identified a similar concern in US – FSC  when 
it expressed misgivings that a "but for" test coul d lead to circumvention "by designing a tax regime 
under which there would be no general rule that applied formally  to the revenues in question, absent 
the contested measures".1670  For these reasons, while there may be  circumstances in which scrutiny of 
a tax regime indicates the presence of a general rule and an exception, we would expect that such an 
indication will not ordinarily end the analysis.  Ra ther, we would expect a panel to further examine 
the structure of the domestic tax regime and its organizing principles. 
                                                      
1668Appellate Body Report, US – FSC , para. 90.   
1669The Organisation for Economic Co-operation and Development ("OECD") describes tax 
expenditures as tax laws, regulations, or practices th at reduce or postpone revenue for a comparatively  
narrow population of taxpayers relative to a benchmark tax. ( Tax Expenditures in OECD Countries   
(OECD, 2010), p. 12 (referring to B. Anderson, PowerPoint presentation at the 5th Annual Meeting of  
OECD-Asia Senior Budget Officials held on 10-11 January 2008 in Bangkok, available at <www.oecd.org/dataoecd/40/6/39944419.pdf>)) 
1670Appellate Body Report, US – FSC , para. 91. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  3. Assessment of the Panel's Analysis  under Article 1.1(a)(1)(ii) of the 
SCM Agreement  
816. The first claim of the United States is that the Panel misconceived the proper standard under 
Article 1.1(a)(1)(ii) of the SCM Agreement  by elevating the "but for" test  "to the status of {a} general 
rule".1671  According to the United States, contrary to  the Panel's approach, the Appellate Body has 
rejected the proposition that the "but for" test refl ects the correct standard under Article 1.1(a)(1)(ii), 
instead, viewing it as "simply one methodology" that ma y be useful for applying the general standard 
"in certain, limited situations".1672  The European Union maintains that the Panel did not misinterpret 
the legal standard, and that the Panel made clear "that a 'but for' test can be applied, not must  be 
applied, where it is possible to identify a general rule of taxation".1673  The European Union therefore 
does not consider that the Panel elevated the "but fo r" test to a general rule  but, rather, understood that 
such a test is applicable in certain situations in order to effectuate a comparison of legitimately 
comparable income.   
817. The Panel summarized the Appella te Body's analysis in the US – FSC  cases as follows: 
{T}he Appellate Body's analysis suggests that where it is possible to 
identify a general rule of taxation a pplied by the Member in question, 
a "but for" test can be applied.  In other situations, the challenged 
taxation measure should be compared to the treatment applied to comparable income, for taxpayers in comparable circumstances in the jurisdiction in issue.
1674 
818. The Panel apparently viewed Article 1.1(a)(1 )(ii) as requiring a comparison of the fiscal 
treatment under a challenged measure with that in resp ect of either (i) a general rule of taxation, or 
(ii) comparable income of comparably situated taxpa yers.  This is supported by  the Panel's subsequent 
statement that it could apply the former test becau se, in the circumstances of this case, "it is not 
difficult to identify a general rule of taxation and exceptions to it".1675  Viewed in this light, the Panel's 
approach suggests that, as long as a general rule of ta xation is identified, it is sufficient to conduct an 
analysis limited to the determination that, but for the challenged measure, higher tax liability would 
have attached by virtue of the general rule.  Fo r the reasons we have expr essed above, we consider 
that this approach may lead to an overly narrow con ception of which rules are relevant in identifying a 
benchmark.  We also do not believe  that panels have a binary choi ce to make between a simplified, 
and a relatively more complex, inquiry.  At the same tim e, we note that, by stating that a "but for" test 
                                                      
1671United States' other appellant's submission, para. 142. 
1672United States' other appellant's submission, para. 139.   
1673European Union's appellee's submission, para. 214. (original emphasis) 
1674Panel Report, para. 7.120.  
1675Panel Report, para. 7.133.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  can be applied, the Panel indicated its awareness that  the identification of a general rule does not lead 
invariably to the exclusive application of such a test.  Therefore, subject to our observations above 
concerning the Panel's articulation of the legal standa rd, we do not consider that articulation to be 
inconsistent with Article 1.1(a)(1)(ii) of the SCM Agreement . 
819. The United States also alleges two "specific errors of law"
1676 regarding the Panel's 
application of Article 1.1(a)(1)(ii).  First, the United States submits that the Panel erred in its 
identification of the proper benchmark by failing to examine the Washington State B&O tax system as 
a whole, consisting of 36 activity classifications subject to B&O tax.1677  Second, the United States 
asserts that the Panel erred in failing to account for the fact that, due to the "pyramiding"1678 inherent 
in the Washington State B&O tax system, the effective tax rate for aerospace manufacturing exceeds the average effective tax rate for businesses in Washington State.
1679  The European Union argues that 
the Panel properly rejected using the range of 36 B&O tax rates in  Washington State as the normative 
benchmark for purposes of establishing whet her a financial contribution exists.1680  The 
European Union also contends that the Panel prop erly excluded from its analysis consideration of 
pyramiding and the average effective B&O tax rate in Washington State.1681  The European Union 
points out that the United States conceded that the average effective B&O tax rate is not a normative 
benchmark, and offered no evidence or argument to  support the notion that combating pyramiding and 
bringing effective B&O tax rates closer to the aver age effective B&O tax rate is any stated norm in 
Washington State tax law.1682   
820. We recall that House Bill 2294 lowered, in two stages, the B&O tax rate applicable to the 
gross income of commercial aircraft and component  manufacturers.  First, the bill provided for a 
reduction in the applicable tax rate from 0.484% or 0.471% to 0.4235% on 1 October 2005.  Second, 
upon the later of 1 July 2007 or the commencem ent of final assembly of a "superefficient 
airplane"1683, the bill provided for a further tax rate reduc tion to 0.2904%.  Because final assembly of 
the Boeing 787 aircraft, meeting the definition of a "superefficient airplane", commenced in the first 
half of 2007, commercial aircraft and component ma nufacturers are subject to the rate of 0.2904% 
                                                      
1676United States' other appellant's submission, para. 145.  
1677United States' other appellant's submission, para. 153.  
1678As explained infra , para. 829, "pyramiding" describes the process by which businesses, because 
they are taxed at each stage of produc tion, pay higher rates in later stages  of production due to the accumulation 
of taxes paid on prior inputs in the production process. 
1679United States' other appellant's submission, para. 157.  
1680European Union's appellee's submission, para. 221.  
1681European Union's appellee's submission, para. 228.  
1682European Union's appellee's submission, paras. 228 and 231.  
1683"Superefficient airplane" is described in section 17 of House Bill 2294.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 340 HSBI omitted, as indicated [[HSBI]]  
 
  until 2024.
1684  House Bill 2294 also provides that, if a commercial aircraft manufacturer fails to 
submit an annual report detailing certain employment  and wage information, the amount of the tax 
rate reduction will immediately become due.1685 
821. As explained above, the Panel c oncluded that there is a genera l or normal B&O tax rate of 
0.484% for manufacturing and wholesaling activities and 0.471% for retailing activities, and that 
deviations from these rates constitute exceptions.  Th e Panel thus considered that there are taxation 
rates that apply to general categories of business income generated from manufacturing, wholesaling, 
and retailing activities, and a lower, exceptional taxati on rate that applies to a subset of that business 
income, consisting of income generated from comme rcial aircraft and com ponent manufacturing, 
wholesaling, and retailing activities.1686   
822. Both before the Panel, and again on appeal , the United States has maintained that the 
Washington State B&O regime consists of 36 activ ity classifications, but recognizes four "major" or 
"principal" activity classifications subject to the fo llowing taxation rates:  (i) manufacturing (0.484%);  
(ii) wholesaling (0.484%);  (iii) retaili ng (0.471%);  and (iv) services (1.5%).1687  The Panel also noted 
that these four classifications "account for 90 per cent of total B&O tax liability".1688  This indicates 
that Washington State itself classifies income fro m business activities into broad categories that, for 
purposes of the commercial aircraft sector, cons ist of manufacturing, wholesaling, and retailing 
activities.   
823. We have explained above that a panel must be aware of the lim itations inherent in identifying 
and comparing a general rule of taxation, and an ex ception from that rule.  For instance, we noted that 
it could be misleading to identify a benchmark within  a domestic tax regime solely by reference to 
historical tax rates.  By that measure, the fact that commercial aircraft and component manufacturers were previously  subject to higher tax rates would not in it self be determinative of what the benchmark 
is at the time of the challenge.  In the circumstance s of this case, however, we do not consider that the 
Panel was conducting a purely historical compar ison.  In particular, we note the Panel's 
acknowledgement that House Bill 2294 provide d for a reversion to the "full taxes"
1689 associated with 
the general categories of activities in the event that certain reporting requirements were not met.  This 
                                                      
1684Panel Report, para. 7.48.  
1685Panel Report, para. 7.127. 
1686Panel Report, paras. 7.122 to 7.125.  
1687Panel Report, para. 7.129 (referring to Business and Occupation Tax, Revised Code of Washington , 
section 82.04 (Panel Exhibit US-179);  and United States ' first written submission to the Panel, para. 430).  See 
also United States' other appellant's submission, para. 147. 
1688Panel Report, para. 7.129 (quoting Business and Occupation Tax, Revised Code of Washington , 
section 82.04 (Panel Exhibit US-179), p. 98).  
1689Panel Report, para. 7.127 (quoting Final Bill Repor t, HB 2294, C1L03E2, undated (Panel Exhibit 
EC-90), p. 3).   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 341  
 
  supports the Panel's view that the benchmark co nsisted of the generalized tax rates of 0.484% 
(manufacturing and wholesaling) and 0.471% (retailing), not because those rates reflected what 
previously  applied to commercial aircraft manufacturing activities, but rather because they reflected 
what would currently  apply to these activities if the conditions for the lower rates were not met.   
824. We have also noted that it could be misleadi ng to compare rates applicable to a general 
category of income with rates applicable to a sub category of that income, without considering whether 
the scope of the "exceptions" undermines the existence of  a "general rule".  In this dispute, we note 
that the Panel analyzed what portion of income wa s entitled to a rate of taxation different from that 
applicable to income from general manufacturing activities.  The United States had argued before the 
Panel that 60% of total taxable income in Washi ngton State was subject to an adjusted rate of 
taxation.
1690  The European Communities responded that , once the aerospace industry was excluded, 
only 20% of manufacturing income was s ubject to an adjusted B&O tax rate.1691  The Panel concluded 
that, "if {House Bill} 2294 had not adjusted the rate for aerospace manufacturing, approximately 
80 per cent of manufacturing activities in Washington State would be subject to the 0.484 per cent tax rate".
1692  This reflects consideration by the Panel as to  the relative tax treatment of other taxpayers 
engaged in the same broad category of business activities as commercial aircraft manufacturers. 
825. In sum, the Panel identified broad categories of tax treatment under the Washington State tax 
code that apply to general manufacturing, wholesalin g, and retailing activities in Washington State.  
The Panel also determined that commercial aircra ft and component manufacturers are subject to a 
lower tax rate, which would in certain circumstances re vert to the higher, general tax rates.  The Panel 
moreover considered that the scope of the general ta x rates in relation to that of various lower tax 
rates did not alter its conclusion that the general rates reflected what would have been applied to 
commercial aircraft and component manufacturers in the absence of the B&O tax reduction.  Thus, we 
are satisfied that the Panel had a proper basis for selecting as the benchmark the tax treatment 
generally applicable in Washington State to  businesses engaged in manufacturing (0.484%), 
wholesaling (0.484%), and retailing (0.471%) activities.  In addition,  we consider that the Panel 
properly concluded that a comparison of these general tax rates to the lower tax rate of 0.2904% that 
was applied to the gross income of commerc ial aircraft and com ponent manufacturers under 
House Bill 2294 indicates the foregoing of government  revenue otherwise due within the meaning of 
Article 1.1(a)(1)(ii) of the SCM Agreement . 
                                                      
1690Panel Report, para. 7.138.  
1691Panel Report, para. 7.138 (referring to European  Communities' comments on the United States' 
response to Panel Question 32, para. 125).  
1692Panel Report, para. 7.138.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 342 HSBI omitted, as indicated [[HSBI]]  
 
  826. In its appeal, the United States challenges the basis for the Panel's reliance on a benchmark 
consisting of general manufacturing, wholesaling, and retailing tax rates by arguing that the Panel 
failed to take account of other important featur es of the Washington State B&O tax system.  The 
United States asserts, for instance, that the Panel fa iled to consider that there are 36 categories of 
business activities individually identified in the W ashington State tax code that, "taken together, 
reflect 'the fiscal treatment of … relevant inco me for taxpayers in comparable situations'".
1693  The  
United States thus contends that, because Washi ngton State establishes various tax rates for various 
activity categories, the appropriate benchmark consists of the entire B&O tax regime.  The 
United States adds that, in failing to examine all of  the tax rates of that regime, the Panel failed to 
consider the fiscal treatment of other relevant income for comparably situated taxpayers.   
827. As we have explained, we consider that th e Panel took into account both the tax treatment 
provided pursuant to House Bill 2294 and that app lied to other categories of business activity under 
the Washington State tax code.1694  We also do not understand how the B&O tax system as a whole 
could, in any event, operate as a benchmark.  Because the Washington State B&O tax system is 
composed of various tax rates for various activity categories, they cannot all simultaneously serve as 
the basis for a comparison with the challenged rate.  To contend that all of the B&O tax rates together 
constitute the benchmark would amount to the contenti on that there is, in effect, no benchmark within 
that system.  Such an assertion, however, prematurel y abdicates, rather than engages, the inquiry as to 
an appropriate benchmark for purposes of an analysis  under Article 1.1(a)(1)(ii).  In our view, that 
inquiry should seek to identify a benchmark within  a taxation system even in circumstances where 
there may be several, perhaps competing, principles operating within a taxation system, or where the existence of any coherent principle or principles is difficult to discern.   
828. The United States also maintains that the Washington State B&O tax system "is a multi-rate 
tax system that applies numerous tax rates to nume rous individually identified categories of activities, 
and the tax rate applied to aerospace manufacturing a nd selling is within the range of tax rates applied 
to other activities".
1695  We understand this argument to posit that whether a challenged tax rate 
constitutes the foregoing of government revenue othe rwise due is to be resolved by assessing whether 
                                                      
1693United States' other appellant's submission, para. 153 (quoting Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 92). 
1694See supra , paras. 821 and 822 (referring to Panel Report, paras. 7.122-7.125 and 7.129).  See also 
Panel Report, paras. 7.202 and 7.203.  
1695United States' other appellant's submission, para. 153.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 343  
 
  it approximates the average of the range represented by all rates under that regime.
1696  In our view, 
employing such a benchmark would lead to potent ially indiscriminate outcomes whereby rates at or 
above an average rate would appear permissible,  whereas rates below that benchmark would be 
deemed a financial contribution.  We do not consid er it plausible to maintain that a government 
foregoes revenue that is otherwise due in respect of particular taxpayers, irrespective of their type of 
income or business activity, simply because the tax rate that applies to those taxpayers' income falls 
below the average of a range of taxation rates.  
829. The United States further contends that the Panel erred in its identification of the appropriate 
benchmark by failing to take account  of effective B&O tax rates in Washington State.  The 
United States argues that the aerospace industry is subj ect to particularly high effective tax rates due 
to "pyramiding", a process by which businesses, be cause they are taxed at each stage of production, 
pay higher rates in respect of later stages of pr oduction due to the accumulation of taxes paid on prior 
inputs in the production process.  According to th e United States, once adju sted for the phenomenon 
of pyramiding, the effective tax rate for aerospa ce manufacturing was reduced from 2.53% to 1.578%, 
which exceeds the average effective tax rate for other Washington State businesses of 1.53%.1697  We 
see no indication in the Panel record that adjusting tax rates to approximate the average effective tax 
rate reflects a principle under the Washington State B&O tax regime.  Rather, it appears to be more in 
the nature of an ex post  explanation regarding the relationship of  these rates to one another.  We note, 
moreover, that the United States itself conceded th at the average effective B&O tax rate does not 
constitute a benchmark for the purposes of  this case under Article 1.1(a)(1)(ii).1698   
830. In addition, the Panel record does not su pport the contention that Washington State 
implemented House Bill 2294 alone, or as part of a broader regulatory scheme, to counteract the 
effects of pyramiding.  House Bill 2294 was implemen ted in order to provide certain tax incentives to 
                                                      
1696Before the Panel, the United States argued that, as long as the challenged rate falls within the range 
of B&O tax rates, "it cannot be considered revenue fore gone that is otherwise due". (United States' first written 
submission to the Panel, para. 452)  As the Panel correctly noted, the problem with employing this as a 
benchmark is that, "by definition, every rate in any multi-ra te tax system falls within the range of rates in that 
tax system". (Panel Report, para. 7.135)  The Panel added that, where "the lower bound of the range of nominal B&O tax rates is 0 per cent … every tax rate falls within  the range and it is never possible for a tax reduction to 
constitute a financial contribution". ( Ibid., footnote 1224 thereto)   
1697United States' other appellant's submission, para. 149.  
1698Panel Report, para. 7.137.  The United States confirmed this position in response to questioning at 
the oral hearing.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 344 HSBI omitted, as indicated [[HSBI]]  
 
  the aerospace industry.
1699  The fact that House Bill 2294 provided for a reversion to "full taxes" in the 
event that certain reporting requirements were not met would seem contrary to alleviating the burden 
on the commercial aircraft sector caused by higher effective tax rates.1700  We further observe that the 
report of the Washington State Tax Structure Study Committee, which the United States relied upon to highlight concerns with pyramiding in the Washington State tax system, recommended replacing the B&O tax system altogether, instead of adjus ting tax rates throughout the B&O taxation system to 
remove the effects of pyramiding.
1701  Finally, we note the Panel's conclusion elsewhere in its Report 
that none of the evidence submitted by the United States indicates that the B&O tax rate reduction 
was introduced in order to combat pyramiding.1702  We therefore do not consider that the average 
effective tax rate in the Washington State B&O tax system serves as an appropriate benchmark against which to compare the tax rate reduction set out in House Bill 2294.  
831. For the foregoing reasons, we uphold  the Panel's finding, in pa ragraph 7.133 of the Panel 
Report, that the reduction in the Washington State B& O tax rate applicable to commercial aircraft and 
component manufacturers constitutes the foregoing of revenue otherwise due, and therefore a 
financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement . 
B. Specificity  
832. We next turn to the United States' appeal of  the Panel's finding that the Washington State 
B&O tax rate reduction under House Bill 2294 is a subsidy that is specific within the meaning of 
Article 2.1(a) of the SCM Agreement .  We first provide a summary, in  subsection 1, of the Panel's 
findings before assessing, in subsection 2, the United States' claim on appeal.  
                                                      
1699House Bill 2294, entitled "Aerospace In dustry – Tax In centives", states in section 1 as follows: 
The legislature finds that the people of the state have benefited from the 
presence of the aerospace industry in Washington state. The aerospace 
industry provides good wages and benefits for the thousands of engineers, 
mechanics, and support staff working directly in the industry throughout the 
state. The suppliers and vendors that support the aerospace industry in turn 
provide a range of jobs. The legislatur e declares that it is in the public 
interest to encourage the continued presence of this industry through the 
provision of tax incentives. The comprehensive tax incentives in this act address the cost of doing business in Washington state compared to 
locations in other states. 
1700Panel Report, para. 7.127. 
1701The report of the Washington State Tax Structure Study Co mmittee recommended, inter alia : 
Replacing the B&O tax with a value added tax eliminates the "pyramiding" 
effect as goods move through the production chain, thereby addressing the Committee's concerns with economic neutrality and competitiveness.   
A majority of the Committee members recommend this alternative. 
("Tax Alternatives for Washington State: A Report to the Legislature" (November 2002), Vol. 1 (Panel Exhibit US-180), p. v) 
1702Panel Report, para. 7.205.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  1. The Panel's Findings 
833. The Panel began its analysis by setting out an  interpretation of Article 2.1(a) of the 
SCM Agreement .  The Panel considered that the ordinary me aning of the term "explicit" indicates that 
the limitation on access to a subsidy must "distinctly e xpress all that is meant;  leaving nothing merely 
implied or suggested", and must be "unambiguous" and "clear".1703  The Panel added that, given that 
Article 2.1(a) provides that ,"{w}here the granting au thority, or the legislation pursuant to which the 
granting authority operates, explicitl y limits access to a subsidy", it is clear that the express limitation 
can be found either in the legislation by which the granting authority operates, or in other statements 
or means by which the granting authority expresses its will.1704  The Panel also considered guidance 
from the panel in US – Upland Cotton  suggesting that "there is some tipping point, which varies on a 
case-by-case basis, at which access to  the subsidy in issue is no longer considered to be limited to 
'certain enterprises' but rather is 'sufficiently broadly available' throughout an economy as to be non-
specific".1705  On the basis of these considerations, the Panel concluded that a finding of specificity 
under Article 2.1(a) requires a limitation that, on the face of the legislation or in other statements or means by which the granting authority expresses its  will, "expressly and unambiguously restricts the 
availability of a subsidy to 'certain enterprises' a nd as a result does not make the subsidy 'sufficiently 
broadly available throughout an economy'".
1706 
834. In applying this standard to its analysis of sp ecificity, the Panel first examined the terms of 
House Bill 2294.  The Panel considered that "{ a}n inspection of {House Bill} 2294 lends credence to 
the European Communities' view that those tax measures under {House Bill} 2294 that we have 
found to be subsidies are specific".1707  The Panel noted, in particular, that House Bill 2294 is entitled 
"Aerospace Industry – Tax Incentives", and that the language and operation of the bill limits the tax 
measures to the aerospace industry or to certain ente rprises within the aerospace industry.  The Panel 
therefore concluded that, "on the face of {House Bill} 2294, the taxation subsidies are expressly and unambiguously limited to enterprises manufacturing commercial airplanes or components for such 
airplanes", and that this constitutes a limitation either  to an "industry" or to a "group of enterprises" 
within the meaning of Article 2 of the SCM Agreement .
1708 
                                                      
1703Panel Report, para. 7.190 (quoting Shorter Oxford English Dictionary,  L. Brown (ed.) (Clarendon 
Press, 1993), Vol. 1, p. 888). 
1704Panel Report, para. 7.190.  
1705Panel Report, para. 7.191 (referring to Panel Report, US – Upland Cotton , para. 7.1139).  
1706Panel Report, para. 7.192.  
1707Panel Report, para. 7.194.  
1708Panel Report, para. 7.196.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  835. The Panel did not consider it appropriate, howev er, to confine its analysis to a review of 
House Bill 2294.  The Panel observed that, by limiti ng the specificity analysis to House Bill 2294, 
rather than considering the Washington State B&O taxation system as a whole, it might otherwise 
overlook "valuable information which may shed light on whether or not a subsidy is properly 
characterized as specific".
1709  Noting the possibility that the relevant B&O tax rate reduction is part 
of a wider subsidy extended to other industries thr ough separate amendments to the Washington State 
tax code, the Panel stated that "it is necessary to  examine the B&O taxation system as a whole, in 
particular the legislation and documents produced by  the granting authority, in order to determine 
whether the subsidy in issue is explicitly limited to certain enterprises or is broadly available".1710 
836. Although the Panel considered it "possible" that the B&O tax rate reducti on applicable to the 
aerospace industry is one part of a wider subsidy to  a variety of industries, the Panel found that "the 
United States has provided little information on which the Panel would be able to draw the conclusion 
the United States seeks".1711  The Panel acknowledged that the Washington State tax code establishes 
some variation in the B&O taxation rates applie d to the manufacturing, wholesaling, and retailing 
sectors.  The Panel also noted its prior conclusions  that, while there are general B&O tax rates that 
apply to these broad categories of activity, there are also certain, more specific activities subject to 
"exceptions" to the general rates.1712  Although this information supported the United States' argument 
that the aerospace industry is not alone in receiving an exception to the general rates of taxation for 
manufacturing, wholesaling, and retailing activities, th e Panel was not persuaded that this led to a 
finding of non-specificity under Article 2.1(a).   
837. In particular, the Panel found that, "{i}f the differential B&O tax rates were truly 
implemented as part of a common subsidy programme , it would be reasonable to expect some links 
between the individual tax reductions, for example, in the timing of their introduction, in their purpose 
or in their levels".1713  The Panel found, however, that the United States had not provided "any 
evidence to suggest that the reductions to separate i ndustries are part of a wider, generally available 
and explicit programme  of tax reductions".1714  The Panel added that, "{i}n fact, some of the evidence 
submitted by the United States runs counter to this argument."1715  The Panel thus found that the B&O 
tax rate reduction granted to the aerospace industry u nder House Bill 2294 is a subsidy that is specific 
within the meaning of Article 2.1(a) of the SCM Agreement .  
                                                      
1709Panel Report, para. 7.198.  
1710Panel Report, para. 7.199.  
1711Panel Report, para. 7.201 (referring to United States' response to Panel Question 233, para. 385).  
1712Panel Report, paras. 7.202 and 7.203.  
1713Panel Report, para. 7.205. (footnote omitted) 
1714Panel Report, para. 7.205.  
1715Panel Report, para. 7.205 (referring to Panel Exhibits US-191 and US-180).   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  2. Assessment of the Panel's Analysis under Article 2.1(a) of the 
SCM Agreement  
838. The United States does not challenge the Pane l's interpretation of specificity under 
Article 2.1(a) of the SCM Agreement .1716  Rather, the United States claims that the Panel failed, in the 
application of Article 2.1(a), to consider the en tirety of the subsidy that the Panel had found to 
exist.1717  In the United States' view, the Panel failed to  analyze whether, taking all of the differential 
tax rates in the Washington State tax system together, access to the subsidy was limited to certain enterprises, or whether access was sufficiently broa dly available throughout the economy so as to 
indicate that the subsidy was not specific to certa in enterprises.  The United States maintains that, 
because the Panel "did not even attempt to ascertain"
1718 whether access to this subsidy was limited to 
certain enterprises, as required by Article 2.1,  the Panel's finding should be reversed.   
839. The European Union contends that the Pane l needed to examine only House Bill 2294 to 
arrive at a finding of de jure  specificity, but that the Panel nevertheless proceeded to evaluate the 
B&O taxation system as a whole.  In doing so, the Panel "made a finding of fact that the multiple 
B&O tax rate exceptions do not constitute a singl e 'subsidy' programme, but rather may constitute 
separate and distinct measures, because there was no  evidence to justify considering all of the B&O 
tax rate exceptions together as a single measure for purposes of the Article 2.1(a) analysis".1719  
According to the European Union, the Panel ri ghtly called for evidence of a connection among the 
multiple tax breaks in order to determine that th ey were part of a common subsidy programme, and 
noted the lack of any such evidence on the Panel record.  
840. In Part VII, we have set out our views on the scope of the inquiry under Article 2.1(a) of the 
SCM Agreement .  We have explained that the focus of the inquiry under Article 2.1(a) is on the class 
of recipients, and the manner in which access to the subsidy is limited to the class.  These limitations 
must be "explicit", which means that they must be "express, unambiguous, or clear from the content 
of the relevant instrument, and not merely 'implied' or 'suggested'".1720  Moreover, the source of any 
limitations under Article 2.1(a) is the legislation pursuant to which the granting authority operates, or 
the granting authority itself. 
                                                      
1716United States' other appellant's submission, para. 167.   
1717United States' other appellant's submission, para. 172.  
1718United States' other appellant's submission, para. 178.   
1719European Union's appellee's submission, para. 237 (referring to Panel Report, paras. 7.200-7.205). 
1720Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 372. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 348 HSBI omitted, as indicated [[HSBI]]  
 
  841. The scope of the inquiry called for under Artic le 2.1(a) is not necessarily limited to the 
subsidy as defined in Article 1.1.  Although the subs idy as defined in Article 1.1 is the starting point 
of the analysis under Article 2.1(a), the scope of the inquiry is broader in the sense that it must 
examine the legislation pursuant to which the gr anting authority operates, or express acts of the 
granting authority.  The outcome of that inquiry can not be predetermined by the legal framework that 
a WTO Member chooses to establish and distribute the subsidies.  At the same time, Article 2.1 
makes it clear that the assessment of specificity is  framed by the particular subsidy found to exist 
under Article 1.1.  This means that the inquiry unde r Article 2.1 should not examine subsidies that are 
different from those challenged by the complaining Me mber.  That inquiry requires careful scrutiny of 
the relevant legislation—whether set out in one or several instruments—to determine whether the 
subsidies are provided pursuant to the same subs idy scheme.  Once a subsidy scheme is identified, 
then the question is whether that subsidy is explic itly limited to "certain enterprises", defined in the 
chapeau to Article 2.1 as "an enterprise or indust ry or group of enterprises or industries".   
842. Following its assessment under Article 1.1 of the SCM Agreement , the Panel found that the 
"Washington B&O tax reduction"
1721 is a subsidy to Boeing within the meaning of Article 1 of the 
SCM Agreement .  By "Washington B&O tax reduction", the Panel was referring to the B&O tax rate 
reduction enacted under House Bill 2294.  This is  evident from the Panel's earlier discussion of 
financial contribution, where the Panel stated as follows: 
The standard rate for manufacturing and wholesaling activities is 
0.484 per cent and for retailing activities is 0.471 per cent.  Were it not 
for the "preferential rate" introdu ced by {House Bill} 2294, aircraft 
manufacturers would be subject to the rates of 0.484 per cent for manufacturing and wholesaling and 0.471 per cent for retail sales.   
For these reasons, the Panel finds th at the reductions in the B&O tax 
rates constitute the foregoing of reve nue otherwise due and, as a result, 
are a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement.
1722 
843. Despite the somewhat generic reference to "r eductions in the B&O tax rates", the preceding 
context indicates that this finding applied only to  the B&O tax rate reduction applicable to the 
activities of commercial aircraft and component  manufacturers under House Bill 2294.  This 
understanding is confirmed by the Panel's subsequent reference to "the B&O tax {rate} reduction for 
aircraft manufacturing", which it had found "constitutes a subsidy".1723  Therefore, for purposes of the 
assessment under Article 2.1, the subsidy "as define d in paragraph 1 of Article 1" was the B&O tax 
                                                      
1721Panel Report, para. 7.179. 
1722Panel Report, para. 7.133.  
1723Panel Report, para. 7.199. (italics omitted)   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  rate reduction contained in House Bill 2294 that applied to activities of commercial aircraft and 
component manufacturers. 
844. At the outset of its assessment of specificity, the Panel explained that, "{a}s a starting point 
for the analysis of de jure  specificity"
1724, it would examine the terms of House Bill 2294.  The Panel 
considered that House Bill 2294 is the legislative instrument pursuant to which the subsidy found by 
the Panel—that is, the B&O tax rate reduction that  applied to activities of commercial aircraft and 
component manufacturers—was enacted.  Accordingly, the Panel's decision to begin its analysis with 
House Bill 2294 is consiste nt with the chapeau of Article 2.1, and with our understanding of the scope 
of the assessment under that provision. 
845. The Panel, however, did not limit the scope of  its analysis to the B&O tax rate reduction 
enacted under House Bill 2294.  Indeed, the Panel rej ected the European Commun ities' request that it 
do so, instead, opting to examine the Washington State B&O taxation system as a whole.  The Panel 
explained the basis for its approach as follows:  
{W}e cannot accept the European Communities' submission that the 
specificity analysis must be lim ited to amending legislation through 
which the subsidy is enacted.  …  By limiting the specificity analysis to the amending legislation, rather than considering the Washington 
taxation legislation as a whole, valu able information which may shed 
light on whether or not a subsidy is properly characterized as specific may be ignored.  Further, the approach advocated by the European Communities means that the specificity analysis is 
dependent upon how the complaini ng party chooses to define the 
measure it is challenging.
1725  
846. The Panel added the following specific reas ons concerning the challenged B&O tax rate 
reduction applicable to commercial ai rcraft and component manufacturers: 
{A}lthough we have found {that th e B&O tax rate reduction for 
commercial aircraft and components manufacturers} constitutes a 
subsidy, it is possible that it is one part of a wider subsidy extended 
to other industries through separat e amendments to the Washington 
tax code.  In our view, it is necessary to examine the B&O taxation system as a whole, in particul ar the legislation and documents 
produced by the granting authority, in order to determine whether the 
subsidy in issue is explicitly lim ited to certain enterprises or is 
broadly available.  Therefore, we judge it appropriate to consider the 
Revised Code of Washington  as a whole, rather than merely the 
amending legislation, {House Bill} 2294, in analyzing whether the 
                                                      
1724Panel Report, para. 7.194. 
1725Panel Report, para. 7.198. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 350 HSBI omitted, as indicated [[HSBI]]  
 
  B&O tax rate reduction is specific within the meaning of 
Article 2.1(a).
1726   
847. The Panel correctly recognized that the B&O tax rate reduction applicable to commercial 
aircraft and component manufacturers, enacted under House Bill 2294, could be part of a wider 
subsidy scheme.  Hence, it correctly  broadened the scope of its analysis to the Washington State B&O 
tax regime and sought to verify whether under th is broader legal framework the same subsidy was 
being made available to other enterprises or industri es.  Ultimately, the Panel concluded that the same 
subsidy was not made available to other enterpri ses under the Washington State B&O tax regime.  In 
arriving at this conclusion, the Panel was not persuaded that other di fferential B&O tax rates 
contained in the Washington State tax code were part of the same subsidy scheme as the challenged 
B&O tax rate reduction.   
848. The United States advances two main arguments on appeal.  First, the United States suggests 
there is incoherence in the Panel's approach.  Acco rding to the United States, the Panel was required 
by Article 2.1 to "address the specificity of the subs idy that has been found to exist, not some other 
subsidy, and not merely a part of the subsidy found to exist".1727  Because the Panel had found that the 
application of a tax rate lower than the standard ra te constitutes a subsidy, the United States maintains 
that the Panel was required to make an assessment of whether access to that subsidy is explicitly 
limited to certain enterprises.1728   
849. As we have set out above, the Panel' s conclusion under Article 1.1 of the SCM Agreement  
was not that all differential tax rates under Washingt on State's B&O tax regime constitute a subsidy.  
Rather, the Panel's finding under Article 1.1 w as that the B&O tax rate reduction enacted under 
House Bill 2294 for commercial aircraft and compone nt manufacturers was the subsidy.  Having 
correctly started its analysis with the subsidy that  it had determined to exist under Article 1.1, the 
Panel then expanded the scope of its inquiry by turn ing to the Washington State tax code as a whole.  
As we have explained, the Panel did not consider that  the other differential tax rates formed part of the 
same subsidy scheme as the B&O tax rate reduction a pplicable to commercial aircraft and component 
manufacturers.  We do not consider that the approach  undertaken by the Panel was incoherent.  On the 
contrary, if the Panel concluded that the other differe ntial tax rates were not part of the same subsidy 
scheme as the reduced B&O tax rate for commercial aircraft and component manufacturers, then it 
was correct for the Panel not to have considered th em collectively.  We therefore consider that the 
Panel's approach is consistent with the scope of the inquiry under Article 2.1(a). 
                                                      
1726Panel Report, para. 7.199. 
1727United States' other appellant's submission, para. 168.  
1728United States' other appellant's submission, para. 171.    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 351  
 
  850. Second, the United States questions the basi s for the Panel's conclusion that it was not 
appropriate to consider the various  B&O differential tax rates as part  of the same subsidy programme.  
The United States asserts that none of the factors on which the Panel based its conclusion—namely, 
timing, level, and purpose—is relevant to the analysis.
1729 
851. We share the Panel's view1730 that, where multiple subsidies are part of the same subsidy 
scheme, one would expect to find links or co mmonalities between those subsidies.  The Panel 
observed that the Washington State B&O tax regime applies certain rates to taxpayers based on the 
business activity in which they engage.  In respec t of manufacturing activities, the Washington State 
tax code applies a rate of 0.484% on all businesses engaged in manufacturing, unless they qualify for 
lower rates applicable to particular manufacturing activities.  Apart from the taxation rate of 0.2904% 
applied to commercial aircraft a nd component manufacturing activities, the Panel also identified the 
following manufacturing activities that are subject to differential rates:   
(a) manufacturing wheat into flour, barley into pearl barley, soybeans into soybean oil, 
canola into canola oil or sunflower se eds into sunflower oil, raw seafood, 
biodiesel/alcohol fuel, processing or splitting dried peas, and processing perishable 
meat products (0.138%); 
(b) manufacturing semi-conductor materials a nd nuclear fuel assemblies (0.275%); 
(c) manufacturing aluminium and solar energy systems (0.2904%); 
(d) manufacturing associated with fresh fruit, vegetables, and dairy products (exempt);  
and 
(e) manufacturing of timber and timber produc ts (0.4235% until 30 June 2007 and 
0.2904% until 30 June 2024).1731 
                                                      
1729United States' other appellant's submission, paras. 174-178.  
1730See Panel Report, para. 7.205.  
1731Panel Report, para. 7.202 (referring to Revised Code of Washington , section 82.04.260 (Panel 
Exhibit US-181);  House Bill 2294, section 3;  Business and Occupation Tax, Revised Code of Washington , 
section 82.04 (Panel Exhibit US-179);  Revised Code of Washington , section 82.04.294 (Panel Exhibit US-188);  
Revised Code of Washington , section 82.04.2909 (Panel Exhibit US-189);  and United States' first written 
submission to the Panel, para. 431).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 352 HSBI omitted, as indicated [[HSBI]]  
 
  852. The Washington State tax code also appli es rates of 0.484% and 0.471% on businesses 
engaged in wholesaling and retailing activities, r espectively, unless they qualify for lower rates 
applicable to particular such activities.  Apart from the taxation rates of 0.484% and 0.471% applied 
to the wholesaling and retailing activities of commerc ial aircraft and component manufacturers, the 
Panel also identified the following activ ities subject to differential rates: 
(a) wholesaling and reselling prescription drugs, w holesaling of perishable meat products 
(0.138%); 
(b) wholesaling of solar energy systems and of aluminium, where manufactured by the 
seller (0.2904%); 
(c) wholesaling or retailing of nuclear fuel assemblies, where manufactured by the seller 
(0.275%); 
(d) retailing of interstate transport equipment (0.484%);  and 
(e) wholesaling of dairy products, fresh fruit, and vegetables, where manufactured by the 
seller and where the purchaser transports the goods out of the state (exempt).
1732 
853. The B&O tax rate reduction applicable to co mmercial aircraft and component manufacturers 
was enacted under House Bill 2294 as an amendment to the tax code, known as the Revised Code of 
Washington .  At the oral hearing, the United States argue d that this tax rate, together with the other 
differential tax rates, should have  been considered collectively as a subsidy, because they are all 
contained in the Washington State tax code and e xpressed as exceptional rates to the general rates set 
out in that code.  We note that the Revised Code of Washington  reflects an accretion of tax rate 
adjustments over time, each implemented through separat e pieces of legislation.  The fact that a series 
of differential tax rates are locat ed in the same section of the tax code, while relevant, cannot be 
dispositive as to whether they constitute part of th e same subsidy scheme for purposes of a specificity 
analysis under Article 2.1(a).   
                                                      
1732Panel Report, para. 7.203 (referring to Revised Code of Washington , section 82.04.260 (Panel 
Exhibit US-181);  House Bill 2294, section 3;  Business and Occupation Tax, Revised Code of Washington , 
section 82.04 (Panel Exhibit US-179);  Revised Code of Washington , section 82.04.294 (Panel Exhibit US-188);  
Revised Code of Washington , section 82.04.2909 (Panel Exhibit US -189);  and United States' first written 
submission to the Panel, para. 431 and footnote 588 thereto).   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  854. We further note that the amendment does not in dicate that it was enacted as part of a broader 
subsidy scheme.  On the contrary, House Bill 2294 cl early indicates that the legislation is aimed at 
"retaining and attracting the aerospace industry to Washington State" and includes "comprehensive 
tax incentives" directed at achieving this aim.
1733  The details of the differential tax rates examined by 
the Panel are set out in Panel Exhibit US-191, a study that the Washington State Department of Revenue is required by law to prepare.
1734  We see support in this document for the Panel's statement 
that "the differential tax rates were introduced at  a range of different times and for a variety of 
different purposes".1735  In particular, while some of the differential tax rates were, like the rate 
applicable to commercial aircraft and component manufacturers, designed to retain certain business 
activities in Washington State, others appear to have  been adopted for entirely different purposes.  We 
note, for instance, that the reduced tax rate for ma nufacturers of dairy products was enacted to support 
the dairy industry and provide a tax rate equivale nt to producers of certain other agricultural 
commodities, whereas other reduced tax rates—for example, for flour and oil, seafood, and fruit and 
vegetable producers—were provided to address the low profit margins experienced by firms in those industries, in some instances because they were una ble to pass the total cost of a gross receipts tax on 
to the consumers due to a highly competitive market structure.
1736 
855. The Panel also noted that exhibits submitted by the United States include statements that 
"pyramiding"1737 is a problem associated with the B&O tax.  Nevertheless, the Panel found that these 
exhibits do not indicate that any tax rate reduc tions were introduced in order to combat this 
problem.1738  Moreover, we have already considered th at the evidence on the Panel record does not 
support the conclusion that the B&O tax rate re duction for commercial ai rcraft and component 
manufacturers was introduced to counteract the e ffects of pyramiding.  Thus, the concept of 
pyramiding would not serve as a proper basis to find that the challenged B&O tax rate reduction 
belongs to the same subsidy scheme as other differen tial tax rates that allegedly redress the effects of 
pyramiding.  Finally, we note that, apart from observing that all of the differential tax rates are 
contained within the Revised Code of Washington , the United States has not referred to any evidence 
on the Panel record to support the proposition that  the B&O tax rate reduction applicable to 
                                                      
1733House Bill 2294, preamble and section 1;  see Panel Report, para. 7.41. 
1734Panel Report, para. 7.205.  See United States' response to Panel Question 365, para. 199.  
1735Panel Report, para. 7.205.  
1736Business and Occupation Tax – Differential Tax Rates, Revised Code of Washington , section 82.04 
(Panel Exhibit US-191).  
1737Panel Report, para. 7.205 (referring to Business and Occupation Tax, Revised Code of Washington , 
section 82.04 (Panel Exhibit US-179);  and Washington State Tax Structure Study, "Tax Alternatives for Washington State: A Report to the Legislature" (November 2002), Vol. 1 (Panel Exhibit US-180). 
1738Panel Report, para. 7.205  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  commercial aircraft and component manufacturers and th e other differential tax rates form part of the 
same subsidy scheme. 
856. We therefore consider that the Panel had a prope r basis to conclude that the differential B&O 
tax rates set out in the Revised Code of Washington  do not form part of a common subsidy 
programme.  
857. As the Appellate Body has explained, it may be  that a provisional indication in respect of 
specificity within the meaning of Article 2.1(a) will require further analysis under Article 2.1(b).
1739  
We note that neither party has advanced argume nts in this case concerning the applicability of 
Article 2.1(b) to the B&O tax rate reduction for commercial aircraft and component manufacturers.  
Moreover, as we have explained above, the only criterion for attracting the reduced tax rate under 
House Bill 2294 is that the subject business is engaged in activities of commercial aircraft or 
component manufacturers.  We do not consider that th is satisfies the requirement in footnote 2 to the 
SCM Agreement  that "{o}bjective criteria or conditions" be  neutral, not favour certain enterprises 
over others, and be economic in natu re and horizontal in application.  Indeed, this measure appears 
expressly targeted so as to limit the application of a particular tax rate reduction to a discrete category 
of business activity carried out by certain enterprises within a particular industry.  Thus, we do not see 
that application of Article 2.1(b) to the challe nged measures alters the analysis in respect of 
specificity.  Finally, because the foregoing analysis indicates that there is an explicit limitation on 
access to a subsidy to certain enterprises, we do not c onsider that further analysis under Article 2.1(c) 
is warranted.   
858. For the foregoing reasons, we uphold  the Panel's finding, in pa ragraph 7.205 of the Panel 
Report, that the Washington State B&O tax rate reduction granted under Hou se Bill 2294 is a subsidy 
that is specific within the meaning of Article 2.1(a) of the SCM Agreement . 
                                                      
1739Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 950.  See also 
Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China) , para. 369:  "We can conceive, for 
example, of situations in which an initial indication of sp ecificity under Article 2.1(a) may need to be considered 
further if additional evidence demonstrates that the subs idy in question is available on the basis of objective 
criteria or conditions within th e meaning of Article 2.1(b)."  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  IX. City of Wichita Industrial Revenue Bonds (IRBs) – Specificity  
859. We next turn to the United States' appeal of the Panel's finding that the IRB subsidies 
provided by the City of Wichita are a specific subs idy within the meaning of Article 2.1(c) of the 
SCM Agreement .  We begin, in section A, with a brief background on the IRBs issued to Boeing and 
Spirit, followed by a summary, in section B, of the Pa nel's findings in respect of this measure.  In 
section C, we assess the United States' claim on appeal. 
A. Background 
860. As a general matter, IRBs are issued by the City  of Wichita to the general public on behalf of 
a qualifying private entity, the proceeds of whic h are used to purchase, construct, or improve 
commercial or industrial property for that entity.
1740  The City of Wichita holds title to the property 
during the term of the IRB, and leases the property to the private entity in exchange for rent payments 
sufficient to cover the payment of principal and in terest on the IRB to the public bondholders.  During 
the term of the IRB, the private entity benefits fro m exemptions from certain interest rate, property, 
and sales taxes.  At the conclusion of the IRB term, title to the property transfers to the private entity 
involved.  The IRB scheme operated somewhat differe ntly for Boeing, and subsequently Spirit (which 
acquired Boeing's Wichita division in June 2005), because the IRBs at issue, rather than being 
purchased by the public, were purchas ed by Boeing and Spirit themselves.  This meant that Boeing 
and Spirit funded their own property development th rough the IRBs.  Boeing and Spirit thus used 
IRBs, not for the purpose of financing property develo pment, but rather to take advantage of property 
and sales tax exemptions associated with the IRBs.  The City of Wichita has issued IRBs to Boeing 
and Spirit every year since 1979. 
B. The Panel's Findings 
861. The Panel first considered the challenge d measure under Article 2.1(a) of the 
SCM Agreement .  Noting that the European Communities had not submitted arguments in respect of 
that provision, the Panel considered that the releva nt Kansas State statutory provisions authorizing the 
issuance of IRBs by Kansas cities and counties did not expressly limit the availability of the subsidy 
within the meaning of Article 2.1(a).1741  The Panel therefore turned to consider the 
European Communities' claim of specif icity under Article 2.1(c) of the SCM Agreement .  Although 
the Panel assessed each of the factors under Article 2.1(c), its ultimate finding of specificity relied on 
                                                      
1740This description is drawn from paragraphs 7.648 to 7.664 of the Panel Report.  Although relevant 
details concerning the IRBs are set out in this section of our Report, we note that Part IV contains a more 
detailed description of the challenged measure.  
1741Panel Report, para. 7.743. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  its consideration of the European Communities' arguments that Boeing and Spirit were granted 
disproportionately large amounts of IRB subsidies.  Th e Panel considered that there were two issues it 
needed to examine.  First, the Panel sought  to establish "the correct interpretation of 
'disproportionality', including what ratios need{ed} to be compared in this analysis".
1742  Second, the 
Panel sought to determine whether the European Communities "ha{d} adequately substantiated its 
argument that the City of Wichita granted Boeing a nd Spirit IRB tax abatements in a disproportionate 
amount".1743  
862. The Panel considered that, in assessing whether a subsidy granted to certain enterprises is 
"disproportionately large", it was "necessary to conv ert the amount of the subsidy into a ratio by 
comparing it to something else that is 'whole'", and then to assess that ratio "to determine whether it is 
lacking proportion".1744  The Panel agreed with the parties that, when a subsidy has been granted 
under a subsidy programme, that programme should or dinarily serve as the "whole" against which the 
subsidies to "certain enterprises" can be compared.  The Panel considered that this approach finds 
support in the text of the final sentence of Artic le 2.1(c), which provides that, when applying the 
subparagraph, it is necessary to take into account  the length of time during which "the subsidy 
programme" has been in operation.1745 
863. The Panel noted that there is no explicit guidan ce in the text of Article 2.1(c) regarding 
against what the relative amount of subsidy receive d by Boeing and Spirit should be compared.  The 
European Communities contended that a second ratio should be used consisting of information about 
Boeing, such as employment levels, relative to co mparable information relating to the entire economy 
in the jurisdiction of the granting authority.  By contrast, the United States argued that the second ratio 
should compare the information about Boeing, su ch as employment levels, with comparable 
information about the group of recipients of the alleged subsidy.1746 
864. The Panel found problematic both ratios advocated by the parties.1747  The Panel considered 
that there was some textual support for the Euro pean Communities' approach found in the last 
sentence of Article 2.1(c), which requires that "the  extent of diversifica tion of economic activities 
within the jurisdiction of the granting authority" be  taken into account in applying the subparagraph.  
In determining whether the amount of subsidy grante d to certain enterprises is lacking proportion, the 
Panel observed that comparing the percentage of s ubsidy received by the "certain enterprises" with 
                                                      
1742Panel Report, para. 7.753. 
1743Panel Report, para. 7.753. 
1744Panel Report, para. 7.754. 
1745Panel Report, para. 7.755. 
1746Panel Report, para. 7.759. 
1747Panel Report, para. 7.760.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 357  
 
  their position within the entire economy is one way in  which the diversification of the economy in the 
jurisdiction of the granting authority can be taken into account. 
865. The Panel considered, however, that there we re problems with the European Communities' 
approach.  First, assuming that disproportionalit y is established by means of any discrepancy, 
however small, between two ratios under consider ation, the Panel observed that any limit on the 
availability of a subsidy would result in dispropor tionate distribution of that subsidy.  The Panel 
explained that, for instance, "{i}n circumstan ces where a subsidy may be broadly available 
throughout an economy, with 90 per cent of enterp rises receiving it, a comparison of the ratio of the 
amount of subsidy received by each enterprise, or set of  'certain enterprises', with their contribution to 
the wider economy (including the 10 per cent of ente rprises that did not receive the subsidy) will 
necessarily result in at least one enterprise or set  of 'certain enterprises' receiving an amount of 
subsidy in disproportion to its contribution to the economy."
1748  In the Panel's view, the 
European Communities' approach to the specificity analysis contradicts the approach taken by prior 
panels, such as the panel in US – Upland Cotton, which  held that there is a tipping point, which is not 
subject to rigid quantitative definition, at whic h a subsidy becomes sufficiently broadly available 
throughout an economy as to become non-specific.  According to the Panel, in US – Upland Cotton , 
"{t}he panel indicated that something less than universal availability can lead to a finding of 
non-specificity."1749 
866. The Panel thus observed that Article 2 of the SCM Agreement  does not expressly indicate the 
level of strictness associated with the limit on access to  the subsidy for it to be specific.  As a result, it 
may have been possible to find a subsidy to be  specific whenever there was any limit on its 
availability.  The Panel added, however, that th is is not the way in which Article 2 has been 
interpreted in prior disputes.  The Panel mainta ined, therefore, that the European Communities' 
approach leads to "a finding that a subsidy has b een granted in disproportionately large amounts by 
reason of the existence of a restriction on its ava ilability but where otherwise the subsidy would be 
considered to be broadly available thro ughout the economy and therefore non-specific."1750  
867. The Panel considered that the United States' a pproach to the disproportionality analysis was 
also problematic.  The Panel stated that, while it is  difficult to find support in the text or context of 
Article 2 of the SCM Agreement  for limiting the benchmark to th e group of subsidy recipients, the 
United States' approach is more mathematically logical than that of the European Communities.1751  
                                                      
1748Panel Report, para. 7.762. 
1749Panel Report, para. 7.762. 
1750Panel Report, para. 7.763. 
1751Panel Report, para. 7.764. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 358 HSBI omitted, as indicated [[HSBI]]  
 
  The reason for this is that, in comparing the ratio of the amount of subsidy that Boeing and Spirit 
received in relation to the entire group of recipients  of the subsidy with the ratio of Boeing's and 
Spirit's employment levels in relation to the aggregat ed employments levels of the group of recipients 
of the subsidy, like is compared with like, as both ratios have the same denominator.  The Panel 
considered that, under the United States' approach, "it is always at least possible to find that a subsidy 
has not been granted to 'certain enterprises' in a disproportionate amount in circumstances where there 
is some limit on the subsidy's availability."
1752 
868. The Panel explained, however, that the United St ates' approach was also difficult to reconcile 
with the purpose of Article 2 of the SCM Agreement , which is to determine whether a subsidy is 
sufficiently broadly available throughout an economy so as not to benefit "certain enterprises".  Under 
the United States' approach, the Panel reasoned, a subsidy may be granted to only two or three 
enterprises, "and as long as these two or three enterp rises receive the subsidy in proportion to their 
relative economic contributions as compared to each other, the disproportionality analysis does not 
point to any problem of specificity."1753  The Panel added that, where one enterprise receives 100% of 
the subsidy, this will never lead to a finding th at the enterprise receives a disproportionately large 
amount of subsidy, because the enterprise also make s up 100% of the economic activity of the subsidy 
recipients. 
869. Although the Panel considered that neither of the approaches suggested by the parties was 
completely satisfactory, it noted that the European Communities had at least some support for its 
approach in the text of Article 2.1(c).  Further, the Panel observed, "the problem that any limit on the 
availability of the subsidy leads to a finding of  disproportionality may be overcome somewhat if 
disproportion is interpreted to mean a significant  disparity between the two relevant ratios, rather than 
any discrepancy, however small."1754  The Panel considered that this was not an unreasonable reading 
of Article 2.1(c) "because, in any event, it woul d seem unduly strict to require exact correspondence 
between the proportion of subsidy granted to ce rtain enterprises with the enterprises' relative 
economic importance, as judged by an  unspecified economic indicator".1755 
                                                      
1752Panel Report, para. 7.764. 
1753Panel Report, para. 7.765. (original emphasis)  
1754Panel Report, para. 7.768. (original emphasis)  
1755Panel Report, para. 7.768.  The Panel also considered the approach advocated by Australia, in which 
the baseline group against which the economic position of th e "certain enterprises" is compared is the group of 
entities that are potentially  able to make use of the subsidy.  The Panel concluded that, given the broad 
eligibility for the IRBs in this case, employing Australia's approach would unlikely differ significantly from the European Communities' approach of examining the position of Boeing and Spirit in the overall economy. 
(See ibid., paras. 7.767 and 7.768)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 359  
 
  870. Turning to the facts of the case, the Panel noted the European Communities' assertion that 
Boeing and Spirit received 69% of the IRBs that included tax abatements issued between 1979 and 
2005, but that Spirit, after it had acquired Boeing' s LCA operations in Wichita, accounted for 3.5% of 
total employment or 16% of manufacturing employment in Wichita.
1756  The Panel further noted that 
the European Communities was prep ared to accept the United States' argument that Boeing's 
employment levels during most of the period over which the IRBs were issued were double those of 
Spirit, but that 32% of manufacturing employment w as still disproportionate to a ratio of 69%.  The 
Panel concluded that "there is a significant disp arity between the proportion of IRBs received by 
Boeing and Spirit and their place within the goods sector of the economy, as indicated by the proportion of the sector they employ."
1757  The Panel acknowledged the United States' argument that 
comparing the proportion of subsidy received by  Boeing and Spirit with the proportion of the 
economy they employed is not the fact-specific inquiry required for a specificity analysis, but 
considered that, "given the significance of the disparity between the figures, it constitutes a prima 
facie case of disproportionality", and that "{t}he United States has not provided a convincing rebuttal 
of this prima facie case."1758  Accordingly, the Panel found that the IRB tax abatements granted to 
Boeing and Spirit were disproportionately large, and th erefore specific to "certain enterprises" within 
the meaning of Article 2.1(c) of the SCM Agreement .  
C. Assessment of the Panel's Analysis under Article 2.1(c) of the SCM Agreement 
871. The United States challenges the Panel's finding that the IRB subsidies were granted in 
disproportionately large amounts within the meaning of Article 2.1(c) of the SCM Agreement  and, in 
particular, the Panel's decision to use company-sp ecific employment levels  of Boeing and Spirit, 
relative to total manufacturing employment in the City of Wichita, as the benchmark for its 
disproportionality analysis.  The United States consid ers that "the Panel's approach, by focusing on a 
single numerical ratio, and using the total level of manufacturing employment within the jurisdiction of the granting authority as its baseline, does not provide a valid benchmark for what a subsidy like 
the IRBs would be proportional to."
1759  The United States further main tains that the Panel erred by 
                                                      
1756Panel Report, para. 7.769. 
1757Panel Report, para. 7.769. 
1758Panel Report, para. 7.769.  The Panel remarked that the United States had argued "at a relatively 
high level of generality" that the degree of diversification in the Wichita economy was low, but had not 
presented any statistics to indicate that Boeing and Spirit accounted for anything approximating 69% of the economic activity in Wichita. ( Ibid.) 
1759United States' other appellant's submi ssion, para. 186. (emphasis omitted) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 360 HSBI omitted, as indicated [[HSBI]]  
 
  failing to take into account the extent of divers ification of economic activities in the City of 
Wichita.
1760 
872. The European Union argues that the United States has failed to establish that the Panel erred 
in its disproportionality analysis.  In the European  Union's view, the Panel correctly concluded that 
the United States had not provided a convincin g rebuttal of the European Communities' prima facie 
case.1761  In particular, the European Union argues, th e United States failed to present any evidence to 
demonstrate that the share of IRB benefits recei ved by Boeing and Spirit indeed reflected its 
participation in the Wichita economy, or that reliance on employment levels as a measure of 
economic participation was misleading.1762  The European Union furt her argues that the Panel 
considered economic diversification when it ev aluated Boeing's and Spirit's relative share of 
employment in the manufacturing sector in the City of Wichita.1763 
873. In considering this claim on appeal, we must bear in mind the overall framework set out in 
Article 2.1 of the SCM Agreement .  As we have explained in Part  VII, subparagraphs (a) through (c) 
of Article 2.1 are to be considered within an  analytical framework that recognizes and accords 
appropriate weight to each principle, and which allows  for their concurrent application.  We have also 
noted that the structure of Article 2.1 suggests that the specificity analysis will ordinarily proceed in a 
sequential order by which s ubparagraph (c) is examined following an assessment under 
subparagraphs (a) and (b).   
874. In this dispute, although the European Communities did not present a claim of specificity with 
reference to subparagraphs (a) or (b), the Panel nevertheless proceede d to examine specificity within 
the meaning of Article 2.1(a).  According to th at provision, specificity exists where a granting 
authority, or the legislation pursuant to which th e granting authority operates, explicitly limits access 
to a subsidy to "certain enterprises", defined in th e chapeau to Article 2.1 as "an enterprise or industry 
or group of enterprises or industries".  The Panel noted that the European Communities had not 
attempted to argue that the tax abatements provi ded through the issuance of IRBs are specific under 
Article 2.1(a), and added that "it is clear that this is not the case."1764  The Panel considered that the 
relevant Kansas State statutory provisions "do not e xpressly limit the availability of the subsidy such 
that it is not broadly available throughout the ec onomy", and that this is in accordance with the 
legislation's broad purpose, which, the Panel found, "does not include any suggestion of an intent to 
                                                      
1760United States' other appellant's submission, para. 191. 
1761European Union's appellee's submission, para. 277 (referring to Panel Report, para. 7.769). 
1762European Union's appellee's submission, para. 277 (referring to Panel Report, para. 7.769). 
1763European Union's appellee's submission, para. 292. 
1764Panel Report, para. 7.743.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 361  
 
  limit the issuance of IRBs to 'certain enterp rises' within the meaning of Article 2.1(a)".
1765  The Panel 
then set out a provision of the Kansas State statute, which provides as follows: 
It is the purpose of this act to promote, stimulate and develop the 
general welfare and economic prosperity of the state of Kansas 
through the promotion and advanc ement of physical and mental 
health, industrial, commercial and agricultural, natural resources and 
of recreational development in the state; to encourage and assist in the location of new business and in dustry in this state and the 
expansion, relocation or retenti on of existing business, industry and 
health development; and to prom ote the economic stability of the 
state by providing greater employment opportunities, diversification of industry and improved physical a nd mental health, thus promoting 
the general welfare of the citizens of this state by authorizing all 
cities and counties of the state to issue revenue bonds.
1766 
875. The Panel's conclusion that the IRB subsidi es are not specific within the meaning of 
Article 2.1(a) has not been raised on appeal.  The authorizing statute expresses eligibility for IRB 
benefits in very broad terms, noting no limitations  on access to a particular enterprise or industry or 
group of enterprises or industries.  The statute also indicates that its purpose is to encourage new business to locate in Kansas State, to assist in the retention of existing business, and to promote 
economic stability through the diversification of in dustry.  These and other indicators point to broad 
access to IRB benefits without any apparent limitation to a particular enterprise or industry, or group 
thereof.  
876. The Panel then proceeded to an alyze whether there was a basis for finding specificity in fact 
under Article 2.1(c) of the SCM Agreement .
1767  Article 2.1(c) provides that, "{i}f, notwithstanding 
any appearance of non-specificity resulting from th e 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."  This sentence makes cl ear that the application of Article 2.1(c) proceeds 
on the basis of the conclusions reached as a result of  the application of the preceding subparagraphs of 
Article 2.1.  We therefore consider that it was correct for the Panel to assess whether the legislation 
pursuant to which the IRBs were granted explicitly  limited access to certain enterprises within the 
meaning of Article 2.1(a), even though it was not  claimed by the European Communities.  Having 
found that the IRB subsidies are not specific within the meaning of Article 2.1(a), analysis by the 
Panel under Article 2.1(b) was not necessary.   
                                                      
1765Panel Report, para. 7.743 (referring to Kansas Annotated Statute , sections 12-1740 ff (2001) (Panel 
Exhibit EC-167). 
1766Kansas Annotated Statute , section 12-1740 (2001) (Panel Exhibit EC-167). 
1767Panel Report, para. 7.744. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 362 HSBI omitted, as indicated [[HSBI]]  
 
  877. We have explained that Article 2.1(c) proceeds where "there are reasons to believe that the 
subsidy may in fact be specific".  This means th at, having reached the conclusion that there is an 
"appearance of non-specificity" following the applicati on of the principles set out in Article 2.1(a) 
and (b), a panel must consider whether, in the light of the arguments and evidence submitted by the 
parties, there are "reasons" for it to consider that an assessment under Article 2.1(c) is warranted.  The 
inquiry under Article 2.1(c) thus focuses on whethe r a subsidy, although no t apparently limited to 
certain enterprises from a review of the relevant legi slation or express acts of a granting authority, is 
nevertheless allocated in a manner that belies the a pparent neutrality of the measure.  This inquiry 
requires a panel to examine the reasons as to why the actual allocation of "amoun ts of subsidy" differs 
from an allocation that would be expected to resu lt if the subsidy were administered in accordance 
with the conditions for eligib ility for that subsidy.   
878. We have also explained that the "reasons to belie ve that the subsidy may in fact be specific" 
relate to the factors set out in subparagraph (c).  The second sentence of Article 2.1(c) prescribes the 
following factors for consideration:  (i) use of a subsidy programme by a limited number of certain enterprises;  (ii) predominant use by certain enterpri ses;  (iii) the granting of disproportionately large 
amounts of subsidy to certain enterprises;  and (iv)  the manner in which discr etion has been exercised 
by the granting authority in th e decision to grant a subsidy.
1768  The third sentence of Article 2.1(c) 
adds that, in applying this provision, account shall be taken of the extent of diversification of 
economic activities within the jurisdiction of the gr anting authority, as well as of the length of time 
during which the subsidy programme has been in op eration.  These elements define the terrain for 
assessing whether subsidies, which may have app eared non-specific following the application of 
Article 2.1(a) and (b), are nevertheless specific in fact .  Which elements are relevant to the analysis of 
specificity under Article 2.1(c) will be a function of what reasons there are to believe that the subsidy 
may in fact be specific.  We would expect a pane l to remain open to the applicability of each of the 
elements set out in Article 2.1(c), and to the possibi lity that a conclusion in respect of specificity in 
fact may, depending on the circumstances of the case, rely on an assessment of one, several, or all of 
those elements. 
879. In this dispute, the Panel conducted an analysis  of the IRBs under each of the factors set out 
in Article 2.1(c).  However, the factor on which th e Panel based its specificity finding, and which is 
directly at issue on appeal, concerns "the granting of disproportionately large amounts of subsidy to certain enterprises".  Article 2.1(c) does not offer clear guidance as to how to measure whether certain 
enterprises are "grant{ed} disproportionately large amounts of subsidy".  The language of 
                                                      
1768Footnote 3 to Article 2.1(c) specifies that, "in pa rticular, information on the frequency with which 
applications for a subsidy are refused or approved and the reasons for such decisions shall be considered."  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  Article 2.1(c) indicates that the first task is to id entify the "amounts of subsidy" granted.  Second, an 
assessment must be made as to whether the amounts of subsidy are "disproporti onately large".  This 
term suggests that disproportionality is a relationa l concept that requires an assessment as to whether 
the amounts of subsidy are out of proportion, or relatively too large.
1769  When viewed against the 
analytical framework set out above regarding Article 2.1(c), this factor requires a panel to determine 
whether the actual allocation of the "amounts of subs idy" to certain enterprises is too large relative to 
what the allocation would have been if the su bsidy were administered  in accordance with the 
conditions for eligibility for that subsidy as assessed unde r Article 2.1(a) and (b).  In our view, where 
the granting of the subsidy indicates a disparity between  the expected distribution of that subsidy, as 
determined by the conditions of eligibility, and its  actual distribution, a panel will be required to 
examine the reasons for that disparity so as ultimate ly to determine whether there has been a granting 
of disproportionately large amounts of subsidy to certain enterprises.   
880. On this basis, we turn to examine the alloca tion of IRB subsidies granted to Boeing and Spirit 
by the City of Wichita, and the reasons why such amounts of subsidy may or may not be disproportionately large. 
881. The European Communities claimed in its first written submission that Boeing and Spirit 
received a disproportionately large amount of IRB s ubsidies issued by the City of Wichita between 
1979 and 2005, because these companies were granted 61% of all IRBs, and 69% of all IRBs that 
included property tax abatements.
1770  The United States sought to rebut this claim by arguing that the 
fact that Boeing and Spirit received a significant sh are of IRBs was "unremarkable", because Boeing 
was "the largest private sector employer for the entire State of Kansas" and "aircraft production has 
historically been the core industry of Wichita".1771  The United States added that, "{i}n the 1990s, 
Boeing's employment levels in Wichita exceeded  20,000 in some years with a payroll of 
approximately $1 billion".1772   
882. In its second written submission, the European Communities argued that "{o}ne way to assess 
the relative importance of a company within a local economy is to consider the company's employment as a percentage of local employment."
1773  In support of its argument, the 
                                                      
1769The term "disproportionate" signifies "{l}acking proportion;  poorly proportioned;  out of 
proportion (to);  relatively too large or too small";  and the term "proportion" refers to "{a} portion, a part, a 
share, esp. in relation to a whole;  a relative amount or number". ( Shorter Oxford English Dictionary , 6th edn, 
A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1, p. 713 and Vol. 2, p. 2372, respectively)  
1770Panel Report, para. 7.714 (referring to European Communities' first written submission to the Panel, 
paras. 336 and 337). 
1771United States' first written submission to the Panel, para. 613. (emphasis and footnote omitted)  
1772United States' first written submission to the Panel, para. 613. (footnote omitted)  
1773European Communities' second written submission to the Panel, para. 249.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  European Communities noted that, in 2006, Spirit 's employment levels amounted to 16% of 
manufacturing employment in Wichita.
1774  The United States responded that this analysis failed to 
account for the diversification of economic activit ies within the City of Wichita, as required by 
Article 2.1(c), and that the European Communities'  reliance on the employment metric in isolation 
reflected an insufficient inquiry under Article 2.1( c) and was, in any event, misleading, because 
Boeing's employment was more than double that of Spirit's during the relevant period.1775  T h e  
European Communities countered that it had taken account of diversificati on of economic activities 
within Wichita by showing that "Boeing's share of Wichita IRBs is disproportionate, even taking into 
account Boeing's significance in the local economy"1776 as measured by employment data.  The 
European Communities also noted  that, even accepting the contention that Boeing's employment 
levels were double those of Spirit, the resulting figure of 32% of overall local manufacturing 
employment still supports its argument that Boeing and Spirit were granted disproportionately large 
amounts of IRB subsidies.1777 
883. As we understand it, IRBs are potentially ava ilable to enterprises that seek to purchase, 
construct, or improve various types of commercial or industrial property.1778  Thus, enterprises that 
would seek to have the City of Wichita issue IRBs on their behalf are those that intend to invest in 
property development.  In any given year, not a ll enterprises in Wichita will be undertaking such 
property development, and, even if they were, th ey may not be inclined to fund such development 
through the IRB scheme.  We therefore consider  it likely that, although the legal basis for the 
allocation of IRBs may seemingly be broadly availa ble to enterprises in Wich ita, the enterprises that 
are actually in a position to avail themselves of IRB benefits at any given time represent only a subset of all enterprises in Wichita.  Nevertheless, even if the benefits of IRBs are limited to those enterprises actually in a position to seek them, we would expect, on the basis of the conditions 
established for eligibility for IRBs, a wide distributi on of those benefits across various sectors of the 
Wichita economy.
1779  Where the actual distribution of a subsidy deviates materially from the 
expected distribution of that subsidy, a panel w ould need to examine the reasons provided by the 
parties to explain that outcome.   
                                                      
1774Panel Report, para. 7.769;  European Commun ities' second written submission to the Panel, 
para. 249. 
1775United States' response to Panel Question 46, paras. 124 and 125. 
1776European Communities' comments on the United States' response to Panel Question 46, para. 152. 
1777Panel Report, para. 7.769;  European Communities' comments on the United States' response to 
Panel Question 46, para. 153.  
1778Panel Report, para. 7.651.  
1779At the oral hearing, the United States referred to an exhibit that indicates that potential IRB 
recipients must, among other qualifications, engage in one of the following activities:  manufacturing, service 
sector, research and development, warehousing and distribution, corporate headquarters, transportation, commercial redevelopment, tourism, affordable housing, and medical services. (See City of Wichita/Sedgwick 
County Economic Development Incentives Policy (Panel Exhibit EC-190))  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  884. In this dispute, the European Communities submitted to the Panel that Boeing and its 
successor, Spirit, received approximately 69% of a ll IRBs granted by the City of Wichita between 
1979 and 2005.  The Panel noted no objection by the Un ited States to this ratio, and considered that it 
was reasonable to rely on it in assessing Boeing's and Sp irit's share of property tax abatements with 
the total amount of property tax abatements received by all IRB holders.
1780  Even taking into account 
the fact that not all enterprises in Wichita would, at any given time, wi sh to enjoy the benefits of IRBs 
in respect of property development, we would noneth eless expect that the allocation of such benefits 
over the 25-year period between 1979 and 2005 would have produced a wider distribution of those 
benefits across different sectors of the Wichita economy.  The fact that Boeing and its successor received over two thirds of all I RB property tax abatements from the City of Wichita over a 25-year 
period, in our view, provides a reason to belie ve that the IRB subsidies were granted in 
disproportionately large amounts to certain enterprises.
1781   
885. In this dispute, the European Communities a nd the United States engaged in considerable 
debate over the proper scope of a second ratio m easuring the economic participation of Boeing and 
Spirit that, when compared against the 69% figu re, could demonstrate whether the amounts of  
IRB subsidies provided to Boeing and Spirit were disproportionately large.1782  T h e  
European Communities had argued before the Pa nel that the second ratio should consist of 
information about Boeing and Spirit relative to co mparable information relating to the entire economy 
in the jurisdiction of the granting authority;  whereas the United States had argued that the second 
ratio should compare such information about Boeing and Spirit with comparable information relating 
to the group of recipients of the alleged subsidy.1783  In addition, the European Communities and the 
United States disagreed over whether employment da ta was the appropriate me tric to rely upon in 
measuring the economic participation of Boeing and Spirit.1784  It was on the basis of this debate that 
the Panel accepted the European Communities' argument that the 69% figure demonstrated 
                                                      
1780Panel Report, paras. 7.755 and 7.756.  
1781We also note the Panel's conclusion that, together with another aircraft manufacturer (Cessna 
Aircraft Company), these entities receive d more than 78% of relevant IRBs during this period. (Panel Report, 
para. 7.751)  
1782Panel Report, para. 7.759. 
1783Panel Report, para. 7.759.  The Panel recognized limitations in both benchmarks advanced by the 
parties, noting that each produced a nomalous results.  If the scope of the benchmark is economic participation 
within the entire economy, the use of that benchmark is  likely to produce disparities in the comparison between 
the subsidy allocations and economic participation that reflects some disproportionality. (See ibid., paras. 7.761 
and 7.762)  If the scope of the benchmark is limited to subsidy recipients, a subsidy distributed to an entity or group of entities constituting certain en terprises will likely indicate some di sproportionality, b ecause that entity 
or group of entities will also constitute 100% of the economic activity of subsidy recipients. (See ibid., 
para. 7.765) 
1784European Communities' second written submission, para s. 249 and 250;  United States' response to 
Panel Question 46, para. 124. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 366 HSBI omitted, as indicated [[HSBI]]  
 
  disproportionality when measured against evidence th at Boeing and Spirit amounted to no more than 
32% of manufacturing employment in Wichita.
1785 
886. We do not consider that the focus by the par ties and the Panel on determining what share of 
employment Boeing and Spirit had within the Wichita economy is particularly relevant to the inquiry 
of whether the IRB subsidies granted to Boeing and Sp irit were disproportionately large.  As we have 
explained, a panel's inquiry under Ar ticle 2.1(c) should focus on the reasons that explain any disparity 
between the actual and expected distributions of a subsidy.  On appeal, the United States seeks to 
explain why the fact that Boeing and Spirit were granted 69% of IRB benefits does not indicate the 
granting of disproportionately large amounts of subsidy.  The United States argues that IRBs are not available to the entire economy of Wichita, and that , as a result, calculating Boeing's and Spirit's share 
of economic participation as a ratio of employment  levels of the entire Wichita manufacturing sector 
is not informative.  As the United States argues,  "only those companies that fund, construct or 
improve industrial and/or commercial property durin g the relevant time period actually had access to 
the IRB program", and there is therefore no reason to assume "that there is necessarily a logical and 'proportionate' relationship betwee n the number of employees of a particular company or group of 
companies as compared to all employment in the Wichita manufacturing sector, and the amount of 
IRB tax benefits received".
1786  It would have made much more sense, the United States argues, to 
take a look at "qualifying investments" during the relevant period of time—that is, "those companies 
that actually made investments in in dustrial or commercial property".1787 
887. We agree that examining qualifying investments would have been a reasonable basis on 
which to show why the 69% figure does not indicate that IRB subsidies were granted in disproportionately large amounts.  In particular, such a showing may have explained why, for IRB 
benefits seemingly broadly ava ilable over a 25-year period to enterprises seeking to develop 
commercial or industrial property, one company a nd its successor received over two thirds of those 
benefits.  However, we do not see on the Panel re cord that the United States provided evidence in 
support of such an explanation.   
                                                      
1785Panel Report, para. 7.769.  
1786United States' other appellant's submission, para. 184. (footnote omitted) 
1787United States' other appellant's submission, para. 184.    BCI deleted, as indicated [***] WT/DS353/AB/R 
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  888. Instead, the United States advanced the generalized arguments that the Wichita economy is 
undiversified, that the "core industry of Wichita h as focused on aircraft production", and that Wichita 
is sometimes known as the "Air Capital of the World".
1788  We do not see, however, that the 
United States put forward evidence to demonstrate th at, even taking into account the particular focus 
in Wichita on aircraft manufacturing, Boeing and Sp irit would be expected to receive over two thirds 
of IRB subsidies.  On this basis, we agree w ith the Panel's assessment that the United States' 
arguments regarding the diversification of the Wich ita economy were made only at "a relatively high 
level of generality".1789  In sum, we do not see that the United States provided sufficient reasons 
supported by evidence to undermine the assessment th at the granting to Boeing and Spirit of 69% of 
the amounts of IRB subsidy represents an allocation at  variance from what would have been expected 
from the allocation of IRBs in accordance with their conditions for eligibility. 
889. For the foregoing reasons, we uphold , albeit for different reasons, the Panel's finding, in 
paragraph 7.779 of the Panel Report, that the IRB su bsidies provided by the City of Wichita to Boeing 
and Spirit are specific within the meaning of Article 2.1(c) of the SCM Agreement . 
X. Adverse Effects 
A. Introduction 
890. After finding 15 measures to constitute specific subsidies in the collective amount of "at least 
$5.3 billion"1790, the Panel proceeded to evaluate the Eu ropean Communities' claims that it had 
suffered adverse effects to its commercial interest s in the form of serious prejudice within the 
meaning of Articles 5(c) and 6.3(a), (b), and (c) of the SCM Agreement .  In its analysis, the Panel 
separated these subsidy measures into three groups, identified three relevant product markets, and 
considered two mechanisms1791 (by affecting Boeing's prices , and by affecting the development of 
technologies for use on a new Boeing LCA model) through wh ich the subsidies were alleged to cause 
serious prejudice.  This taxonomy, along with the Pane l's ultimate findings, are set out in Table 2, and 
then explained in more detail in the next part of this section. 
                                                      
1788United States' other appellant's submission, para. 191 (referring to Panel Report, para. 7.752;  and 
quoting United States' first written submission to the Pa nel, para. 607;  and Greater Wichita Convention and 
Visitors Bureau, "Aviation and Wichita" (Panel Exhibit US-250), respectively). 
1789Panel Report, para. 7.769.  
1790Panel Report, paras. 7.1433 and 7.1700.   
1791Panel Report, para. 7.1596. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  Table 2.  Structure and summary of the European Co mmunities' claim and the Panel's finding on adverse 
effects 
Product market  
(Boeing and Airbus LCA 
in that market) Serious prejudice alleged Serious prejudice found 
100-200 seat  
LCA market  
 
(737NG and A320) All of the subsidies had price 
effects which caused: 
 significant price suppression of the 
A320, or threat thereof  
 significant lost sales of the A320, or 
threat thereof  
 displacement and impedance of 
EC exports of the A320 from various 
third-country markets, or threat 
thereof  The FSC/ETI subsidies and the 
Washington State B&O tax rate 
reduction affected Boeing's pricing 
of the 737NG, and this caused: 
 significant price suppression of the 
A320 
 significant lost sales of the A320  
 displacement and impedance of 
EC exports of the A320 from third-
country markets 
200-300 seat  LCA market   
 
(767, 787, A330,  
Original A350, and 
A350XWB-800) All of the subsidies had price 
effects, and the aeronautics R&D 
subsidies also had technology 
effects, and both types of effects caused: 
 significant price suppression of the 
A330, Original A350, and A350XWB-800, or threat thereof 
 significant lost sales of the A330 and 
Original A350, or  threat thereof 
 displacement and impedance of 
EC exports of the A330 and Original 
A350 from various third-country 
markets, or threat thereof 
 displacement and impedance of 
EC imports of the A330 and Original 
A350 into the United States, or threat 
thereof The aeronautics R&D subsidies 
affected Boeing's development of 
technologies for th e 787, and this 
caused: 
 significant price suppression of the 
A330 and Original A350 
 significant lost sales of the A330 and 
Original A350 
 threat of displacement and 
impedance of EC exports of the A330 and Original A350 from 
third-country markets 
300-400 seat  LCA market  
 
(777, A340, and 
A350XWB-900/ -1000) All of the subsidies had price 
effects which caused:  
 significant price suppression of the 
A340, or threat thereof  
 significant lost sales of the A340, or 
threat thereof 
 displacement and impedance of 
EC exports of the A340 from various 
third-country markets, or threat 
thereof  The FSC/ETI subsidies and the 
Washington State and City of 
Everett B&O tax rate reductions 
affected Boeing's pricing of the 777, and this caused:  
 significant price suppression of the 
A340 
 significant lost sales of the A340 
 displacement and impedance of 
EC exports of the A340 from third-country markets
 
  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  891. Before the Panel, the European Communities argued that 31 subsidy measures, alleged to 
amount to a total of $19.1 billion
1792, had caused serious prejudice in the form of significant price 
suppression and significant lost sales, and a threat ther eof, in the world market within the meaning of 
Articles 5(c) and 6.3(c) of the SCM Agreement , as well as displacement and impedance of imports and 
exports, respectively, of Airbus LCA in the Unite d States and third-country markets, and a threat 
thereof, within the meaning of Articles 5(c) and 6.3(a) and (b) of the SCM Agreement .1793  According 
to the European Communities, " all of the subsidies  ha{d} … 'price effects' in that they … enabled 
Boeing to charge lower prices for its LCA".1794  Furthermore, the European Communities argued that 
one group of subsidies—the aeronautics R&D subsid ies—also had "technology effects" in one of 
three relevant product markets, in that such subs idies enabled Boeing to research, design, develop, 
launch, produce, and sell its technologically innova tive 787 family of LCA years earlier than would 
otherwise have been possible.1795  These price and technology effects in turn adversely affected sales, 
market share, and prices of the competing Airbus LCA in the relevant product markets, according to 
the European Communities.1796 
892. The number of measures that the Panel found to be specific subsidies (15 measures) and their 
total amount ("at least $5.3 billion"1797) were both less than had been alleged by the 
European Communities.  For purposes of its analysis  of serious prejudice, the Panel separated these 
subsidies into three groups, which we refer to as  the "aeronautics R&D subsidies";  the "tied tax 
subsidies";  and the "remaining subsidies".1798   
                                                      
1792Panel Report, para. 7.1606.  The European Comm unities further estimated  that Boeing would 
receive an additional $4 .6 billion in su bsidies from 2007-2024. ( Ibid.) 
1793Panel Report, para. 7.1592 (referring to Europ ean Communities' first written submission to the 
Panel, para. 1000);  see also para. 7.1594.  The Euro pean Communities alleged that certain of these subsidies 
were also prohibited subsidies ( ibid., para. 3.1), and the Panel found that one group of subsidy measures, 
namely, the FSC/ETI subsidies, were prohibited subsidies ( ibid., para. 8.2(a)). 
1794European Union's appellant's submission, para. 194 (quoting Panel Report, para. 7.1598 (original 
emphasis), in turn referring to European Communities' first written submission to the Panel, para. 1229).  
1795Panel Report, paras. 7.1596 and 7.1597 (referri ng to European Communities' first written 
submission to the Panel, paras. 1335, 1343, and 1345). 
1796Panel Report, para. 7.1596. 
1797Panel Report, para. 7.1700.   
1798Except with respect to the aeronautics R&D subsid ies, the Panel did not use the same nomenclature 
in referring to these three groups.  We note that we use th e term "tied" to refer to subsidies that are directly 
related to Boeing's production or sale of LCA in the se nse that the receipt of the subsidy is contingent on 
production or sale of a particular product.  Although it di d not use this term to refer to the FSC/ETI subsidies or 
the B&O tax rate reductions, the Panel appears to have accep ted that it could be used to describe them. (Panel 
Report, footnote 3783 to para. 7.1827)  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  893. The aeronautics R&D subsidies, which the Pane l found to amount to at least $2.6 billion, 
consist of:  (i) the payments made to Boeing and the access to NASA facilities, equipment, and 
employees provided to Boeing by NASA pursuant to procurement contracts and Space Act 
Agreements entered into under the eight aeronautics R&D programmes at issue;  and (ii) the payments 
made to Boeing and the access to USDOD faciliti es provided to Boeing pursuant to assistance 
instruments entered into under th e 23 USDOD RDT&E programmes at issue.1799   
894. The three tied tax subsidies, which the Panel fo und to amount to approximately $2.2 billion, 
consist of:  (i) the tax exemptions and tax exclusions provided to Boeing under FSC/ETI 
legislation1800;  (ii) the Washington State B&O tax rate reduction1801;  and (iii) the City of Everett, 
Washington, B&O tax rate reduction.1802   
895. The eight remaining subsidies, which th e Panel found to amount to approximately 
$550 million, consist of1803:  (i) the property and sales tax abatements provided to Boeing pursuant to 
IRBs issued by the City of Wi chita, Kansas;  (ii) the Washi ngton State B&O tax credits for 
preproduction development, computer software and hardware, and property taxes;  (iii) the 
Washington State sales and use tax exemptions for computer hardware, peripherals, and software;  
(iv) the Washington State workforce developmen t programme and Employment Resource Center;  
(v) the reimbursement of a portion of Boeing's reloca tion expenses by the State of Illinois;  (vi) the 
15-year Economic Development for a Growing Eco nomy ("EDGE") tax credits provided by the State 
of Illinois;  (vii) the abatement or refund of a portion of Boeing's property taxes provided by the State 
of Illinois;  and (viii) the payment to retire the lease of the previous tenant of Boeing's new 
headquarters building in Chicago, Illinois. 
                                                      
1799See Panel Report, paras. 7.1110, 7.1210, 7.1431, and 7.1433.  The Panel identified these as four 
types of measures, namely:  (i) the payments made to Boeing pursuant to procurement contracts entered into 
under the eight NASA aeronautics R&D programmes at i ssue;  (ii) the access to NA SA facilities, equipment, 
and employees provided to Boeing pursuant to procurement contracts an d Space Act Agreements entered into 
under the eight NASA aeronautics R&D programmes at issu e;  (iii) the payments made to Boeing pursuant to 
assistance instruments entered into under the 23 USDOD RDT&E programmes at  issue;  and (iv) the access to 
USDOD facilities provided to Boeing pursuant to assist ance instruments entered into under the 23 USDOD 
RDT&E programmes at issue.  However,  we recall that, for the reasons expl ained in section VI.A, we view the 
aeronautics R&D subsidies as joint venture-type transactions that are composite in nature.  
1800Panel Report, para. 7.1429.  As explained infra , footnote 1882, the European Communities did not 
claim that the FSC/ETI subsidies had adverse effects in  the 200-300 seat LCA mark et, and the Panel conducted 
its analysis on the basis that these subsid ies had no effects in that product market. 
1801Panel Report, para. 7.302. 
1802Panel Report, para. 7.354.  As explained infra , footnote 1879, the City of Everett B&O tax rate 
reduction applies only in respect of two of the three relevant product markets, and not in respect of the 100-200 seat LCA market. 
1803Panel Report, paras. 7.1431 and 7.1825-7.1827.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  896. The Panel analyzed the effects of each group of subsidies separately, beginning with the 
largest one in terms of the total amount of th e subsidies (the aeronautics R&D subsidies).
1804  A s  
explained further below, the Panel analyzed the alleged "technology effects" of the aeronautics R&D 
subsidies, then assessed the alleged "price effects" of  the tied tax subsidies and, finally, considered the 
alleged "price effects" of the remaining subsidies. 
1. Background Information 
(a) Relevant markets, the reference period, and the temporal assessment 
of relevant market phenomena  
897. The Panel made a number of findings regard ing the relevant "markets", "subsidized 
products", and "like products" for purposes of its an alysis.  The parties agreed, and the Panel found, 
that "the LCA market is a global market geographically".1805  The European Communities divided the 
global LCA market into five market segments, or pr oduct markets, on the basis of the flight range and 
seating capacity of LCA.  Table 3 sets out the three product markets relevant to the 
European Communities' claim. 
                                                      
1804Panel Report, para. 7.1700.  As explained in section X.C below, in analyzing the effects of the 
aeronautics R&D subsidies provided by the USDOD, although the Panel recognized that, to the extent that they 
were funded by assistance instruments, all of the RDT&E programmes could have had relevant effects, it 
considered that there was "insuffici ent evidence on the record" of the eff ects of 21 of the 23 USDOD RDT&E 
programmes. ( Ibid., para. 7.1701)  Accordingly, the Panel assessed the effects of just two of those 
programmes—ManTech and DUS&T—in its serious prejudice analysis.  
1805Panel Report, para. 7.1671.  The Panel based its finding on a number of factors, namely:  (i) Airbus 
and Boeing compete for the business of airlines and l easing companies throughout the world, and receive orders 
from, and make deliveries to, customers based in almost all geographic areas of the world;  (ii) both companies 
display and market their aircraft at  air shows that are held around the world and which are attended by a 
worldwide audience;  (iii) Airbus and Boeing production and support facilities are situated around the world;  
and (iv) aircraft financing occurs on a global level. ( Ibid.) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 372 HSBI omitted, as indicated [[HSBI]]  
 
  Table 3.  Relevant product markets 
Product market Alleged Boeing 
"subsidized product" Competing Airbus 
"like product" 
The 100-200 seat LCA market: 
Single-aisle LCA with a capacity of  
100-200 passengers in a 2-class configuration  
(or the respective cargo equivalent)  
and a short to medium range  737NG A320 
The 200-300 seat LCA market: 
Wide-body LCA with a capacity of  
200-300 passengers in a 3-class configuration  
(or the respective cargo equivalent)  
and a medium to long or ultra-long range  787 
     7671806 A330,  
Original A350 and 
A350XWB-800 
The 300-400 seat LCA market: 
Wide-body LCA with a capacity of  
300-400 passengers in a 3-class configuration  
(or the respective cargo equivalent)  and a long or ultra-long range 777 A340 and  
A350XWB-900/-1000 
Source :  Panel Report, paras. 7.1669-7.1672. 
 
898. The United States accepted the Euro pean Communities' division of the market as the basis for 
evaluating the European Communities' serious prejudice claim1807, and so did the Panel.1808  The Panel 
further expressed the view that, provided that the European Communities demonstrated one of the 
alleged forms of serious prejudice in subparagraphs (a) through (c) of Article 6.3 in relation to a 
particular Boeing subsidized LCA and a correspondi ng Airbus like product, it would establish serious 
prejudice for purposes of Article 5(c) of the SCM Agreement .1809 
899. With respect to the relevant geographical sc ope for its analysis, the Panel distinguished 
between:  (i) the European Commun ities' claims under Artic le 6.3(c) of significant lost sales and 
significant price suppression;  and (ii) its claims under Article 6.3(a) and (b) of displacement or 
impedance of imports or exports.  For the first category of claims, the Panel stated that it would 
conduct its analysis on the basis of its understanding that the geographic scope of each product market 
                                                      
1806Although the European Communities did not make any claims relating to the subsidization of, or 
Boeing's commercial behaviour in respect  of, the 767, it appears to have been accepted by both parties as well as 
by the Panel that Boeing's 767 competed in the same 200-300 seat LCA market as the 787 and Airbus' A330, Original A350, and A350XWB-800. (S ee, for example, Panel Report, pa ras. 7.1774, 7.1775, and 7.1783) 
1807Panel Report, para. 7.1670.  The United States cons idered that, because a co mplaining party enjoys 
considerable latitude in framing its arguments, as long as the complainant identifies markets or products that are 
reasonable and coherent, a panel should accept that defini tion.  While the United States believed that there were 
"serious flaws" in the European Co mmunities' five-way segmentation of the LCA market, it accepted that the 
subsidized products identified were sufficien tly coherent to permit a market analysis. ( Ibid.) 
1808Panel Report, para. 7.1672.  The Panel considered it "reasonable" to examine the 
European Communities' arguments on the basis of its identification of these product markets, and clarified that it 
was not suggesting that this is the only, or most appropriate, way in which to divide the LCA market or to identify the relevant subsidized produc ts and corresponding like products. ( Ibid.) 
1809Panel Report, para. 7.1667.    BCI deleted, as indicated [***] WT/DS353/AB/R 
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  was worldwide.
1810  With respect to the second category, how ever, the Panel noted that Article 6.3(a) 
and (b) "expressly direct us to conduct our examination of displacement and impedance on the basis 
of national markets".1811  Thus, the Panel explained, it would examine whether there was displacement 
and impedance of imports or exports based on th e evidence of sales occurring in the three product 
markets in each relevant country.  
900. The Panel accepted, as an appropriate reference period for purposes of its serious prejudice 
analysis, the three-year period proposed by the European Communities—namely, 2004-2006.1812  The 
Panel stated that it would nevertheless, in assessi ng the existence of serious prejudice within that 
reference period, take account of "e vidence pertaining to periods prior to 2004, giving due weight to 
that evidence in terms of its contex t, relevance, and probative value".1813  In contrast, the Panel 
rejected arguments by the European Communities that  the full amount of certain subsidies received 
(or anticipated to be received) in 2007-2009 should be allocated, three years back in time, to the 
2004-2006 reference period.1814 
901. The parties' arguments also raised certain issu es with respect to the moment in time at which 
price suppression, lost sales, and displacement or impe dance occur, and, in this connection, regarding 
the probative value of evidence of orders for aircraft versus evidence of ( actual ) deliveries of aircraft.  
The Panel considered that the specific modalities of  how LCA are produced and sold means that price 
suppression and lost sales for such products "should be  understood to begin at the time at which an 
LCA order is obtained (or an order is lost), and to continue up to and including the time at which that 
aircraft is delivered (or not delivered)".1815  This is because the terms and conditions of purchase are 
set at the time of order, but only a fraction of the payment is made at that time.  Complete payment 
does not occur until delivery of the aircraft, years later.1816  In contrast, the Panel considered that the 
terms "imports" and "exports" in Article 6.3(a) and (b) of the SCM Agreement  indicate that 
displacement and impedance are forms of serious pr ejudice that arise only on delivery of the aircraft 
to the customer.1817  In other words, because displacement or impedance occurs only at the time of 
                                                      
1810Panel Report, para. 7.1674. 
1811Panel Report, para. 7.1674. 
1812Panel Report, para. 7.1679.  This finding has not been appealed.  In reaching this finding, the Panel 
rejected the United States' argument that  such a reference period was too short in the light of the lengthy product 
development cycles in the LCA industry, and the fact that the European Communities had challenged subsidies 
granted over a long period of time, between 1989 and 2006. ( Ibid., para. 7.1678) 
1813Panel Report, para. 7.1679. 
1814See, for example, Panel Report, paras. 7.252, 7.1812, and 7.1813.   
1815Panel Report, para. 7.1685.  See also para. 7.1812. 
1816Panel Report, para. 7.1685 (referring to C. Sche rer, Airbus SAS, "Commercial Aspects of the 
Aircraft Business from the Perspective of a Manufacturer " (March 2007) (Panel Exhibit EC-11 (BCI), para. 49). 
1817Panel Report, para. 7.1685. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 374 HSBI omitted, as indicated [[HSBI]]  
 
  imports or exports, these phenomena arise only when LCA deliveries occur.
1818  The consequence of 
this understanding of how the relevant provisions are to be applied in the context of the market for 
LCA was, according to the Panel, that, in examining claims of significant price suppression and 
significant lost sales under Article 6.3(c), data pertaining to both LCA orders and LCA deliveries 
were relevant.  In contrast, only delivery data can definitively establish claims of actual displacement 
and/or impedance of impor ts or exports under Artic le 6.3(a) and/or (b).1819  The Panel added that, with 
respect to displacement or impedance, since an orde r for an aircraft can be considered to represent a 
future delivery, it may constitute evidence of a fu ture import or export that will be displaced or 
impeded, that is, evidence of the existence of a threat  of serious prejudice.1820  
(b) Key aspects of the LCA industry 
902. Several of the issues relating to serious prej udice implicate the structure of the LCA industry 
as well as the nature of competition between LCA manuf acturers.  Accordingly, in order to facilitate 
an understanding of the Panel's findings and provide some context for our evaluation of the issues on 
appeal, we begin by identifying key characteristics of  the LCA industry.  We do so on the basis of the 
findings made by the Panel1821, as well as matters of common ground between the parties.  
903. The LCA market is a duopoly.1822  Airbus and Boeing each holds a significant share of the 
market and possesses a degree of market power.  E ach manufacturer's decision regarding the supply 
and pricing of its products has the ability to influenc e the pricing of the other and, more generally, the 
market price.1823  Both the type and quantity of new LCA to be produced are determined by each 
manufacturer in consultation with major airlines a nd leasing companies, who are the main purchasers 
of LCA.1824  The characteristics sought by these customers have led to the development of broadly 
                                                      
1818Panel Report, para. 7.1686. 
1819Panel Report, para. 7.1686. 
1820Panel Report, para. 7.1686. 
1821Before turning to its evaluation of the European Communities' claim of serious prejudice, the Panel 
set out an overview of key aspects of the LCA industry "in order to provide relevant factual background to {its} 
evaluation of the effects of the subsidies". (Panel Report, para. 7.1687) 
1822Panel Report, para. 7.1688 and footnote 3550 thereto.  The Panel cited evidence that, as of 
31 December 2006, Boeing and Airb us LCA accounted for 90.9% of LCA in operation, and that other 
producers, such as the Russian manufacturer Tupolev, did not account for a significant volume of supply and 
operated only in certain regions and certain specific product categories. ( Ibid., footnote 3550 to para. 7.1688 
(referring to R.P. Muddle, Airlines Capital Associates , Inc., "The Dynamics of the Large Civil Aircraft 
Industry" (2 March 2007) (Panel Exhibit EC-10), para. 16)) 
1823Panel Report, para. 7.1688. 
1824Leasing companies accounted for approximately 17% of LCA orders and approximately 25% of 
LCA deliveries between 2000 and 2006. (Panel Report, paras. 7.1688 and 7.1689)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  similar LCA models by Airbus and Boeing.  Airbus  and Boeing each offers a full line of LCA, and 
both manufacturers source material and technolog y worldwide, often from the same suppliers.
1825   
904. LCA are sold to customers thro ugh long-term contracts, often involving staggered deliveries 
of aircraft over several years.  The terms and conditions of each purchase contract are set at the time the order is made, and include many different elem ents, such as aircraft specification, net price, 
discounts, non-price concessions, and financing a rrangements.  A non-refundable deposit is paid at 
the time of signature of the order contract, and ma nufacturers generally use the cash flow generated 
by such non-refundable deposits to finance production.
1826  Complete payment does not occur until 
delivery of the aircraft.1827  LCA purchase contracts provide both the basic airframe price, as well as 
for the "escalation"1828 of that price to account for the time that elapses between the negotiation of the 
price at the time of order and the delivery of the aircraft.   
905. LCA production involves substantial upfront de velopment costs over a period of several 
years, with a return over a considerably longe r period—18 years, on average.  LCA production is 
generally characterized by steep learning curves.1829  The production costs of initial units of a new 
LCA model are much higher than the production cost s of subsequent units once the manufacturer has 
begun to realize learning curve efficiencies.  Becau se such efficiencies are factored into an LCA 
manufacturer's projected costs at the time of the la unch of the new aircraft programme, manufacturers 
price initial units of LCA as though they were already at the bottom of the learning curve.1830  At the 
time of launch, the manufacturer sets pricing targets for the new aircraft that, over its projected life, 
must exceed the manufacturer's fu lly loaded average production costs by an amount sufficient to 
justify the investment.1831  Technological innovation is a key element of competition in this industry, 
and the period over which a particular aircraft model can be sold is largely determined by the life of 
the technology that defines that model.  As such  technology becomes outdated, the LCA manufacturer 
                                                      
1825Panel Report, paras. 7.1688 and 7.1692. 
1826Panel Report, para. 7.1685 (referring to C. Sche rer, Airbus SAS, "Commercial Aspects of the 
Aircraft Business from the Perspective of a Manufacturer " (March 2007) (Panel Exhibit EC-11 (BCI), para. 49). 
1827Panel Report, para. 7.1685 (referring to C. Sche rer, Airbus SAS, "Commercial Aspects of the 
Aircraft Business from the Perspective of a Manufacturer " (March 2007) (Panel Exhibit EC-11 (BCI), para. 49). 
1828Panel Report, para. 7.1685. 
1829Panel Report, para. 7.1691.  The Panel explained th at "{t}he learning curve refers to the negative 
correlation between cumulative output and unit cost:  the more aircraft of a given type of LCA produced by a 
firm, the less it costs to produce the next unit of that aircraft". ( Ibid., footnote 3561 to para. 7.1691 (referring to 
Professor L.M.B. Cabral, "Impact of Development Subs idies Granted to Boeing" (New York University and 
CEPR, March 2007) (Panel Exhibit EC-4), para. 53)) 
1830Panel Report, para. 7.1691 (referring to Dr. J. Jord an and Dr. G. Dorman, "Reply to the Report of 
Professor Cabral" (NERA Economic Consulting, 2007) (Panel Exhibit US-3), p. 15). 
1831Panel Report, para. 7.1691. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  will need to make major capital investments in ne w technologies to maintain a competitive product 
offering and to continue making sales.
1832 
906. Because of the importance of aircraft acquis itions to customers' businesses, every sales 
campaign involves a focus on the unique needs of the particular customer.  Differences in price, 
capacity, and direct operating cost are the most significant factors that determine the outcome of LCA sales campaigns.
1833  Customers are sophisticated, and they make extensive technical and economic 
evaluations of LCA manufacturers' proposals.1834  This involves estimating the present value of costs 
associated with the acquisition of a new fleet of aircra ft (for example, price, maintenance costs, direct 
and indirect operating costs, financing, training co sts, costs associated with the introduction of new 
LCA) against the present value of the revenue stream expected to be generated by the proposed fleet.  
The resultant calculation is the net present value to the customer of the proposal.1835  Both parties 
agreed before the Panel that the best overall ne t present value is typically determinative of the 
outcome of a sales campaign and that, because the performance characteristics of the competing LCA are fixed at the time of a sales campaign, the only variables that can be m odified during such a 
campaign are the price and price-related concessions.
1836  Price concessions can sometimes offset 
disadvantages associated with non-price factors.1837  According to the Panel, leasing companies tend 
to be more focused on price than airline customers.1838  Prices obtained by leasing companies can 
serve as a form of benchmarking on prices for new LCA.1839   
                                                      
1832Panel Report, para. 7.1691. 
1833Panel Report, para. 7.1694. 
1834Although engines account for between 20% and 30% of the total cost of LCA, LCA customers 
typically negotiate concessions on the engine purchase with engine manufacturers separately from their LCA purchase negotiations with airframe manufacturers. (Panel Report, para. 7.1690) 
1835Panel Report, para. 7.1694. 
1836European Communities' response to Panel Questio n 81, para. 321:  "{A}lthough a multitude of 
factors are involved during the course of a sales campaign, in the end, the only element that can still be 
negotiated is the final price, or some price-related other concession";  United States' comments on the 
European Communities' response to Panel Question 81, para. 275:  "{T}he United States agrees {with the European Communities} that the performance characteristics of the competing Boeing and Airbus large civil 
aircraft are set at the time of the sales campaign and that  the variable in the campaig ns is price and price/non-
price concessions". 
1837Panel Report, para. 7.1694. 
1838Panel Report, footnote 3567 to para. 7.1694 (referring to C. Scherer, Airbus SAS, "Commercial 
Aspects of the Aircraft Business from the Perspective of a Manufacturer" (March 2 007) (Panel Exhibit EC-11 
(BCI), para. 36), and footnote 3557 to para. 7.1689 (referring to R.P. Muddle, Airline Capital Associates, Inc., 
"The Dynamics of the Large Civil Aircraft Industry " (March 2007) (Panel Exhibit EC-10), para. 26). 
1839Panel Report, para. 7.1689.  The Panel also observed that, during the 2000-2006 period, sales to 
leasing companies accounted for a rela tively higher proportion of Airbus sales (20%) as compared to Boeing 
sales (14%). ( Ibid., footnote 3556 to para. 7.1689)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  907. LCA producers set prices in relation to, inter alia , the development costs for a particular LCA 
programme and the prices of competing LCA.
1840  At the time an LCA order is placed, the negotiated 
price1841 is typically lower than the airframe prices liste d in publicly available materials, due to price 
concessions and credits offered by the manufacturer.1842  The Panel "accept{ed}  evidence that Boeing 
changed its pricing policy in  late 2004/2005 and became much more 'aggressive' on price".1843 
908. During the course of its evaluation of the European Communities' claim of serious prejudice, 
the Panel referred to certain additional dynamics w ithin the LCA industry.  First, a subsidy that 
enhances an LCA manufacturer's ability to develo p innovative technologies for application to its 
aircraft will potentially give rise to a significant competitive advantage to that manufacturer.1844  
Second, in at least some instances, competition between rival LCA manufacturers is affected by so-called "switching costs".
1845  Switching costs refer to the costs that buyers who operate one 
particular family of aircraft must incur to switc h to a new supplier.  Such costs result from, for 
example, the need for additional training for pilots or  in respect of aircraft maintenance when different 
                                                      
1840Panel Report, Appendix VII.F.2 – The Cabral Model, p. 779, para. 74.  The Panel took account of 
evidence to the effect that, "at the time of the decision to launch an LCA programme, Boeing bases its pricing 
on (i) the price it believes the LCA will command over its lifetime, and (ii) the projected volume of sales for that 
LCA, against (iii) the costs of the LCA programme (inc luding non-recurring investments and recurring costs 
such as anticipated learning curve ef ficiencies)" and that, "once the launch  decision is made, pricing is 'market 
driven' in the sense that Boeing aims to achieve the highest market value for its products in light of market 
conditions". ( Ibid., footnote 4262 to para. 74 (quoting Statement of Clay Richmond (Panel Exhibit US-275 
(HSBI));  and referring to C. Scherer, Airbus SAS, "Commercial Aspects of the Aircraft Business from the 
Perspective of a Manufacturer" (March 2007) (Panel Exhibit EC-11 (BCI), para. 105))  In response to a question 
from the Panel, the United States explained that: 
Boeing's pricing decisions, which look for the optimal or profit-maximizing price, take a number of factors into account, including :  (1) the pricing of its 
competitor, Airbus, (2) the strength and elasticity of demand, (3) its 
expectations regarding future market co nditions, (4) its strategic interests in 
particular sales campaigns, (5) the implications of a price reduction for 
futures sales and for the residual values  of aircraft previously sold, and 
(6) changes in its product-specific fixed and variable costs, as well as in its 
general costs. 
(United States' response to Panel Question 298, para. 522 (original emphasis))
 
1841The Panel explained that, fr om the perspective of a customer, "the 'net flyaway price' of an aircraft 
consists of the 'total aircraft price' less credits and pr ice concessions offered by the LCA manufacturer";  as well 
as discounts offered by the engine manufacturer and by suppliers of buyer furnished equipment. (Panel Report, para. 7.1693)  The total aircraft price, in turn, consists  of the airframe basic list price, plus charges for:  
(i) changes to standard aircraft specifications;  ( ii) buyer furnished equipment;  (iii) supplier furnished 
equipment;  and (iv) the engine basic list price. ( Ibid.) 
1842Depending upon the number of years between the order and delivery of aircraft and the escalation 
terms agreed at the time the order is placed, price escala tion factors can significantly impact the purchase price 
ultimately paid upon delivery. (See Panel Report, para. 7.1685 (referring to C. Scherer, Airbus SAS, "Commercial Aspects of the Aircraft Business from the Perspective of a Manufactur er" (March 2007) (Panel 
Exhibit EC-11 (BCI), para. 49)) 
1843Panel Report, Appendix VII.F.2 – The Cabral Model, p. 777, para. 68. 
1844Panel Report, para. 7.1769. 
1845Panel Report, para. 7.1818. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  aircraft are introduced to a customer's fleet.
1846  The existence of switching costs implies that an 
incumbent supplier has an advantage in a particular sales campaign that the rival supplier will need to 
overcome in its overall offer.1847  Third, certain LCA sales campaigns are more price-sensitive and 
more competitive than others.1848  The Panel noted that the signifi cance of each of the three factors 
that tend to determine the outcome of LCA sales  campaigns—price, capacity, and direct operating 
cost—varies from campaign to campaign depending on buyers' fleets and business plans, as well as 
whether the buyer is an airline or a leasing compan y, and whether a leasing company is purchasing to 
satisfy known demand or on a speculative basis.1849  The Panel also noted that the 
European Communities distinguished between co mpetitive and non-competitive sales campaigns.1850  
Fourth, although demand for LCA slumped following the 11 September 2001 attacks on the World Trade Center and the 2003 severe acute respiratory syndrome (SARS) epidemic, this contraction was 
short-lived and the 2004-2006 period saw an unprecedented growth in demand for LCA.
1851 
2. The Panel's Approach to Causation  
909. The Panel began its analysis of serious prejudi ce by outlining the approach that it intended to 
take in analyzing the European Communities' claim.   The Panel indicated that these provisions require 
the establishment of a causal link between the subs idies at issue and the form of serious prejudice 
                                                      
1846Panel Report, footnote 3776 to para. 7.1818. 
1847While both the European Communities and the United States acknowledged the existence of 
switching costs and the fact that they  could induce an LCA manufacturer to offer price concessions to overcome 
such costs, they disagreed as to the extent of their si gnificance, as well as with resp ect to the circumstances in 
which they would play a role.  For example, the European Communities argued that switching costs also imply that a supplier's strategic incentives to compete aggressively to win a ne w customer include the incentive to 
become the incumbent supplier and th ereby to gain an advantage in futu re sales campaigns to that same 
customer.  The European Communities suggested that sw itching cost considerations are relevant whenever a 
buyer considers purchasing other aircraft within the same fa mily as aircraft that it already owns, and that, on this 
basis, 37.4% of Boeing's sales would involve switching cost considerations. (Panel Report, Appendix VII.F.2 – The Cabral Model, pp. 768 and 773, paras. 37-38 and 55, respectively)  The United States, in contrast, disputed 
the existence of any link between current price discount s and the probability of future switching costs.  The 
United States also argued that switchi ng costs could arise in campaigns only  where a customer is considering the 
purchase of aircraft that are the same variant , of the same generation , as its existing fleet, and that only 4.5% of 
Boeing deliveries between 2000 and 2006 involved the type of switching costs that could have led Boeing to 
make switching cost price concessions. ( Ibid., pp. 772-773, paras. 49-54) 
1848Panel Report, paras. 7.1694 and 7.1820.   
1849Panel Report, footnote 3568 to para. 7.1694.   
1850Panel Report, footnote 3393 to para. 7.1615 (re ferring to European Communities' first written 
submission to the Panel, para. 1222).   
1851Panel Report, paras. 4.297 and 7.1782.  The European Communities noted that, in their responses to 
Panel Question 299, both parties agreed on the reasons for the strong demand in 2004-2006, namely:  (i) strong demand for air travel in emerging mark ets such as China;  (ii) market lib eralization and the consequent opening 
of new routes and growth of low-cost carriers;  and (iii) increases in fuel costs that spurred airlines to replace 
aging fleets. (See European Communities' response to Panel Question 299, paras. 712-714;  United States' response to Panel Question 299, para. 527;  and European Communities' comments on the United States' 
response to Panel Question 299, para. 547)    BCI deleted, as indicated [***] WT/DS353/AB/R 
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  alleged.
1852  The Panel considered nonetheless that, gi ven the absence of the precise type of 
"causation" and "non-attribution" language found in Part V of the SCM Agreement , these provisions 
afford panels a certain degree of discretion in selecting an appropriate methodology for analyzing 
whether subsidies have caused the specific mark et phenomena listed in the subparagraphs of 
Article 6.3.1853   
910. The Panel remarked that the parties agreed that "determining whether the effect of the 
subsidies at issue in the dispute is serious prej udice necessitates an economic analysis of how the 
subsidies affected Boeing's  commercial behaviour with respect to the pricing and product 
development of particular LCA".1854  The Panel resolved to adopt a "unitary" approach to causation, 
under which it would not assess the indicia of comp etitive harm such as prices, sales, and market 
share in isolation but, rather, as part of an integrated analysis of causation.1855   
911. The Panel stated that it would adopt a counte rfactual approach in examining whether the 
effects of the subsidies at issue were displacement  or impedance, significant lost sales, or significant 
price suppression.  The Panel further explained that this counterfactual analysis would take place in 
two stages.1856  First, the Panel would examine the effects of the subsidies on Boeing's prices and 
product offerings in the relevant product markets.  Second, the Panel would ex amine the effects that 
the subsidies had, through those effects on Boeing, on Airbus'  prices and sales in the same product 
                                                      
1852Panel Report, para. 7.1656. 
1853Panel Report, para. 7.1656 (referring to Appellate Body Report, US – Upland Cotton , para. 436). 
1854Panel Report, para. 7.1657. (original emphasis)  The Panel also noted that the 
European Communities agreed with the United States that, "in order to cause adverse effects within the meaning 
of Articles 5 and 6.3, subsidies must cause a change in the commercial behaviour of their beneficiaries to an extent that results in adverse effects". ( Ibid., footnote 3493 to para. 7.1657 (quoting European Communities' 
second written submission to the Panel, para. 646))  The European Communities asserted that Boeing's 
commercial behaviour with respect to the pricing and product development of certain LCA would necessarily 
have been different absent the challenged subsidies, whereas the United States contended that Boeing's 
commercial behaviour would have been the same. ( Ibid., para. 7.1657) 
1855Panel Report, para. 7.1658.  As explained by the Appellate Body in EC and certain member States – 
Large Civil Aircraft , panels may undertake an analysis of serious prejudice under either a unitary or two-step 
approach.  Under a two-step approach, the analysis first seeks to identify the existence of the particular effects 
listed in Article 6.3 of the SCM Agreement —such as displacement or signifi cant price suppression—and then, as 
a second step, examines whether there is a causal relatio nship between such effects and the subsidies.  Under a 
unitary approach, the panel conducts a single, integrated analysis of both the existen ce of the market phenomena 
and the issue of whether they have been caused by the subsidies at issue.  Although the Appellate Body has said 
that either approach is acceptable, it has expressed a preference for a unitary approach, because  "it is difficult to 
understand the market phenomena described in the various subparagraphs of Article 6.3 in isolation from the challenged subsidies". (Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
para. 1109)  See also See Appellate Body Report, US – Upland Cotton , para. 431;  and Appellate Body Report, 
US – Upland Cotton (Article 21.5 – Brazil) , para. 354. 
1856Panel Report, para. 7.1659.  We emphasize that this "two-stage" approach of the Panel was not the 
same as the "two-step" approach adopted by the panels in EC and certain member States – Large Civil Aircraft 
and US – Upland Cotton , as explained in the preceding footnote 1855.  This Panel explained that it would 
conduct a unitary analysis of causation, but that, in doing so, it would consider the two stages through which the 
alleged subsidy effects operated:  firs t, the effects on Boeing, and, second , the consequent effects on Airbus. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 380 HSBI omitted, as indicated [[HSBI]]  
 
  markets.
1857  The Panel added that it would undertake an evaluation of possible non-attribution factors 
at both stages of its integrated analysis of causation.1858  The Panel expressed the view that proceeding 
through the approach that it had outlined would enable  it to determine whether "there is a genuine and 
substantial relationship of cause and effect between  the subsidy in question and the displacement or 
impedance, significant lost sales, or significant price suppression".1859 
912. In setting out the above approach, the Panel did not extensively elaborate its understanding of 
the requisite causal link pursuant to Articles 5(c) and 6.3 of the SCM Agreement .  Although neither 
participant has appealed the Panel's articulation of  its intended approach, we  nevertheless consider it 
useful to recall briefly the main elements of a causation analysis under Part III of the SCM Agreement  
because of the centrality of the issue of causation to ma ny of the claims of error raised in this appeal. 
913. A plain reading of the language of Article 5 ("No Member should cause , through the use of 
any {specific subsidy} … (c) serious prejudice to the interests of another Member"1860);  of Article 6.2 
("serious prejudice shall not be found if the subsid izing Member demonstrates that the subsidy in 
question has not resulted  in any of the effects  enumerated in {Article 6.3}"1861);  and of Article 6.3 
(which provides that serious prejudice may arise when "the effect  of the subsidy"1862 is one or more of 
the market phenomena listed in that provision) mak es clear that, in disputes involving claims under 
Part III of the SCM Agreement , a complainant must demonstrate not only the existence of the relevant 
subsidies and the adverse effects to its interest s, but also that the subsidies at issue have caused such 
effects.1863  The Appellate Body has consistently articul ated the causal link required as "a genuine and 
substantial relationship of cause and effect".1864  In other words, the subsidies must contribute, in a 
                                                      
1857Panel Report, para. 7.1659. 
1858Panel Report, para. 7.1660.  The Panel explained that, "in conducting our analysis of whether the 
subsidies affected Boeing's pricing and product offerings,  we will also analyze the e ffects of other factors that 
are alleged to have affected that behaviour" and that, "i n analyzing the effects of the subsidies on Airbus' prices 
and sales, we will consider the effect of factors other than Boeing's pricing and product offerings on Airbus' 
prices and sales in each of the three product markets". ( Ibid.) 
1859Panel Report, para. 7.1662. 
1860Emphasis added. 
1861Emphasis added. 
1862Emphasis added. 
1863This fundamental precept was reco gnized by the first panel to assess a claim under Part III of the 
SCM Agreement . (Panel Report, Indonesia – Autos , para. 14.154) 
1864See, for example, Appellate Body Report, US – Upland Cotton , para. 438;  Appellate Body Report, 
US – Upland Cotton (Article 21.5 – Brazil) , para. 374;  and Appellate Body Report, EC and certain member 
States – Large Civil Aircraft , para. 1232.  In identifying the nexus that must be established between the 
subsidies at issue and the relevant market effects, the Appellate Body has drawn to some extent on jurisprudence with respect to the causation requirements in trade re medy cases, while at the same time cautioning that the 
explicit causation requirements that the covered agreements prescribe in connection with anti-dumping, 
countervailing duty, and safeguards investigations "apply in different contexts and with different purposes" and, therefore, "must not be automatically  transposed into Part III of the SCM Agreement ". (Appellate Body Report, 
US – Upland Cotton , para. 438)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  "genuine"
1865 and "substantial"1866 way, to producing or bringing about  one or more of the effects, or 
market phenomena, enumerated in Article 6.3. 
914. When tasked with determining whether the causal link in question meets the requisite 
standard of a "genuine and substantial" causal re lationship, a panel will often be confronted with 
multiple factors that may have contributed, to vary ing degrees, to that effect.  Indeed, in some 
circumstances, it may transpire that factors other th an the subsidy at issue have caused a particular 
market effect.  Yet the mere presence of other causes that contribute to a particular market effect does 
not, in itself, preclude the subsidy from being found to be a "genuine and substantial" cause of that 
effect.  Thus, as part of its assessment of the causal nexus between the subsidy at issue and the effect(s) that it is alleged to ha ve had, a panel must seek to unde rstand the interactions between the 
subsidy at issue and the various other causal factor s, and make an assessment of their connections to, 
as well as the relative importance of the subsidy a nd of the other factors in bringing about, the 
relevant effects.  In order to find that the subsidy is a genuine and substantia l cause, a panel need not 
determine it to be the sole cause of that effect, or even that it is the only substantial cause of that 
effect.  A panel must, however, take care to ensure that it does not attribute the effects of those other 
causal factors to the subsidies at issue
1867, and that the other causal factors do not dilute the causal link 
between those subsidies and the alleged adverse effect s such that it is not possible to characterize that 
link as a genuine and substantial relationship of cause and effect.1868  The subsidy at issue may be 
found to exhibit the requisite causal link notwithstan ding the existence of other causes that contribute 
to producing the relevant market phenomena if, having given proper cons ideration to all other relevant 
contributing factors and their effects, the panel is satisfied that the contribution of the subsidy has 
been demonstrated to rise to that of a genuine and substantial cause.   
915. Finally, we note that a demonstration that subs idies are a genuine and substantial cause of the 
alleged serious prejudice is a fact-intensive exerci se, and one that inevitabl y involves extensive, case-
specific evidence.  The manner in which a complain ant may seek to demonstrate the existence of the 
                                                      
1865The "genuine" nature of the causal link requires a complainant to show that the nexus between 
cause and effect is "real" or "true".  Dictionary defin itions of "genuine" include "{h}aving the character claimed 
for it:  real, true, not counterfeit", and "{n}atural or proper to a person or thing". ( Shorter Oxford English 
Dictionary , 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1, p. 1094) 
1866As for the "substantial" component of the causal relationship, this concerns the relative importance 
of the causal agent (the subsidies at issue) in bringing  about the adverse effect(s) in question.  Dictionary 
definitions of "substantial" include "{h}aving solid wort h or value, of real significance;  solid;  weighty; 
 important, worthwhile" and "{o}f ample or consider able amount or size;  sizeable, fairly large". ( Shorter 
Oxford English Dictionary , 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 2, p. 3088) 
1867Appellate Body Report, US – Upland Cotton , para. 437;  Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1232. 
1868Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 375;  Appellate Body 
Report, EC and certain member States – Large Civil Aircraft , para. 1376. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 382 HSBI omitted, as indicated [[HSBI]]  
 
  effects and the links between the subsidies at i ssue and those effects, and the type of supporting 
evidence that may be adduced, are likely to vary co nsiderably.  Even though each panel's assessment 
will turn very much on the particular facts and circum stances of the case, it must not deviate from the 
requirements outlined above.   
3. The Panel's Analysis of "Technology Effects" and "Price Effects" 
916. The Panel observed that, in its submissions, the European Communities had distinguished, 
"based on the nature of the subsidies"1869 between, on the one hand, the effects of the subsidies 
benefiting Boeing's 787 family of LCA and, on the ot her hand, the effects of the subsidies benefiting 
Boeing's 737NG and 777 families of LCA.  The European Communities alleged that all of the 
subsidies had "price effects" on all three of these Boeing LCA families in all three relevant product 
markets, because the subsidies provided Boeing with  the ability to charge lower prices either by 
reducing Boeing's marginal unit costs or by increasing Boeing's non-operating cash flow.  In addition, 
the European Communities contended that the  aeronautics R&D subsidies had "technology effects" in 
one of those product markets in that they "helped Boeing develop, launch and produce a 
technologically-advanced 200-300 seat LCA {the 787} much more quickly than it could have on its own".
1870  Based on this understanding, the Panel deci ded to begin its analysis by examining the 
alleged "technology effects"—the effects of the aeronautics R&D subsidies on Boeing's development 
of technologies for the 787—before subsequently c onsidering whether, with respect to all three 
allegedly subsidized Boeing LCA (the 737NG, the 787,  and the 777), all of the subsidies at issue had 
effects on Boeing's pricing of those models of LC A and, thereby, caused serious prejudice to the 
interests of the European Communities.1871   
(a) The Panel's analysis of the "technology effects" of the aeronautics 
R&D subsidies 
917. The Panel understood the European Commun ities to argue that the aeronautics R&D 
subsidies:  (i) accelerated Boeing's development of new and advanced LCA technologies, as well as 
design and manufacturing processes, thereby enabling Boeing to bring the 787 to the market much 
sooner than it could have on its own;  (ii) limit ed and delayed Airbus' ac cess to innovative R&D 
technologies;  (iii) increased the marketability of the 787;  and (iv) allowed a rapid ramp-up of 787 
deliveries.1872  The European Communities sought to dem onstrate that the aeronautics R&D subsidies 
                                                      
1869Panel Report, para. 7.1696. 
1870Panel Report, para. 7.1697 (quoting European Communities' first written submission to the Panel, 
para. 1343). 
1871Panel Report, para. 7.1699. 
1872Panel Report, para. 7.1601.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  have provided Boeing with technologies capable of commercial exploitation in key areas—notably, 
composites technologies—as well as with knowledge, experience, and confidence relevant to the 
development of successful commercial technologies and processes.
1873  Such knowledge, experience, 
and confidence were alleged to have enabled Bo eing to assess the validity of different design, 
manufacturing, and assembly solutions even when the technologies applied to the 787 were not the 
same as those studied pursuant to the NASA a nd USDOD programmes, and to leverage the 
knowledge effects gained from its participation in  those programmes in Boeing's own related R&D 
activity.1874 
918. In examining the alleged effects of the subs idies in the 200-300 seat LCA market, the Panel 
examined:  (i) the objectives of the aeronautics R&D subsidies;  (ii) their structure and design;  
(iii) their operation;  and (iv) the conditions of co mpetition in that market.  Having done so, the Panel 
found, as a first step, that "the aeronautics R&D s ubsidies contributed in a genuine and substantial 
way to Boeing's development of technologies for the 787" and, thereby, "conferred a competitive 
advantage on Boeing".1875  According to the Panel, it was "clear" that, "absent the aeronautics R&D 
subsidies, Boeing would not have been able to launc h an aircraft incorporating all of the technologies 
that are incorporated on the 787 in 2004, with promised deliveries commencing in 2008".1876   
919. The Panel next considered the evidence rela ting to the effects of the aeronautics R&D 
subsidies on Airbus' prices and sales in the 200-300 seat LCA market and found that, in the 2004-2006 reference period, the effect of those subsid ies was serious prejudice in the form of a threat 
of displacement and impedance of EC exports in  third-country markets within the meaning of 
Article 6.3(b) of the SCM Agreement , and significant lost sales and significant price suppression, 
within the meaning of Article 6.3(c) of the SCM Agreement.
1877  
                                                      
1873Panel Report, para. 7.1601 (referring to Europ ean Communities' first written submission to the 
Panel, para. 1352). 
1874Panel Report, para. 7.1604. 
1875Panel Report, para. 7.1773. 
1876Panel Report, para. 7.1775. 
1877Panel Report, para. 7.1797. According to the Panel, but for the aeronautics R&D subsidies:  
(i) Airbus would have obtained additional orders and the European Communities would not have suffered the 
threat of displacement or impedance of exports from third-country markets;  (ii) Airbus would have made 
additional sales and would not have suffe red significant lost sales;  and (iii)  prices for the relevant Airbus LCA 
would have been significantly higher and Airbus would not have suffered significant price suppression. ( Ibid., 
para. 7.1794) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 384 HSBI omitted, as indicated [[HSBI]]  
 
  (b) The Panel's analysis of the "price effects" of the subsidies 
920. The Panel's analysis of the "price effects" of th e subsidies was divided into two parts.  First, 
the Panel examined the effects of the tied tax subsid ies, that is, the tax subsidies directly tied to the 
production and sale of individual aircraft.
1878  To the extent that they applied to Boeing products in 
each market1879, the Panel found that these tied tax subs idies had the effect of significantly 
suppressing Airbus' prices and of causing Airbus to lose significant sales, and of displacing and impeding EC exports in third-country mark ets in the 100-200 seat and the 300-400 seat LCA 
markets.
1880  With respect to the 200-300 seat LCA market, the Panel considered that it would not be 
appropriate to conduct an aggregated analysis of the "technology effects" of the aeronautics R&D 
subsidies and the "price effects" of the tied tax s ubsidies because the two grou ps of subsidies operate 
"through entirely distinct causal mechanisms".1881  Only two of the tied tax subsidies (the B&O tax 
rate reductions1882) applied in that product market and, with respect to their effects, the Panel found 
that there was "insufficient evidence … to conclude that these subsidies are of  a magnitude that would 
enable them, on their own, to have such an effect on Boeing's prices of the 787 as would lead to a finding that their effects in the 200-300 seat wide-body market were significant price suppression, significant lost sales or displacement or impe dance of European Communities imports into the 
United States or exports to third countries".
1883   
921. Second, the Panel considered the effects of subs idies that were not linked to the production of 
individual LCA and were instead alleged to have  increased Boeing's non-operating cash flow and, 
thereby, enhanced Boeing's alleged abilit y to engage in "aggressive pricing".1884  Although the 
European Communities had included the aeronautics R&D subsidies within this category, the Panel 
decided not to include the effects of these subsidies in this part of its analysis on the grounds that, 
having already found that the aeronautics R&D subsidies, through their technology effects, caused serious prejudice to the European Communities in the 200-300 seat LCA market, "it would be 
                                                      
1878Panel Report, paras. 7.1801 and 7.1806. 
1879One of the tied tax subsidies—the City of Everett B&O tax rate reduction—did not apply in respect 
of the manufacture and sale of the 737NG and thus did not form part of the Panel's analysis of the effects of the 
subsidies alleged to reduce marginal unit costs in the 100-200 seat LCA market. (Panel Report, para. 7.1803) 
1880Panel Report, para. 7.1823. 
1881Panel Report, para. 7.1824. 
1882The Panel's analysis of the FSC/ETI subsidies pr oceeded on the basis that these subsidies could 
have had effects only in the 100-200 seat and 300-400 seat LCA markets, and not in the 200-300 seat LCA 
market.  The Panel explained that this was due to the fact  that the United States had repealed certain aspects of 
the grandfathering of FSC and ETI tax breaks for tax years beginning after 2006, and that no 787s would be delivered before that date, as well as the fact that the European Communities itself did not claim that the 
FSC/ETI subsidies affected the prices of the 787 and did not allocate the FSC/ETI subsidies to the 787 for 
purposes of its serious prejudice arguments. (Panel Report, para. 7.1802) 
1883Panel Report, para. 7.1824. 
1884Panel Report, para. 7.1825.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 385  
 
  over-counting to additionally analyze their eff ects based on a different understanding of their 
operation, namely, as freeing up additional cash for Bo eing to use to lower the prices of its LCA".
1885  
Accordingly, the Panel analyzed th e effects of the other subsidies alleged to have increased Boeing's 
non-operating cash flow—the remaining subsidi es—which totalled some US$550 million between 
1989 and 2006.  The Panel was "not pe rsuaded that subsidies of this nature and of this amount have 
affected Boeing's prices in a manner that could be said to give rise to serious prejudice to the 
European Communities' interests".1886   
4. Order of Analysis of the Issues on Appeal Relating to the Panel's Serious 
Prejudice Findings 
922. In section B, we analyze the United States' appeal  of the Panel's findings with respect to the 
"technology effects" of the aeronautics R&D s ubsidies.  In section C, we consider the 
European Union's appeal, under Article 11 of th e DSU, of the Panel's finding that there was 
insufficient evidence on the reco rd to enable it to assess the effects of the USDOD RDT&E 
programmes (other than the ManTech and DUS&T pr ogrammes).  In section D, we deal with the 
United States' appeal of the Panel's findings regardin g the "price effects" of the tied tax subsidies at 
issue.  Finally, in section E, we address the European Union's appeal of the Panel's decisions not to undertake a collective assessment of certain groups of  subsidies and their effects for purposes of its 
serious prejudice analysis. 
B. Technology Effects 
1. Introduction 
923. The Panel structured its analysis of the alle ged "technology effects" of the aeronautics R&D 
subsidies in two stages, beginning with an analysis of the effect of the subsidies on Boeing's offering 
of the 787, and followed by an analysis of the effect of the subsidies on Airbus' prices and sales.1887  
The Panel explained that, at each stage of its analysis, it would address possible relevant 
non-attribution factors.1888  The Panel also clarified that its overa ll approach to the analysis of whether 
the effects of the aeronautics R&D subsidies were an y of the forms of serious prejudice alleged by the 
European Communities would be counterfactual in nature.1889 
                                                      
1885Panel Report, para. 7.1826. 
1886Panel Report, para. 7.1828. 
1887Panel Report, paras. 7.1659 and 7.1660;  see also paras. 7.1701-7.1797. 
1888Panel Report, para. 7.1660. 
1889Panel Report, paras. 7.1661 and 7.1662;  see also paras. 7.1774 and 7.1775. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 386 HSBI omitted, as indicated [[HSBI]]  
 
  924. At the conclusion of the first stage  of its analysis, in which it considered the effect of the 
aeronautics R&D subsidies on Boeing's offeri ng of the 787, the Panel stated that: 
… the aeronautics R&D subsidies contributed in a genuine and 
substantial way to Boeing's development of technologies for the 787 
and that, in the light of the conditions of competition in the LCA 
industry, these subsidies conferred a competitive advantage on Boeing.
1890 
925. Moreover, the Panel found that:  
… absent the aeronautics R&D subsidies, Boeing would not have 
been able to launch an aircraft in corporating all of the technologies 
that are incorporated on the 787 in 2004, with promised deliveries 
commencing in 2008.1891   
926. At the conclusion of the second stage  of its analysis, in which it considered the effect of the 
aeronautics R&D subsidies on Airbus' pr ices and sales, the Panel found that: 
… but for  the effects of {the aeronautics R&D subsidies} (i) Airbus 
would have obtained additional orde rs for its A330 and Original 
A350 LCA from customers in third country markets Australia, 
Ethiopia, Kenya and Iceland in 2005 and 2006, and the European Communities would not have suffered the threat of displacement or impedance of exports from third country markets within the meaning of Article 6.3(b) of the SCM Agreement;  (ii) 
Airbus would have made additional sales of the A330 and Original 
A350 over the same period, and to  that extent, would not have 
suffered significant lost sales in the 200-300 seat wide-body LCA product market, within the meaning of Article 6.3(c) of the SCM Agreement;  and (iii) prices of the A330 and the Original A350 in the 2004 to 2006 period would have  been significantly higher, and 
to that extent, Airbus would not have suffered significant price 
suppression in the 200-300 seat wide-body LCA product market, within the meaning of Article 6.3(c) of the SCM Agreement.
1892 
(original emphasis) 
927. On the basis of these two intermediate conclusions, the Panel found overall that: 
… the effect of the aeronautics R&D subsidies is a threat of 
displacement and impedance of Eu ropean Communities' exports from 
third country markets within the meaning of Article 6.3(b) of the 
SCM Agreement, with respect to the 200-300 seat wide-body LCA product market, and significant lost sales and significant price suppression, within the meaning of Article 6.3(c) of the SCM Agreement with respect to that product market, each of which 
                                                      
1890Panel Report, para. 7.1773.  
1891Panel Report, para. 7.1775.  
1892Panel Report, para. 7.1794.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 387  
 
  constitute serious prejudice to the interests of the 
European Communities within the meaning of Article 5(c) of the SCM Agreement.
1893 
928. The United States seeks reversal of this overall finding by the Panel, as well as a number of 
intermediate conclusions leading up to it made by  the Panel at the first and second stages of its 
causation analysis.  In subsection 2, we provide  relevant background in formation regarding the 
Boeing 787.  In subsections 3 and 4, we assess the Un ited States' appeal of the Panel's conclusion, at 
the first stage  of its analysis, that the aeronautics R& D subsidies contributed in a genuine and 
substantial way to the developmen t of the 787 and its launch in 2004.  In subsection 5, we consider 
the United States' appeal of the Panel's use of the counterfactual analysis as it relates to both stages.  
Finally, in subsection 6, we consider the United St ates' challenge to the Panel's conclusion, at the 
second stage  of its analysis, regarding the effects of the aeronautics R&D subsidies on Airbus through 
Boeing's product offering. 
2. Background Information regarding the Boeing 787 
929. In order to provide context for consideration of  the United States' claims on appeal, we find it 
useful to provide a brief background of the Boeing 787, including its technological features, the reasons for its introduction into the 200-300 seat LC A market and the competition it faced in that 
market, as well as relevant market share and pricing data for the models in that market.  We do so on 
the basis of the factual findings of the Panel and th e facts of the case that were not contested between 
the parties. 
930. During the relevant period— 2004 to 2006—the LCA within the 200-300 seat LCA market 
comprised Boeing's 767
1894 and 787 and Airbus' A330, Or iginal A350, and A350XWB-800.1895   
931. In the late 1990s, Boeing's assessment of the market led it to form the view that "route 
fragmentation would lead to a larger number of lower-volume routes, best served by a mid-sized, extended range aircraft"
1896, and it determined to develop a ne w LCA product incorporating advanced 
technologies to meet these market needs.1897  This led to the development of the 787, which was 
                                                      
1893Panel Report, para. 7.1797.  See also paras. 7.1854(a) and 8.3(a)(i). 
1894Panel Report, paras. 7.1774 and 7.1783.  
1895Panel Report, paras. 7.1670 and 7.1672. 
1896Panel Report, para. 7.1774. 
1897See "The new-technology Boeing 787 Dreamliner, which makes extensive use of composite 
materials, promises to revolu tionize commercial air travel," Aviation Week & Space Technology Market 
Supplement , 14 March 2005 (Panel Exhibit EC-701). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 388 HSBI omitted, as indicated [[HSBI]]  
 
  launched in 2004 with deliveries to customers promised as from 2008.
1898  The Panel identified and 
described six technologies that the European Comm unities alleged to be incorporated in the 787.1899  
The most notable of these technologies is the use of all composite fuselage and wings1900 and the 
manufacturing processes related thereto.1901  The other five technologies1902 relate to "more-electric" 
architecture;  open systems architecture;  enhanced aerodynamics and structural design;  noise reduction;  and health management systems.
1903 
932.   In the years preceding the launch of the 787 in 2004, the 767 and the A330 were the main 
aircraft products available in the 200-300 seat LCA market.1904  Between 2000 and 2003, the A330's 
share of the market was consistently greater than that of the 767 and, in 2003, stood at 82%.  Although demand for aircraft had fallen in 2002 following the 11 September 2001 attacks on the 
World Trade Center and the SARS epidemic
1905, demand for all LCA rebounded in subsequent years 
due to the demand for air travel in emerging markets1906, market liberalization1907, and because 
increases in the cost of fuel led airlin es to replace older inefficient aircraft.1908  There was, in 
particular, substantial growth in the size of th e 200-300 seat LCA market during the reference period, 
that is, 2004-2006.1909  Both Airbus and Boeing increased the volume of their sales within this product 
market during the reference period, as compared to the immediately preceding period, that is, 2002 
and 2003.1910  With respect to market share, Airbus' share (comprising the A330 and A350) of the 
market declined by 36% between 2003 and 20041911, while, from 2004 to 2006, Boeing's market share 
                                                      
1898The Panel noted that, even though it ultimately turned out that Boeing was unable to deliver the 787 
in 2008, the relevant fact was that, "in 2004, Boeing believed that it would be able to make its first deliveries 
in 2008 (and made contractual promises to its customers to this effect)". (Panel Report, footnote 3712 to 
para. 7.1777) 
1899Panel Report, Appendix VII.F.1.A, p. 729, para. 1 (referring to European Communities' first written 
submission to the Panel, para. 1350).  The Panel described these technologies, as well as how they relate to the 
technologies featured on the 787, in Appendix VII.F.1.B, p. 729. 
1900Panel Report, Appendix VII.F.1.B, pp. 729-733 , paras. 3-10 and VII.F.1.C, pp. 738-739, 
paras. 20-25.  The Panel defined a "composite" as a co mposition of two or more materials on a macroscopic 
scale, working together to produce ma terial properties that are different fr om the properties of those elements on 
their own. ( Ibid., p. 729, para. 3) 
1901Panel Report, Appendix VII.F.1.C, pp. 738-739, provides some background information concerning 
the design and manufacture of the composite fuselage. 
1902Panel Report, Appendix VII.F.1.A, p. 729, para. 1.  
1903Panel Report, Appendix VII.F.1.B, pp. 733-737, paras. 12-19.  
1904Panel Report, paras. 7.1774, 7.1775, 7.1777, and 7.1783.  
1905Panel Report, para. 7.1782.  
1906United States' response to Panel Question 299, para. 527;  European Communities' response to 
Panel Question 299, para. 712. 
1907United States' response to Panel Question 299, para. 527;  European Communities' response to 
Panel Question 299, para. 712.  
1908United States' response to Panel Question 299, para. 527;  European Communities' response to 
Panel Question 299, para. 712. 
1909Panel Report, tables at paras. 7.1782 and 7.1783. 
1910Panel Report, para. 7.1783.  
1911Panel Report, para. 7.1785.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (comprising the 767 and 787) was more than Airbus ', ranging in these years between 54% and 66% of 
the 200-300 seat LCA market.
1912 
933. While list prices are higher than the actual pr ices paid for LCA, we note that Boeing's list 
prices for the 767 ranged between $118 million an d $160.5 million, and between $138 million and 
$188 million for the 787.1913  For Airbus, sample list prices were $160 million and $178 million for 
the A330 and $162 million and $179 million for the Original A350.1914  
3. The Panel's Analysis of the Effects of the Aeronautics R&D Subsidies on 
Boeing 
934. The first set of arguments by the United States rela tes to the Panel's conclusion, at the close of 
the first stage of its analysis, that the aeronau tics R&D subsidies "contributed in a genuine and 
substantial way to Boeing's development of tec hnologies for the 787 and that, in the light of the 
conditions of competition in the LCA industry, th ese subsidies conferred a competitive advantage on 
Boeing".1915  The Panel reached this conclusion after its  consideration of four main analytical 
elements:  (i) the objectives  of the aeronautics R&D subsidies;  (ii) the structure and design  of the 
aeronautics R&D subsidies;  (iii) the operation of the aeronautics R&D subsidies;  and (iv) the 
conditions of competition  in the LCA industry.  The Panel s upplemented its analysis of these four 
pillars with a 27-page appendix to  its Report—Appendix VII.F.1—in which it:  (i) identified the six 
technology areas alleged by the European Communities to be "key" features of the 7871916;  
(ii) explained the process of the "design, manufacture and assembly of the 787"1917;  and 
(iii) summarized the arguments advanced by the parties regarding the relationship between the 
aeronautics R&D subsidies and Boeing's devel opment of the six technologies for the 787.1918   
935. At the start of its analysis, the Panel explained that it would "focus primarily on the material 
pertaining to research conducted by Boeing a nd McDonnell Douglas under the aeronautics R&D 
programmes in the field of composites, and the composites technologies applied on the 787, 
                                                      
1912Panel Report, table at para. 7.1783.  
1913These ranges of list prices are drawn from Panel Exhibit EC-664 ("2006 Boeing Jet Prices, as of 
2 October 2006"). 
1914European Communities' first written submission to the Panel, Figure 11 at para. 1176. 
1915Panel Report, para. 7.1773.  
1916As we have noted above, these six technology areas were:  (i) composites technologies, primarily 
the design, development, and manufacturing of 787 composite fuselages and wings;  (ii) more-electric architecture;  (iii) open systems arch itecture;  (iv) enhanced aerodynamic s and structural design;  (v) noise 
reduction technologies;  and (vi) health management systems. (Panel Report, Appendix VII.F.1.A, p. 729, 
para. 1 (referring to European Communities' firs t written submission to the Panel, para. 1350))   
1917Panel Report, Appendix VII.F.1.C, pp. 738-739, paras. 20-25.  
1918Panel Report, Appendix VII.F.1.D, pp. 740-756, paras. 26-78. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 390 HSBI omitted, as indicated [[HSBI]]  
 
  particularly under the ACT, AST and R&T Base pr ogrammes, which appear from the evidence to be 
the most commercially and technologically significant programmes in this regard".
1919   
936. The Panel then turned to consider the first pillar of its analysis, namely, the objectives of the 
aeronautics R&D subsidies.  The Panel referred to statements by NASA officials, as well as a NASA report and US Congressional Budget Office documents
1920 confirming that the key objective of the 
aeronautics R&D subsidies at issue was "the enhan cement of the competitiven ess and increase of the 
market share of the U.S. industry, and Boeing in pa rticular, vis-à-vis its international competitors".1921   
937. Second, in its review of the structure and design  of the eight NASA research programmes1922 
and the two USDOD research programmes1923 at issue, the Panel delineated the objectives and 
research priorities under each of these programmes.  With respect to the NASA programmes, the 
Panel summarized overall that: 
… NASA consistently and pervasively expresses the objectives of, 
and motivations behind, its aeronau tics R&D programmes in terms of 
promoting the competitiveness of the U.S. aeronautics industry 
through technology development lead ing to superior and lower cost 
products.  The particular areas covered by these R&D programmes 
appear to have been selected on the basis of their likely contribution toward the commercial development of technologies that were 
viewed as being of particular strategic importance to the 
enhancement of the competitiveness of the U.S. industry.  Closely related to this, the evidence shows that the R&D was often undertaken at the behest of and in close collaboration with the U.S. industry.  While the research performed by Boeing under the NASA R&D programmes was not undertaken di rectly in the context of the 
development and production of par ticular civil aircraft, the NASA 
R&D programmes aimed at enhancing Boeing's ability to develop technology for commercial purposes.
1924 
938. As for the two USDOD RDT&E programmes, the Panel concluded that: 
The objectives of {US}DOD's ManTech and DUS&T programmes 
are not specifically expressed as being to provide a competitive advantage to the U.S. aeronautics industry.  Rather, these 
programmes have the explicit objec tive of developing "dual-use" 
R&D.  To that end, they envisag e collaboration with industry in 
developing technologies, including cost reduction processes and 
                                                      
1919Panel Report, para. 7.1702.   
1920Panel Report, paras. 7.1705-7.1708. 
1921Panel Report, para. 7.1704.   
1922The ACT, AST, R&T Base, HSR, Computational Aerosciences project of the HPCC, QAT, VS, and 
AS programmes. (Panel Report, paras. 7.1709-7.1737) 
1923The ManTech and DUS&T programmes. (Panel Report, paras. 7.1738 and 7.1739)   
1924Panel Report, para. 7.1709.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  practices that have application in the civil sector. In our view, the 
objectives of these {US}DOD RDT&E programmes suggest that subsidies funded under those programmes contribute to providing Boeing with competitive advantages.
1925  
939. The Panel then proceeded to the third pillar,  and conducted a lengthy examination of the 
operation of the aeronautics R&D  subsidies.  It began by recalling the strategic focus of the 
aeronautics R&D subsidies, noting that the NASA subsidies "are precisely focused on those areas 
which, from a commercial perspective, are considered to be the most crucial to the LCA industry in 
the sense that they carry the greatest prospect  of creating significant competitive advantage."1926  The 
Panel then noted that the aeronautics R&D subsid ies operated as collaborative research projects with 
and for Boeing, and "complemented Boeing' s internal product development efforts".1927  In the Panel's 
view, this complementarity between NASA's and Boeing's own research efforts was apparent from 
"the length of the research and development cycl e in the LCA industry and the timing of Boeing's 
product development";  the "extensive breadth and depth of technologies" required to produce a 
superior aircraft;  and Boeing's collaboration w ith NASA in identifying and planning the research 
tasks for NASA and the technical performance goals  of the particular aeronautics R&D subsidies.1928   
940. For the Panel, "{a}nother important aspect of the operation of the aeronautics R&D subsidies 
is their role in reducing Boeing's R&D risk."1929  Based on evidence from budget estimates for 
NASA's R&T Base programme, as well as a NASA publica tion, the Panel found that "there are large 
disincentives for private sector investment in  long-term, high risk aeronautical {R&D}".1930  
According to the Panel, these "large disincen tives" stemmed from the "inability of individual 
companies to fully capture the benefits of these rese arch efforts, as well as the length of the aircraft 
research and development cycle and investment re coupment period, and the extensive breadth and 
depth of technologies required to produce a superior aircraft."1931  The Panel noted that:  
                                                      
1925Panel Report, para. 7.1740. 
1926Panel Report, para. 7.1742.  
1927Panel Report, para. 7.1746. 
1928Panel Report, para. 7.1746.  In support of this finding, the Panel cited a Boeing conference paper 
that discussed the path to development of a composite fuselage.  The author of that paper explained that the three phases of the NASA ACT programme, which had been originally envisaged to run from 1989-2002, "if 
combined with Boeing internally funded efforts ... wo uld prepare {Boeing} for commitment to a composite 
fuselage application" by 2002-2003. ( Ibid. (referring to L.B. Ilcewicz, "Advanced Composite Fuselage 
Technology", Third NASA Advanced Composites Technology Conferences , NASA Conference Publication 
3178, Part 1, Vol. 1 (1992) (Panel Exhibit EC-1338), excerpt, p. 110))   
1929Panel Report, para. 7.1747. 
1930Panel Report, para. 7.1747.  In support, the Pane l referred to NASA R&T Base Budget Estimates,  
at FY 1997, SAT 4.5;  and at FY 1999, SAT 4.1.3 (Panel Exhibit EC-398)).  See also NASA publication, 
"Airborne Trailblazer", chap. 1 (P anel Exhibit EC-288), p. 2. 
1931Panel Report, para. 7.1747 (referring to NASA R&T Base Budget Estimates, at FY 1997, SAT 4.5;  
and at FY 1999, SAT 4.1.3 (Panel Exhibit EC-398)). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 392 HSBI omitted, as indicated [[HSBI]]  
 
  … research conducted under th e NASA R&D subsidies occurs 
through a gradual, iterative process in which failures and abandonment of further development of particular technologies serve 
as building blocks for newer technologies.  In other words, even unsuccessful research generates impor tant knowledge and experience 
that is applied to subseque nt technology developments.
1932   
941. The Panel therefore contemplated that research reduces risk, because, through a process of 
"trial and error, development efforts are progressively focused on the most promising 
technologies".1933   
942. Finally, relying on a 1999 independent study provided by the European Communities—the 
"Peisen Study"1934—which sets out NASA's system of categorizing research according to its 
"technology readiness level", or "TRL", the Panel ob served that NASA's role in the development of 
higher-risk technologies resulted in "an accelerati on of the overall technology development process 
for an airframe manufacturer like Boeing and would th erefore facilitate an earlier product launch than 
would otherwise have been possible."1935   
943. The Panel registered the disagreement between th e parties as to the relationship between the  
technology concepts that Boeing and McDonnell Douglas studied pursuant to the NASA and USDOD 
aeronautics R&D subsidies, on the one hand, and th e technologies actually applied to the 787, on the 
other hand.  It noted that, whereas the United Stat es had sought to emphasize the differences between 
the two, the European Commun ities emphasized the continuities.1936  The Panel, for its part, 
considered that to focus on the differences between various technologies that may exist at particular 
points in time would "artificially and inaccurately obscure the important links that exist between 
them".1937  The Panel explained that such links lay, for example, in the fact th at the evidence before 
the Panel was "consistent with the technologies prope rly being viewed essentially as efforts directed 
to solving enduring technological problems", as well as with a "pattern whereby the technology concepts studied under the NASA R&D subsidi es and the technologies applied to the 787 are 
essentially part of the same process in which so lutions to technological problems are developed 
(through a collective exercise of progressive learning through trial and error involving largely the same teams of people over an extended period of time)."
1938  The Panel concluded that "technologies 
                                                      
1932Panel Report, para. 7.7148.  
1933Panel Report, para. 7.1748.  
 1934D.J. Peisen et al., Case Studies: Time Required to Mature Aeronautic Technologies to Operational 
Readiness , Draft report (SAIC and GRA, Inc., November 1999) (Panel Exhibit EC-795).  We provide further 
details of the Peisen Study infra , para. 974. 
1935Panel Report, para. 7.1748. 
1936Panel Report, para. 7.1749 (referring to Affidav it of Alan Miller (Panel Exhibit US-1258)).  
1937Panel Report, para. 7.1750.  
1938Panel Report, para. 7.1750.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  that may, at any given moment, be portrayed as discrete and unrelated, are in fact more appropriately 
regarded as being part of a single process of ite rative learning and advancement in pursuit of a 
common technological goal."
1939  
944. The Panel rejected arguments by the United States attributing the success of the technologies 
developed for the 787 to factors other than the aeronautics R&D subsidies, including the efforts of 
Boeing and its suppliers.  In response to an ar gument that the 787 was the product of Boeing's own 
past commercial experience and its significant in ternal R&D efforts, the Panel emphasized the 
important contributions made by the aeronautics R&D subsidies to the early research efforts, as well 
as the "complementarity and interdependence"1940 between the work that Boeing and McDonnell 
Douglas performed for NASA and Boeing's own aeronauti cs R&D efforts.  Therefore, while the Panel 
recognized Boeing's and its suppliers' "significant investments"1941 towards the development of the 
787, it found that, by 2004, these contributions ha d not outweighed the contribution made by the 
aeronautics R&D subsidies to the developm ent of the technologies used on the 787.1942  
945. The Panel also held that the effects of th e aeronautics R&D subsidies could not be assessed 
simply on the basis of the face value of the fina ncial contributions involved, which amounted to "at 
least $2.6 billion".1943  Rather, the Panel found that, by their nature, the aeronautics R&D subsidies 
"multiply the benefit from a given expenditure".1944  In this regard, the Pa nel rejected the proposition 
that "the effects of the aeronautics R&D subsidi es can essentially be reduced to their cash value".1945   
946. On the basis of the foregoing observations, the Pa nel concluded, with respect to the operation  
of the aeronautics R&D subsidies, that they "are designed to develop and va lidate new technologies 
for Boeing to commercialize", and that "it would be artificial to treat their contribution as having been 
exhausted or so diminished as to no longer be making a genuine and substantial contribution to 
Boeing's development of technologies for the 787."1946   
                                                      
1939Panel Report, para. 7.1750.  
1940Panel Report, para. 7.1756.  
1941Panel Report, para. 7.1757.  
1942Panel Report, para. 7.1758.  
1943Panel Report, para. 7.1760.  This estimate was based on the Panel's earlier calculation of the value 
of the NASA aeronautics R&D subsidies.  The Panel did not quantify the value of the USDOD aeronautics 
R&D subsidies. (See ibid., para. 7.1433) 
1944Panel Report, para. 7.1760.  
1945Panel Report, para. 7.1760.  
1946Panel Report, para. 7.1764. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  947. Fourth, the Panel turned to the conditions of competition  between Airbus and Boeing.  It 
noted the "intense competition"
1947 that characterizes the LCA industry, and opined that "a subsidy 
that enhances an LCA manufacturer's ability to de velop innovative technologies for application to its 
aircraft will potentially give rise to a signifi cant competitive advantage to that manufacturer".1948   
948. In this section, the Panel also responded to, and dismissed, arguments of the United States 
that NASA aeronautics R&D subsidies do not conf er a competitive advantage on Boeing vis-à-vis 
Airbus, because NASA-funded research is generally a pplicable conceptual research, the results of 
which are publicly disseminated a nd equally available to Airbus.1949  It similarly dismissed an 
argument that many of the technologies that the European Communities attempted to link to the 
research that Boeing and McDonnell Douglas perform ed for NASA and the USDOD pursuant to the 
aeronautics R&D subsidies are supplied by third pa rties and are commercially available to Airbus.1950  
949. Based on its assessment of these four pillars, th e Panel concluded that "the aeronautics R&D 
subsidies contributed in a genuine and substantia l way to Boeing's development of technologies for 
the 787 and that, in the light of the conditions of  competition in the LCA industry, these subsidies 
conferred a competitive advantage on Boeing."1951 
4. The United States' Appeal  
950. The United States argues that the Panel erred in  finding that the aeronautics R&D subsidies 
caused adverse effects to the in terests of the European Communities within the meaning of 
Articles 5(c) and 6.3 of the SCM Agreement  because they "contributed in  a genuine and substantial 
way to Boeing's development of technologies for the 787."1952  The United States contends that the 
Panel's conclusion that a "genuine and substantial"  link exists is in error, because the Panel failed 
properly to take into account its own findings that: 
(a) much of the work that NASA funded bore a weak relationship to the 787 as it was not 
directed toward the six critical 787 technologies identified by the Panel; 
(b) even the NASA research most directly on th e development pathway toward the 787 is 
far removed from the ultimate technologies used on that aircraft; 
                                                      
1947Panel Report, para. 7.1765 (quoting Dr. J. Jordan and Dr. G. Dorman, "Reply to the Report of 
Professor Cabral" (NERA Economic Consulting, 2007) (Panel Exhibit US-3), p. 18).  
1948Panel Report, para. 7.1769.  
1949Panel Report, paras. 7.1770 and 7.1771. 
1950Panel Report, paras. 7.1771 and 7.1772.  
1951Panel Report, para. 7.1773.  
1952United States' other appellant's submission, para. 214 (quoting Panel Report, para. 7.1773).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (c) NASA funding was only one of many sources available to Boeing for technology 
development and was unavailable for later stages of the research; 
(d) non-subsidy sources were responsible for most  of the technology eventually used to 
make the 787 and for Boeing's ability to apply that technology to the 787;  and 
(e) the magnitude of the subsidies was small in relation to the cost of developing 
the 787.
1953 
951. According to the United States, "when consid ered in their totality", the above findings 
demonstrate that the Panel could not properly ha ve determined that a genuine and substantial 
relationship of cause and effect existed between  the aeronautics R&D subsidies and the adverse 
effects to the interests of the European Communities.1954  The United States does not, however, 
indicate whether we would have to reverse the Pane l's conclusion regarding the effects caused by the 
aeronautics R&D subsidies if we were to accept that the Panel indeed made one or more of the above 
findings, but not that it made all of them.  Nor does the United States explain whether it considers that we would have to reverse the Panel's ultimate conclu sion if we considered only some subset of these 
findings to be inconsistent with that conclusion. 
952. We note that the arguments of the United Stat es listed above at subpara graphs (a)-(e) appear 
to relate primarily to the Panel's analysis of the operation of the aeronautics R&D subsidies, which 
was the third of the four pillars considered by the Panel in its overall assessmen t of the nature of the 
subsidies.  The United States' arguments require us  to make a determination as to whether, taken 
individually or cumulatively, the United States' gr ounds of appeal invalidate the Panel's finding that 
the aeronautics R&D subsidies "contributed in  a genuine and substantial way to Boeing’s 
development of technologies for the 787" and that  a genuine and substantial causal link exists.
1955   
953. One of the main points of contention between the participants lies in the proper 
characterization of the United States' claims and, in  particular, whether its arguments relate to the 
Panel's application of the legal standard to the fact s of this dispute, or, rather, exclusively to the 
Panel's appreciation of the facts.  In this dispute,  the relevant legal standa rd is the one provided for 
under Articles 5(c) and 6.3 of the SCM Agreement , which require that the adverse effects be shown to 
be the effects of, or caused by, the subsidies at  issue.  As we have explained above, the 
                                                      
1953United States' other appellant's submission, para. 257.  Although the United States sets out its 
arguments on appeal under six subheadings, it also appears to categorize them thematically under the five 
headings listed at subparagraphs (a)-(e) above. 
1954United States' other appellant's submission, para. 257.   
1955Panel Report, para. 7.1773.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 396 HSBI omitted, as indicated [[HSBI]]  
 
  Appellate Body has consistently articulated the cau sal link required under Article 6.3 as one involving 
"a genuine and substantial re lationship of cause and effect".
1956  The United States has clarified that, in 
its arguments on appeal, it does not seek to challe nge the overall analytical legal framework adopted 
by the Panel1957;  nor is it alleging that the Panel's errors "r ise to the level" of a failure to make an 
objective assessment under Article 11 of the DSU1958 (save for one claim that it specifically brings 
under that provision).  Rather, the United States has st yled its claims as relating to the Panel's failure 
to establish properly a "genuine and substantial" causal link within the meaning of Articles 5(c) 
and 6.3 of the SCM Agreement .  The United States posits that, ha ving appropriately identified the 
legal requirements of Articles 5(c) and 6.3, the Pa nel took a number of "impermissible short-cuts in 
applying the law."1959  According to the United States, the Pa nel's own findings regarding the nature 
and magnitude of the aeronautics R&D subsidies show that any link between the NASA and USDOD 
aeronautics R&D subsidies and Boeing's ability to launch a technologically innovative 787 "is so 
attenuated" that it does not rise to the level of a genuine and substantial relationship of cause and 
effect.1960   
954. The European Union asserts that all of the argume nts of the United States in this part of its 
appeal relate solely to the weighing of the evid ence and, therefore, should have been brought under 
Article 11 of the DSU as challenges to the Pane l's objectivity in reviewing and appreciating the 
evidence.  For the European Union, many of th e United States' arguments on appeal have been 
repeated from the Panel stage, and reflect no more than mere disagreement with the Panel's factual 
findings.1961  The European Union highlights that simi lar kinds of arguments were raised in EC and 
certain member States – Large Civil Aircraft , and that the Appellate Body in that dispute treated them 
as arguments relating exclusively to factual findings.1962 
955. We recall that the Appellate Body has recognized the difficulty of distinguishing "clearly 
between issues that are purely legal or purely factual, or are mixed issues of law and fact", and has 
stated that "{i}n most  cases … 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."1963  The Appellate Body has found that 
                                                      
1956See supra , para. 913. 
1957United States' other appellant's submission, para. 196.  The United States here explains that the 
Panel "correctly laid out the analytical framework, relied on the appropriate authorities to guide its analysis, and 
set out the proper legal tests." ( Ibid.) 
1958United States' other appellant's submission, para. 221.  
1959United States' other appellant's submission, para. 196;  see also para. 201.  
1960United States' other appellant's submission, para. 217.   
1961European Union's appellee's submission, paras. 326 and 327.   
1962European Union's appellee's submission, para. 329 (referring to Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , para. 1316). 
 1963Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 872. (original 
emphasis)  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  allegations implicating a panel's assessment of th e facts and evidence fall under Article 11 of the 
DSU.
1964  By contrast, "{t}he consistency or inconsiste ncy of a given fact or set of facts with the 
requirements of a given treaty provision is … a legal characterization issue" and therefore a legal 
question.1965  The Appellate Body has further stated that whether a panel properly interpreted a 
provision of the WTO agreements and properly applied that interpretation to the facts of the case is a 
legal question.1966   
956. A party is free to frame its claim on appeal as it sees fit.1967  However, important 
consequences flow from that choice, including the st andard of review that will apply in adjudicating 
that claim.  When the Appellate Body considers th at a claim consists solely of a challenge to the 
objectivity of the panel's assessmen t of the evidence, the Appellate Body has declined to consider 
such allegations in circumstances where the partic ipant making them failed to raise an Article 11 
claim in its Notice of Appeal or to subs tantiate such a claim in its submissions.1968   
957. In this dispute, the Panel found that the "aeronautics R&D subsidies contributed in a genuine 
and substantial  way to Boeing's development of technologies for the 787".1969  The Panel used similar 
language to summarize the intermediate  conclusions that it drew from its review of the four pillars 
that it considered.1970  The language used by the Panel to describe how the aeronautics R&D subsidies 
                                                      
1964This includes claims that a pane l:  exceeded its authority as a trie r of facts (Appellate Body Report, 
US – Wheat Gluten , para. 151);  disregarded evidence or did not ha ve a sufficient evidentiary basis on the record 
for its finding (Appellate Body Report, US – Continued Zeroing , para. 338);  lacked even-handedness in the 
treatment of evidence (A ppellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 292);  failed to 
provide reasoned and adequate explanations for its findings (Appellate Body Report, US – Softwood Lumber VI 
(Article 21.5 – Canada) , para. 97);  or failed to provide coherent reasoning (Appellate Body Report, US – 
Upland Cotton (Article 21.5 – Brazil) , para. 293 and footnote 618 thereto, and para. 294). 
1965Appellate Body Report, EC – Hormones , para. 132. 
1966Appellate Body Report, US – Upland Cotton , para. 399. 
1967Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 872;  Appellate 
Body Report, Canada – Wheat Exports and Grain Imports , para. 177;  Appellate Body Report, Japan – Apples , 
para. 136.   
1968Appellate Body Report, Mexico – Anti-Dumping Measures on Rice , para. 274. 
1969Panel Report, para. 7.1773. (emphasis added)   
1970For instance, the Panel found that: 
 it was not very realistic to believe that the US Government "would have provided aeronautics R&D 
subsidies of the magnitude recei ved by Boeing (and McDonnell Douglas) between 1989 and 2006 
without those subsidies contributing in a genuine and substantial way  to improving Boeing's 
competitiveness";  
 the aeronautics R&D subsidies "are designed to develop and validate new technologies for Boeing to 
commercialize, and we consider that it would be ar tificial to treat their contribution as having been 
exhausted or so diminished as to no longer be making a genuine and substantial contribution  to 
Boeing's development of technologies for the 787";  and 
 the aeronautics R&D subsidies "contributed in a genuine and substantial way  to Boeing's development 
of technologies for the 787 and that, in the light of the conditions of competition in the LCA industry, 
these subsidies conferred a competitive advantage on Boeing." 
(Panel Report, paras. 7.1740, 7.1764, and 7.1773, respectively (emphasis added);  see also paras. 7.1752, 
7.1754, and 7.1758) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  contributed to the development of the 787—that is, in a "genuine and substantial" way—is 
reminiscent of the legal  standard articulated by the Appellate Body for determining the existence of 
the requisite causal link between subsidies and the a dverse effects identified in Article 6.3(a)-(c) of 
the SCM Agreement .  Nonetheless, the Panel's repeated use of the phrase "genuine and substantial" 
does not, alone, establish that the Panel was in each instance reaching a legal, rather than a factual, 
conclusion. 
958. The intermediate findings of a panel may be eith er legal or factual, or entail both factual and 
legal elements.  In reviewing a panel's findings, it is  often difficult to disentangle legal conclusions or 
legal reasoning from factual findings.  Where there is  ambiguity, it will fall on the Appellate Body to 
determine whether a finding—and a related challenge to it on appeal—is properly characterized as 
legal or factual, in the circumstances of a specifi c case.  The United States brings its appeal on the 
basis that the Panel erred in applying the legal standa rd to the facts, and we will proceed to evaluate 
the United States' claims on that basis, save where we determine th at the Panel's finding, and the 
United States' challenge to it, relate exclusivel y to the Panel's factual assessment.  In such 
circumstances, we will be unable to conduct our revi ew in the absence of a claim by the United States 
under Article 11 of the DSU.   
959. With these considerations in mind, we turn to  the specific arguments of the United States on 
appeal.  
5. Specific Grounds of Appeal Raised by the United States  
(a) Whether the Panel erred by "extrapolating findings" with respect to 
three NASA composites programmes to all of the R&D programmes 
960. The United States alleges that the Panel erred because it examined in detail only three NASA 
programmes—the ACT, AST, and the R&T Base programmes—and then "e xtrapolat{ed} their 
effects" to the remaining NASA and USDOD R&D programmes at issue.1971  The United States 
acknowledges that the ACT, AST, and R&T Base programmes, under which composites are 
researched, are the "most commercially and technologically" important1972, but contends that, by 
extrapolating their effects to the remaining NASA and USDOD programmes, the Panel "exaggerated 
the effect" of these remaining programmes, which, in  the Panel's own estimation, were less relevant 
and bore little relation to the technologies used on the 787.1973   
                                                      
1971United States' other appellant's submission, para. 222.  
1972United States' other appellant's submission, para. 222 (referring to Panel Report, para. 7.1702).  
1973United States' other appellant's submission, para. 222.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  961. The United States highlights in particular th e Panel's treatment of two NASA programmes 
—the HSR and the AS programmes—which accordi ng to the United States were not on the "causal 
pathway"
1974 to the development of the technologies used on the 787.  With respect to the 
HSR programme, the United States refers to the Pane l's explanation that this programme was aimed at 
developing high-speed supersonic civil transport and addressing environmental problems caused by 
atmospheric effects and community noise.1975  According to the United States, these technological 
objectives were obviously different from those identified by the Panel (or by the 
European Communities) as critical for the 787.1976  Moreover, the United States refers to the Panel's 
acknowledgement that the supersonic research unde r the HSR programme ended in failure since 
Boeing eventually abandoned the idea of launching a supersonic civil aircraft.1977  With respect to the 
AS programme, the United States notes the Panel's finding that the objectives of that programme 
included:  "(i) foundational science and discipline-cen tric research;  (ii) multidisciplinary, coupled 
effects, and component-based research;  (iii) sub- system or multidisciplinary integration;  and 
(iv) system level design."1978  Moreover, argues the United States, the AS programme was aimed at 
"saving lives" and not at the development of competitive technologies for Boeing's exclusive or 
predominant use.1979  For the United States, the presence of su bsidized research that was unrelated to 
the 787 technologies, within the larger category of aeronautics R&D subsidies analyzed by the Panel, 
calls into question whether the research conduc ted under programmes that did relate to the 
technologies used on the 787 was sufficient to cause the serious prejudice found by the Panel.1980 
962. The European Union disagrees with the "extrapola tion" arguments of the United States.  In its 
view, the Panel assessed the evidence before it a nd properly concluded that all of the research 
programmes contributed, to different degrees, to the technologies used on the 787.1981  T h e  
European Union notes that, in addition to eviden ce relating to the three composites-related NASA 
programmes, the Panel had before it concrete evid ence of "technology spin-offs" from the other five 
(non-composites-related) NASA pr ogrammes that Boeing applied to the 787, and that such evidence 
is reflected in Appendix VII.F.1 of the Panel Report.1982  In any event, the Eu ropean Union argues that 
the United States' focus on a 1:1 application to  the 787 of the technologies studied under the R&D 
                                                      
1974United States' other appellant's submission, para. 226.   
1975United States' other appellant's submission, para. 226 (referring to Panel Report, para. 7.1728).  
Moreover, the United States observes that the HSR pr ogramme accounted for 40% of the $1.05 billion in NASA 
contracts found to be subsidies. ( Ibid.) 
1976United States' other appellant's submission, para. 226.  
1977United States' other appellant's submission, para. 226 (referring to Panel Report, para. 7.1730). 
1978United States' other appellant's submission, para. 225 (quoting Panel Report, para. 7.1737). 
1979United States' other appellant's submission, para. 225. 
1980United States' other appellant's submission, para. 228.  
1981European Union's appellee's submission, para. 366 (referring to Panel Report, para. 7.1702). 
1982European Union's appellee's submission, para. 363.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  programmes ignores the cumulative effect of the subsidies in allowing Boeing to identify an 
optimized solution for the design of the 787 at the optimal time.
1983  
963. We take as our starting point the Panel's own description of the way in which the research 
conducted by Boeing pursuant to the NASA and US DOD programmes contributed to the technologies 
used on the 787.  The Panel embarked on its analys is by drawing attention to the assertion of the 
European Communities that "the most important of the technical characteristics of the 787" that are 
derived from the aeronautics R&D subsidies "are its composite fuselage, composite wing, and 
composite manufacturing tools and processes".1984  The Panel clarified that NASA's AST, ACT, and 
R&T Base programmes, pursuant to which r esearch was conducted by  Boeing and McDonnell 
Douglas in the field of composites and composites technologies, were the "most commercially and technologically significant programmes", and explai ned that, for this reason, it would "focus 
primarily" on the research under these programmes.
1985  The participants were in agreement at the oral 
hearing that the Panel did not err in selecti ng these three programmes as the most important 
"commercially and technologically", because of the composites research conducted under them. 
964. The importance ascribed by the Panel to com posites technologies—and the ACT, AST, and 
R&T Base programmes under which such technologies we re studied—is reflected in its analysis.  The 
Panel took note of the preponderance of composites structures used on the 7871986, and explained how 
NASA's research objectives relating to composit es evolved from 1989 through to the 2000s under the 
                                                      
1983European Union's appellee's submission, paras. 372 and 373.  
1984Panel Report, para. 7.1702.  
1985Panel Report, para. 7.1702.  
1986The Panel noted, for example, that:  the fuselage of the 787—composed of frames, stringers, and 
skin—is constructed from composite materials using a variety of innovative technologies (Panel Report, 
Appendix VII.F.1.C, p. 738, paras. 22 and 23);  th e use of composites was innovative because, previously, 
aircraft were constructed by bolting panels together, wh ich added weight and required seams and joints that 
were expensive to maintain (p. 738, paras. 21 and 22);  and there were contributions made by suppliers in 
manufacturing composite wings for the 787 (p. 739,  para. 25).  In Appendix VII.F.1.B, pp. 729-733, paras. 3-10 and Appendix VII.F.1.C, pp. 738-739 of the Panel Report, the Panel described the development of the use of 
composites on a number of pred ecessor Airbus and Boeing models , through to the 787 aircraft.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  successive ACT, AST, and R&T Base programmes.
1987  The Panel highlighted a specific example of 
the research conducted by Boeing engineers pursuan t to a contract funded by the ACT programme—
the Advanced Composite Technology Fuselage Program  ("ATCAS")—that led to the development of 
the 360º single barrel composite fuselag e, a hallmark feature of the 787.1988  The Panel also referred to 
the substantial knowledge and experience  gained by Boeing engineers working under the NASA 
composites programmes, and delineated how their immersion in composites manufacture and design 
over a number of years enabled them to "lev erage the substantial accumulated knowledge and 
experience in any future composite-related R&D activity".1989  That experience led to tangible 
benefits—for example, the Panel noted that "the  most important benefit that the ACT program 
provided to Boeing was the ability for its engin eers to gain experience and work under real 
development program restrictions with clear cost targets."1990   
965. We recall that the United States' argument on a ppeal is that the Panel "extrapolated" the 
findings made with respect to the three composit es-related programmes to the remaining five NASA 
and two USDOD programmes considered by the Panel.   The United States draws our attention to two 
                                                      
1987For instance, the Panel noted that NASA la unched the ACT programme as a "major new 
programme" for composite wing and fuselage primary structures in 1988. (Panel Report, para. 7.1710)   It described how, between 1988 and 1995, the composites research proceeded in phases under the 
ACT programme, which was succeeded by  the AST and R&T Base programmes, which themselves ran from the 
late 1990s through to the 2000s. ( Ibid., paras. 7.1710-7.1727)  The Panel explained how the composites research 
conducted under these successive NASA programmes was geared towards the reduction of the weight of 
transport as well as of the costs of producing aircraft  composites, which would eventually lead to increased 
aircraft performance and lower operating costs.  For instance, in describing the objectives of the 
AST programme, the Panel highlighted the following statement in a NASA AST Budget Estimate document: 
While the current demonstrated level of composites technology can promise 
improved aircraft performance and lo wer operating costs through reduced 
structural weight, it does so with in creased manufacturing costs, currently 
twice the cost of aluminium.  The go als of the composites element are to 
reduce the weight of civil transports by 30-50% and their cost by 20-25% 
compared to today's metallic transports.  This translates into a potential 16% 
direct operating cost-savings to  the airlines a nd increases the 
competitiveness of the U.S. built transp orts.  In cooperation with industry 
and the {Federal Aviatio n Administration}, research is performed to 
validate the technology for the application of new composites manufacturing techniques, such as through-the-thickness stitching and resin 
transfer moulding, tex tile preforms and advanced fiber placement, on 
transport wings. 
(Panel Report, para. 7.1716 (quoting NASA AST Budget Estimates, FY 1992-FY 2001 (Panel Exhibit EC-357), 
at FY 1996, SAT 4-38)) 
1988Panel Report, para. 7.1751.  The Panel agreed with the European Communities that the work 
conducted by Boeing pursuant to the ATCAS, involving the preparation of a four quadrant, panelized fuselage 
section, served as a "roadmap" for Boeing to arrive at the composite fuselage 360º barrel solution that it later 
used on the 787. ( Ibid.) 
1989Panel Report, footnote 3684 to para. 7.1756 (referring to Statement by Patrick Gavin et al. 
(8 November 2007) (Panel Exhibit EC-1175 (HSBI/BCI))), para. 27)  
1990Panel Report, footnote 3684 to para. 7.1756 (quoting D. Wacht, "An Analysis of Selected NASA 
Research Programs and Their Impact  on Boeing's Civil Aircraft Progra ms" (November 2006) (Panel Exhibit 
EC-15 (BCI)), p. 67).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 402 HSBI omitted, as indicated [[HSBI]]  
 
  NASA programmes in particular—the HSR and AS  programmes—and asserts that the Panel's 
findings with respect to these programmes disclose little or no relation to the technologies that the 
Panel found (and the European Communities had ar gued) were responsible for making the 787 the 
success that it was in 2004.   
966. We recall that the Panel discussed the technical objectives of the HSR and AS programmes as 
part of its consideration of the structure and design  of the subsidies, under the second pillar of its 
analysis.  With respect to the HSR programme, the Panel noted that research was geared towards the 
development of a high-speed supersonic civil transp ort.  Under Phase I, the objective was to define 
the "environmental compatibility requirements in the areas of atmospheric effects and community 
noise and sonic boom" and to establish "technology  foundation to meet these requirements".
1991  
Under Phase II, the programme would address "essen tial technologies needed by the U.S. aeronautics 
industry in order to make informed decisions rega rding future {high-speed supersonic civil transport} 
development and production."1992  With respect to the AS programme, the Panel noted that research 
under that programme would contribute to a reduction in aviation and accident fatality rates and would encompass research in "founda tional science and discipline-centric  research;  multidisciplinary, 
coupled effects, and component-based research;  s ub-system or multidisciplinary integration;  and 
system level design".
1993   
967. It is clear from the above descriptions of the technical objectives of the HSR programme and 
the AS programme that the Panel did not explicitly link any of the six technologies used on the 787 to 
the research conducted under the two programmes.1994  However, this alone does not validate the 
United States' argument that, by failing to do so, the Panel thereby improperly "extrapolated" findings 
with respect to the ACT, AST, and R&T Base progra mmes.  This is because the Panel's finding of a 
causal pathway was not predicated upon the exis tence of a direct relationship between the 
technologies seen on the 787 and the research c onducted under the NASA and USDOD programmes.  
Rather, as the Panel explained, the technologies used on the 787 must be understood as the product of 
an incremental process of research that progressed in gradual stages.  The Panel further explained that 
the "technology concepts studied under the NASA R&D subsidies and the technologies applied to 
                                                      
1991Panel Report, para. 7.1728 (quoting NASA HSR Budget Estimates, FY 1991-FY 2001 (Panel 
Exhibit EC-343), at FY 1994, RD 9-31). 
1992Panel Report, para. 7.1729 (referring to NASA HSR Budget Estimates, FY 1991-FY 2001 (Panel 
Exhibit EC-343), at FY 1994, RD 9-33). 
1993Panel Report, para. 7.1737 (referring to NASA Aviation Safety Budget Estimates, FY 2000-FY 
2007 (Panel Exhibit EC-382), at FY 2007, SAE ARMD 2-7). 
1994We recall that the European Communities had identified a total of six technologies that were used 
on the 787.  Apart from the composites technologies, th ese included technologies related to "more-electric" 
architecture;  open systems architecture;   enhanced aerodynamics and structural design;  noise reduction;  and 
health management systems.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  the 787 are essentially part of the same process in which solutions to technological problems are 
developed (through a collective exercise of progres sive learning through trial and error involving 
largely the same teams of people over an extended period of time)".
1995  Moreover, the Panel 
highlighted that "technologies that may, at any given moment, be portrayed as discrete and unrelated , 
are in fact more appropriately regarded as bei ng part of a single process of iterative learning and 
advancement in pursuit of a common technological goal."1996  For the Panel, therefore, "even 
unsuccessful research generates important knowledge a nd experience that is applied to subsequent 
technology developments."1997   
968. The Panel therefore perceived the causal li nk as encompassing not only research conducted 
pursuant to the NASA and USDOD programmes that can  be traced directly to the 787 technologies, 
but also research that was less directly related, and ev en resulted in failure.  Framed at such a level of 
generality, this causal connection might be taken to  mean that any programme, irrespective of how 
closely the research conducted pursuant to it might be to the eventual 787 technologies, would be 
included.  However, the Panel illustrated, throu gh a number of specific examples, how the research 
conducted under the programmes at issue contributed to the eventual 787 technologies.  As we have 
noted above, the Panel highlighted how Boeing' s work under the ATCAS contract led to the 
development of the 360º single barrel composite fuselage.1998  With respect to the "more-electric 
systems" technology, the Panel explained that, although the technologies developed pursuant to the 
AST-funded "Power-by-Wire" contract  between NASA and McDonnell Douglas1999 were developed 
on different aircraft and using different criteria, th e objective of the contract was the development and 
demonstration of a "more-electric secondary power  system" that would provide enough confidence 
through testing that industry could transfer the technology to their civil fleet.2000 
                                                      
1995Panel Report, para. 7.1750.  
1996Panel Report, para. 7.1750. (emphasis added) 
1997Panel Report, para. 7.1748.  
1998Panel Report, para. 7.1751.  See supra , footnote 1988. 
1999Panel Report, para. 7.1752 (referring to Europ ean Communities' first written submission to the 
Panel, Annex C, para. 71, in turn referring to NASA Contract NAS3-27018 with McDonnell Douglas Aerospace 
regarding Power-By-Wire Development and Demonstration for Subsonic Civil Transport, 29 September 1993 
(Panel Exhibit EC-826), at C-5). 
2000See Panel Report, para. 7.1752.  For this reason, the Panel considered it "artificial to suggest that the 
research into more-electric systems architecture that Boeing and McDonnell Douglas conducted under the 
aeronautics R&D programmes did not contribute in a genuine and substantial way to Boeing's development of more-electric systems for the 787 beca use, for example, the flight cont rols for the 787 are not the same 
electronic actuation technology studied by McDonne ll Douglas under the {Power-By-Wire} contract." ( Ibid.)   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 404 HSBI omitted, as indicated [[HSBI]]  
 
  969. Turning to the specific examples of the HSR and AS programmes, we note first that the 
European Communities explained before the Pane l how they each contributed to the eventual 
development of key technologies used on the 787.
2001  Second, as regards the HSR programme, the 
United States highlights on appeal that this progra mme resulted in failure and had to be abandoned.  
However, as the Panel itself explained, programmes that do not lead to successful technologies are not 
necessarily outside the causal pathway because "even unsuccessful research generates important 
knowledge and experience that is applied to subsequent technology developments."2002  In any event, 
we can identify one way in which the faile d HSR programme, which focused on supersonic 
technologies, contributed to advancing the research into the 787 technologies.  The Panel noted that, 
prior to 2000, Boeing was working on a high-speed aircraft—the Sonic Cruiser.2003  However, that 
project gained little support from airlines because cust omers were more interested in aircraft with 
lower operating costs than in aircraft flying at s upersonic speed.  In line with this feedback, Boeing 
decided to build a more efficient airplane that w as capable of flying at the same speed as existing 
aircraft but at a lower cost.2004  It appears, therefore, that th e research into the high-speed Sonic 
Cruiser, even if it ultimately resulted in failure, helped Boeing to eliminate those technologies that 
were not commercially attractive, and to concentrat e Boeing's engineers' efforts instead on research 
into technologies—in particular, composites—that were of more interest to customers and were 
actually used on the 787. 
970. In the light of the above, we do not agree with the United States that the Panel improperly 
"extrapolated" the effects of the three composites programmes to the other NASA and USDOD 
programmes.  The causal link found to exist between  all of the R&D programmes at issue and the 787 
technologies did not rest on extrapolation.  Reasoning from "extrapolation" would imply an 
assumption that, because certain programmes gave ri se to technologies that are used on the aircraft, 
other programmes automatically do the same.  That was not the Panel's reasoning.  Rather, it was the 
Panel's view that all of the programmes, to differing degrees, contributed to the process of 
                                                      
2001For instance, as regards the HSR programme, the European Communities argued that this 
programme helped Boeing develop and enhance CFD (computer design software) codes, which allowed the 
company to improve the aerodynamics and structural design  of its LCA in less time and at lower cost than 
would otherwise have been possible, particularly as they reduce the need for extensive and expensive wind 
tunnel tests. (See Panel Report, Appendix VII.F.1.D, p. 749, paras. 55-60)  The European Communities argued 
that Boeing conducted research on health management  technologies under th e AS programme. (See ibid., 
p. 755, para. 75) 
2002Panel Report, para. 7.1748. 
2003Panel Report, para. 7.1746.  In its arguments before the Panel, the United States itself noted that 
Boeing had initially sought to meet the demand for the new fragmented market it had foreseen with a fast, 
extended-range aircraft because it would not only be faster and lighter, due to the use of composites, but it 
would also travel just under the speed of sound. (United States' first written submission to the Panel, paras. 921 and 922) 
2004United States' first written submission to the Panel, paras. 921 and 922.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  technological development that eventually led to the commercialization of the 787 technologies.  The 
Panel was clearly of the view that the three composites programmes that contributed to the 
development of the composites technologies were on  the "causal pathway" to Boeing's offering of 
the 787.  However, this did not exhaust the Panel' s understanding of the relevant causal link.  That 
causal connection encompassed even research conduc ted pursuant to programmes that resulted in 
failure, or were not directly related to the 787 t echnologies.  Far from attenuating or diluting any link 
that might exist between the three composites progr ammes and the 787, the Panel's assessment of the 
role of the remaining R&D progra mmes buttresses its overall finding that all of the aeronautics R&D 
subsidies contributed, albeit to differing degrees,  to the development of the technologies used on 
the 787. 
971. Accordingly, we reject the United States' argument  on appeal that, in its analysis of the three 
composites programmes, the Panel "extrapolated" findings to the remaining NASA and USDOD 
programmes at issue, and that the Panel's assessm ent thereby attenuates the genuine and substantial 
link found by the Panel to exist between the aerona utics R&D subsidies and Boeing's development of 
the technologies used on the 787. 
(b) Whether the Panel erred by not finding that the NASA research was 
too far removed from the commercial technologies used on the 787  
972. In its second argument on appeal, the United States alleges that, by misreading a table in the 
Peisen Study
2005, the Panel miscalculated the amount of time  by which the NASA research accelerated 
the development of the technologies used on the 787 and thereby understate d the time and resources 
that Boeing itself was required to invest to br ing the NASA research to commercial viability.  
Therefore, posits the United States, even if th e research conducted by NASA were on the "causal 
pathway" towards a technology ready for operatio nal use on the 787, the Panel underestimated how 
far removed that research was from the technol ogies actually used on the 787, and therefore 
misjudged the amount of additional private sector development time required to develop them.2006  
This, argues the United States, further attenuates the genuine and substantial causal link found by the 
Panel. 
973. The European Union counters that the arguments of the United States relate to a factual error 
by the Panel and, in the absence of a claim under Article 11 of the DSU, are outside the scope of 
appellate review.  In any event, contends the Euro pean Union, even if the United States' arguments 
                                                      
2005We provide further details of the Peisen Study infra , para. 974. 
2006See United States' other appellant's submission, paras. 229-235.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  were to be accepted on appeal, they do not i nvalidate the Panel's finding of a causal link
2007 because, 
even if the Panel's reading of the table in the Pe isen Study were erroneous, and were revised, this 
correction would not affect the Pa nel's ultimate legal conclusions.2008  The European Union argues 
that even the revised numbers show that:  the NASA-funded research gave Boeing a significant timing advantage of several years in developing the 787 technologies;  the NASA research reduced the risk faced by Boeing;  and the Peisen Study provides average  timeframes for a broad range of "airframe" 
technologies that are not the specific technologies used on the 787, which might in any event require a 
longer time to develop.
2009 
974. We note first that the Panel referred to the Pe isen Study in support of its finding that NASA 
research reduces the risk that the private sector would otherwise have to bear in financing early and potentially unsuccessful research.
2010  That study explains NASA's system of categorizing research 
according to its level of maturity or TRL (technological readiness level), ranging from the highest risk 
and lowest maturity technology at TRL 1 ("b asic scientific/engineering principles observed and 
reported") to the lowest risk and highest maturity  technology at TRL 9 ("operational use of actual 
system tested, and benefits proven").2011  According to the Peisen St udy, "NASA typically works on 
technologies from a TRL of 1 to a TRL of 6" and, at TRL 6, "industry often takes the technology and 
develops it to the state of operational readiness, TRL 9".2012  The Peisen Study, which examined 18 
civil aeronautics products, notes that there is cons iderable variability in the time it takes for 
technologies to mature, with average maturation times varying by technology type, by the 
technology's primary benefit or goal, and, to a les ser extent, by the need for additional technologies or 
NASA testing for the successful maturation of the technology.2013   
975. Based on evidence in the Peisen Study indi cating the average time taken by NASA to 
progress from TRL 1 to TRL 6, th e Panel concluded that NASA's development of "higher risk 
technologies up to TRL 6 results in an acceleration of the overall technology development process for 
an airframe manufacturer like Boeing and would ther efore facilitate an earlie r product launch than 
would otherwise have been possible".2014  The Panel based this consideration on its assessment that 
the average time to progress from TRL 1 to TRL 6 is  11.3 years.  The Panel derived this estimate 
                                                      
2007European Union's appellee's submission, para. 379.  
2008European Union's appellee's submission, para. 383 (referring to Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , para. 1335).  
2009European Union's appellee's submission, paras. 385-387.  
2010Panel Report, paras. 7.1747 and 7.1748.  
2011Peisen Study, Table 1.2-1, p. 2. 
 2012Peisen Study, p. 1.  A TRL of 6 typically mean s that the prototype of the system concept is 
demonstrated in a relevant environment. ( Ibid., Table 1.2-1, p. 2)   
2013Panel Report, footnote 3668 to para. 7.1748.  
2014Panel Report, para. 7.1748.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  from its reading of a table in the Peisen Study  relating to the average time taken by airframe 
technologies to progress to TRL 9 from TRL 1, which included the following data: 
Table 4.  Sample statistics of twelve NASA technologies from TRL 1 to TRL 9,  
by type of aeronautics technology-airframe 
Years to TRL 9 
from TRL: Airframe Technologies (2) 
Average St Dev 
1 16.5 4.2 
2 15.5 3.5 
3 14.8 3.2 
4 14.0 2.8 
5 12.0 4.2 
6 11.3 3.9 
7 10.0 4.2 
8 2.5 2.1 
9 0 0 
Source :  Peisen Study, p. 11, Table 3.3-1. 
 
976. As the heading on the left-most column indi cates, each row sets out the average number of 
years (and the relative standard deviati on) that a technology takes to mature from  the TRL indicated in 
the left column to TRL 9.  Accordingly, row 6 reports the number of years from TRL 6 to TRL 9, and 
shows the average as being 11.3 years .  Having reviewed the table, however, the Panel stated that "the 
average time from TRL 1 to TRL 6  was 11.3 years …, while the average time from TRL 1 to TRL 9 
was 16.5 years".2015  Therefore, according to the Panel' s calculation, the time necessary for an 
airframe technology to mature from TRL 6 to TRL 9 is only 5.2 years.  
977. The United States asserts that the Panel misunders tood the first column of the table and, as a 
result, wrongly read it to state that it takes 11.3 years from TRL 1 to TRL 6.  Read properly, the table shows that it takes 5.2 years from TRL 1 to TRL 6, and 11.3 years from TRL 6 to TRL 9.
2016  The 
European Union does not defend the 11.3-year period refe rred to by the Panel.  Both participants thus 
appear to accept, and it seems inc ontrovertible to us, that the Panel misread the table in the Peisen 
Study.   
978. The United States contends that the consequen ce of the Panel's error in overestimating the 
duration of the NASA-funded high-risk/low-matur ity research—and therefore underestimating the 
time and resources invested by Boeing and its suppliers  in the later stages of the research process—is 
that the Panel's ultimate finding that  a causal link exists is weakened. 
                                                      
2015Panel Report, para. 7.1748. (emphasis added) 
 2016United States' other appellant's submission, para. 233. WT/DS353/AB/R BCI deleted, as indicated [***] 
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  979.   In addressing the United States' claim, we can distinguish two steps taken by the Panel in its 
consideration of the table in the Peisen Study.  Firs t, the Panel's appreciation of the contents of that 
table;  and second, its application of the legal causa tion standard to the evidence.  The first step is 
factual since it concerns the Panel's treatment of factual evidence;  the second step, however, is legal 
since it involves the characterization of the fact s according to the legal standard.  Although a 
misreading of the evidence under the first step mi ght have had consequences for the Panel's ultimate 
legal conclusion under the second step, it is an error in the appreciation of the facts, and not an error 
in the application of the legal standard.  Conseque ntly, in the absence of a claim under Article 11 of 
the DSU, we are unable to consider furthe r this ground of the United States' appeal. 
980. Even if we were able to correct the Panel's err oneous reading of the table in the Peisen Study, 
the United States has not explained why or how th e Panel's numerical error necessarily vitiates its 
finding that the aeronautics R&D subsidies facilita ted an earlier launch of the 787 than would have 
otherwise been possible.  In this regard, we note first that, having (erroneously) stated that the average 
amount of time to progress from TRL 1 to TRL 6 was 11.3 years, the Panel tempered the import of this finding by stating that it did not thereby "mean to suggest that it would have taken Boeing as 
much as 11 years longer to develop the 787 in the absence of the aeronautics R&D subsidies".
2017  
Such a caveat was, in our view, reasonable given th at the estimates in the Peisen Study were based 
only on average  timeframes, and do not necessarily reflect the precise time that was required to 
develop and launch the technologies used on the 7 87.  The Panel's finding must be understood to 
mean that the NASA aeronautics R&D subsidies accelerated the t echnology development process by 
some  amount of time, and, therefore gave Boeing an advantage in bringing its technologies to market.  
The exact amount of time was not critical:  that the NASA research enabled Boeing to accelerate the 
research process was.  Second, the Panel found elsew here that the aeronautics R&D subsidies reduced 
the large disincentives for the private sector to invest in early stage aeronautics R&D.2018  F o r  t h e  
Panel, because of the importance of the aerona utics R&D subsidies in overcoming these significant 
disincentives, it was "not reasonable" to believe that, absent the aeronautics R&D subsidies, Boeing 
could have achieved the gains that it did "within the time-frame" that it did.2019  In the Panel's view, 
therefore, without the aeronautics R&D subsidies, Boeing would not have been willing to invest as 
much, and as soon, in early stage R&D, and it would have taken Boeing longer to bring the 787 
technologies to commercial readiness without the aeronautics R&D subsidies. 
                                                      
2017Panel Report, para. 7.1748.  
2018Panel Report, para. 7.1747.  The Panel found that there were large disincen tives for private sector 
investment in long-term, high-risk R&D due to the inability of individual companies to capture fully the benefits 
of research efforts, the length of the aircraft research  and development cycle and investment recoupment cycle, 
and the extensive breadth and depth of technologies to produce superior aircraft. ( Ibid., para. 7.1747)  This 
finding has not been appealed by the United States. 
2019Panel Report, para. 7.1759.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  981. For the above reasons, we reject the argument of  the United States that the Panel's misreading 
of the table in the Peisen Study attenuates its fi nding that the aeronautics R&D subsidies contributed 
in a genuine and substantial way to the development of the 787. 
(c) Whether the Panel erred in its appr eciation of the role of Boeing and 
its suppliers in the development of the technologies used on the 787 
982. The United States also challenges the Panel's ass essment of the role played by Boeing and its 
suppliers in the commercial and technological su ccess of the 787.  The United States highlights that 
the Panel itself acknowledged that Boeing co nducted a substantial amount of research on its own  to 
develop and launch the 787, including at the early stages of the research effort.
2020  According to the 
United States, the NASA-funded research was, "by any measure"2021, small in comparison, and the 
additional research and independent technological developments by Boeing attenuate any link 
between the aeronautics R&D subsidies and the technologies used on the 787.2022  Further, the 
United States argues that the Pane l failed to take proper account of  the knowledge and experience that 
Boeing acquired from non-NASA sources, including thr ough its work with its suppliers.  It was 
through this collaboration that Boeing gained the skills to integrate technologies on LCA, and not, as 
the Panel found, because of the aeronautics R&D subsidies.2023  The United States argues, in parallel, 
that, by finding that Boeing gained "integrati on skills" through NASA research, the Panel acted 
inconsistently with its obliga tions under Article 11 of the DSU.2024  The United States contends that, 
although the Panel accepted that many of the t echnologies used on the 787 were commercially 
available or otherwise sourced from Boeing's suppliers2025, it underestimated their contribution to 
Boeing's knowledge base and to the technologies used on the 787.2026  
983. The European Union repeats its argument that all of these claims of the United States should 
have been brought under Article 11 of the DSU.  W ith respect to the specific claim brought by the 
United States under Article 11 of the DSU, the Eur opean Union recalls the Panel's finding that the 
aeronautics R&D subsidies enabled Boeing to meet the challenges of integrating technologies from a 
wide variety of suppliers.2027  The European Union submits that th e United States' argument "fails to 
                                                      
2020United States' other appellant's submission, para. 236 (referring to Panel Report, para. 7.1746).  
2021United States' other appellant's submission, para. 237.  
2022United States' other appellant's submission, para. 236.  
2023United States' other appellant's submission, paras. 238 and 240 (referring to Panel Report, 
para. 7.1757). 
2024United States' other appellant's submission, paras. 238 and 239.   
2025United States' other appellant's submission, para. 238 (referring to Panel Report, para. 7.1757).  
2026United States' other appellant's submission, para. 238.  
2027European Union's appellee's submission, para. 396 (referring to United States' other appellant's 
submission, paras. 214 and 238-249). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 410 HSBI omitted, as indicated [[HSBI]]  
 
  recognise that several … contracts were precisel y focused on making Boeing a better integrator"
2028 
and refers to the Panel's finding that the United States' argument "overlooks the importance of the 
knowledge and experience that Boeing obtained pursuant to the aeronautics R&D subsidies".2029  The 
European Union asserts that, simply because the Pane l accorded the evidence a different weight than 
the United States does not mean that the Panel failed to conduct an objective assessment under 
Article 11 of the DSU.2030 
984. We begin with the United States' argument th at the Panel erred in its application of 
Articles 5(c) and 6.3 in failing to take proper account  of the contribution of Boeing and its suppliers 
vis-à-vis the role of the aeronautics R&D subsidies in the timely development of the 787 technologies, 
and that this alleged failure vitiates the Panel's determination that a genui ne and substantial causal 
relationship existed between the aeronautics R&D subsidies and the 2004 launch of the 
technologically advanced 787.  As we have noted above2031, a panel that is tasked with determining 
whether the causal link in question meets the requisite  standard of a "genuine and substantial" causal 
relationship will often be confronted with multiple  factors that may have contributed, to varying 
degrees, to that effect.  As part of its assessment of the causal nexus between the subsidy at issue and 
the effect(s) that it is alleged to have had, a pa nel must seek to understand the interactions between 
that subsidy and the various other causal factors, a nd make an assessment of their connections to, as 
well as the relative importance of the subsidy, and of the other factors, in bringing about, the relevant 
effect(s).  In order to find that the subsidy is  a genuine and substantial cause, a panel need not 
determine it to be the sole cause of that effect, or even that it is the only substantial cause of that 
effect.  A panel must, however, take care to ensure that it does not attribute the effects of those other 
causal factors to the subsidy at issue, and that th e other causal factors do not dilute the causal link 
between that subsidy and the alleged adverse effects such that it is not possi ble to characterize that 
link as a genuine and substantial relationship of cause and effect.  We have also noted that a 
demonstration that subsidies are a genuine and subs tantial cause of the alleged serious prejudice is a 
fact-intensive and case-specific exercise.   
985. We consider first the Panel's discussion of the contribution made by Boeing to the overall 
development of the technologies used on the 787.  The Panel noted that NASA research 
complemented and was conducted in collaboration with Boeing's own internally funded research 
                                                      
2028European Union's appellee's submission, para. 397. 
2029European Union's appellee's submission, para. 398 (referring to Panel Report, para. 7.1772).  The 
European Union highlights, in this respect, the Panel's finding that "{t}he critical question in developing and 
building LCA is not how to get the different technologies and design and manufacturing tools.  The critical 
question is how to use them." ( Ibid., para. 399 (quoting Panel Report, para. 7.1772 (original emphasis))) 
2030European Union's appellee's submission, para. 400. 
2031Supra , paras. 913 and 914.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 411  
 
  efforts
2032, illustrating by way of example that, while  Boeing conducted research on one fuselage 
segment under the NASA-funded ATCAS, it used internal funds to conduct research on other fuselage 
segments, material and process standards, and structural allowables.2033  The Panel further stated that, 
from 2000 onwards, Boeing—together with its supp liers—had made "significant investments in 
R&D" in the "respective technology areas", first with  respect to the Sonic Cruiser and then with 
respect to the 787, and had developed expertise in the application of composites in secondary 
structures, as well as in primary structures such as the 777 empennage.2034  The Panel also took into 
account Boeing's own financial resources and registered  that, between 1986 and 2006, Boeing 
repurchased $16 billion worth of its own stock.2035 
986.  The above statements by the Panel illustrate that it appreciated the extent of Boeing's 
contribution to the research into the technologies for the 787, and was aware of its ability to finance 
such research.  However, the Panel demonstrat ed through its reasoning why those substantial 
contributions on Boeing's part were  not inconsistent with the genuin e and substantial link that it had 
found to exist between the aeronautics R&D subsidies and the timely development of the 787 technologies.  What was crucial to that link was not merely the fact that Boeing also conducted 
research, and that it used its own resources to do so, but, rather, it was "the length of time over which 
{the aeronautics R&D subsidies} operated, the colla boration with Boeing and complementarity with 
Boeing's own internal R&D efforts and the nature of the technological problems that were the focus of 
the research".
2036  In the course of its analysis, the Panel highlighted the joint efforts between Boeing 
and NASA in conducting research.  It noted that  "Boeing gain{ed} a significant advantage from 
performing the R&D work itself , in collaboration with NASA,  as well as from conducting research 
under the R&D subsidies in tandem with its own related R&D efforts ."2037  Moreover, the Panel noted 
that the effects of the subsid ies were measured by the " cumulative effect  of Boeing's decades-long 
participation" in NASA and USDOD pr ogrammes, taking into account "the complementarity and 
interdependence  between the work that Boeing and Mc Donnell Douglas performed for NASA and 
Boeing's own internal R&D efforts."2038  The Panel also underscored the boost that the NASA 
subsidies provided to the development of technologi es at the earliest, most  fundamental, stages of 
research.  For the Panel, to focus too narrowly on Boeing's experience and its significant internal 
R&D efforts alone would "sever artificially the contribution of earlier significant research efforts  
                                                      
2032Panel Report, para. 7.1746.  
2033Panel Report, para. 7.1746. 
2034Panel Report, para. 7.1757.  
2035Panel Report, para. 7.1760.  
2036Panel Report, para. 7.1754.  
2037Panel Report, para. 7.1771. (emphasis added) 
2038Panel Report, para. 7.1756. (emphasis added) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 412 HSBI omitted, as indicated [[HSBI]]  
 
  which are … an inherent part of the technology development process."
2039  As we have explained 
above, NASA's role, especially in those early stages, lay precisely in the fact that it shouldered the 
initial burden for the private sector when technology was at its lowest stage of maturity and where risk 
was highest.  It was the aeronautics R&D subsidies th at enabled Boeing to overcome the disincentives 
in investing in aeronautics R&D, and which theref ore accelerated Boeing's launch of the 787 with all 
of its technological advancements in 2004. 
987. While recognizing NASA's contribution, particularly at the early stages, the Panel also 
appreciated that, at "some point in time", the co ntribution of that research could reasonably be 
expected to diminish in relation to other,  "more recent or revolutionary technological 
developments"2040 attributable to other factors.  At that stage, it would not be possible to characterize 
the research conducted by NASA in the 1990s as having contributed in a "genuine and substantial" 
way to new technologies applied to future Boeing LCA.2041  However, the Panel found that this point 
had not been reached in 2004, when the 787 entered the market.2042  While we could conceive of 
different ways in which an advantage provided by subsidies might dissipate over time or might be 
severed, through, for instance, the intervention of  other, more important causal factors, the 
United States does not indicate or explain why the mere  fact that Boeing contri buted at various stages, 
including at early stages, to the re search effort means that the importa nt role played by the aeronautics 
R&D subsidies is attenuated.  Ind eed, consistent with our previously stated views regarding a genuine 
and substantial link2043, the fact that Boeing's contribution of resources, time, and financing might be 
substantial does not mean that the timing advantage pr ovided by the subsidies, as well as their role in 
allowing Boeing to overcome risks and disincentives, is diminished. 
988. The United States also argues that the Panel un derestimated the role played by Boeing's 
suppliers  in developing the 787 technologies.  As was the case with Boeing, the Panel recognized that 
these suppliers made "significant investments" in R&D2044 and noted further that, during the 1990s, 
suppliers such as Kawasaki Heavy Industries and Fu ji Heavy Industries were developing expertise in 
the use of composites in primary aircraft struct ures contemporaneously with Boeing's development 
efforts.2045  The above statements illustrate that the Pa nel did take into account the contribution made 
by suppliers, but that it nonetheless concluded that such contribution did not attenuate the genuine and 
                                                      
2039Panel Report, para. 7.1756. (emphasis added) 
2040Panel Report, para. 7.1758. 
2041Panel Report, para. 7.1758. 
2042Panel Report, para. 7.1758.  
2043Supra , para. 984. 
2044Panel Report, para. 7.1757.  
2045Panel Report, para. 7.1757.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 413  
 
  substantial link that it had found to exist between the aeronautics R&D subsidies and Boeing's launch 
of the 787 in 2004.   
989. The United States does not contest that the aerona utics R&D subsidies were important at the 
early stages of the research effort.  We also note that, in its arguments, the United States fails to 
explain how the contribution of Boeing and its supp liers attenuates that role.  In the light of the 
Panel's view of the important role played by the aer onautics R&D subsidies, in particular at the early 
stages of the research effort, we reject the United St ates' argument on appeal that the Panel failed to 
appreciate the efforts of Boeing and its suppliers, and therefore erred in applying the legal standard of 
causation to the facts of this dispute. 
990. In addition to its claims that the Panel erred in its application of Articles 5(c) and 6.3(b) 
and (c) of the SCM Agreement , the United States also asserts that the Panel violated Article 11 of the 
DSU.  Specifically, the United States contends th at there was no evidentiary basis for the Panel's 
statement in paragraph 7.1772 of its Report th at "Boeing's ability to use other companies' 
commercially available technologies on the 787 w as due to 'the knowledge and experience that 
Boeing obtained pursuant to th e aeronautics R&D subsidies as an integrator of the various 
technologies'".
2046  In fact, argues the United States, there is evidence on the Panel record suggesting 
the contrary, namely, that Boeing had developed experience in the application of composites in 
primary and secondary structures since the 1960s.2047  This work involved in tegrating the technologies 
of multiple suppliers, independent of NASA and USDOD research programmes.2048  T h e  
United States also alleges that the integration of a variety of supplier technologies on a commercial 
programme differs greatly, in both scale2049 and quality2050, from the work executed pursuant to the 
aeronautics R&D programmes at issue.  The United States therefore requests the Appellate Body to 
                                                      
2046United States' other appellant's submission, para. 240 (quoting Panel Report, para. 7.1772). 
2047United States' other appellant's submission, para. 241 (referring to Panel Report, Appendix VII.F.1, 
p. 731, para. 7) 
2048United States' other appellant's submission, para. 241. 
2049To illustrate the differences in scale, the Un ited States argues that even the largest NASA 
programme, the HSR programme, amount ed only to $440 million (which, in fact, was only $307 million given 
that NASA cut short this programme), with $26 million for the main ATCAS programme and $74.4 million for the AST programme contract on composite wing structures.  These figures represent a minor portion of what it 
costs an LCA producer to develop new aircraft. (United States' other appellant's submission, para. 242)  
2050With respect to the quality of work, the United States asserts that the nature of the "integration" of a 
NASA project differs from the "integration" that Boeing performed in producing LCA for three reasons.  First, 
regarding the maturity of the technology, NASA-funded aeronautics R&D projects do not advance beyond the 
laboratory and do not deal with real-world problems of applying these technologies.  Second, with respect to the complexity of the system, most of NASA research does not involve making usable physical parts and 
components and, where necessary, it was at most a component to a wing box, fuselage section, or wing.  Third, 
as regards the scale of production, even in those rare  cases when NASA projects called for making a physical 
component, it was at most one or two over a period of months or years for laboratory test purposes. 
(United States' other appellant's submission, paras. 243 and 244) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 414 HSBI omitted, as indicated [[HSBI]]  
 
  reverse the relevant part of paragraph 7.1772 of  the Panel Report, which it characterizes as a finding 
that the aeronautics R&D programmes were "par tially responsible for Boeing's integration 
capabilities".
2051 
991. The European Union responds that many of the aeronautics R&D cont racts were precisely 
focused on making Boeing a better integrator and that , given the substantial evidence before it, the 
Panel acted within the bounds of its discretion in re jecting the United States' argument that "many of 
the technologies applied to the 787 are commerc ially available to Airbus from third party 
suppliers".2052  The European Union emphasizes that pa nels are not required to ascribe the same 
weight to evidence as the parties do, and expresses th e view that the United States' appeal amounts to 
no more than mere disagreement with the weight the Panel accorded to the evidence.2053 
992. We commence by recalling that Article 11 of the DSU requires a panel to "consider all the 
evidence presented to it, assess its credibility, determine its weight, and ensure that its factual findings 
have a proper basis in that evidence"2054, and that "panels {may not} make affirmative findings that 
lack a basis in the evidence contained in the panel record".2055  Within these parameters, "it is 
generally within the discretion of the Panel to d ecide which evidence it chooses to utilize in making 
findings".2056  In this regard, the Appellate Body has stat ed that it will not "interfere lightly" with a 
panel's fact-finding authority2057 but, rather, for a claim under Article 11 to succeed, "the Appellate 
Body must be satisfied that the panel has ex ceeded its authority as the trier of facts".2058  I n  o t h e r  
words, "not every error allegedly committed by a panel amounts to a violation of Article 11 of the 
DSU"2059, but only those that are so material that, "t aken together or singly", they undermine the 
                                                      
2051United States' other appellant's submission, para. 249. 
2052European Union's appellee's submission, paras. 397-399.  
2053European Union's appellee's submission, para. 400 (referring to Appellate Body Report, Australia – 
Salmon , para. 267). 
2054Appellate Body Report, Brazil – Retreaded Tyres , para. 185 (referring to Appellate Body Report, 
EC – Hormones , paras. 132 and 133).  See also Appellate Body Reports in Australia – Salmon , para. 266;   
EC – Asbestos , para. 161;  EC – Bed Linen (Article 21.5 – India) , paras. 170, 177, and 181;  EC – Sardines, 
para. 299;  EC – Tube or Pipe Fittings , para. 125;  Japan – Apples , para. 221;  Japan – Agricultural Products II , 
paras. 141 and 142;  Korea – Alcoholic Beverages , paras. 161 and 162;  Korea – Dairy , para. 138;  US – Carbon 
Steel , para. 142;  US – Gambling , para. 363;  US – Oil Country Tubular Goods Sunset Reviews , para. 313;  and  
EC – Selected Customs Matters , para. 258. 
2055Appellate Body Report, US – Carbon Steel , para. 142. 
2056Appellate Body Report, EC – Hormones , para. 135.  The Appellate Body has also stated that:  
a panel has to base its findings on a sufficient evidentiary basis on the record (Appellate Body Report, EC – 
Fasteners (China) , para. 441);  may not apply a double standard of proof (Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 293);  and its treatment of the evidence must not "lack even-handedness" 
(Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 292). 
2057Appellate Body Report, EC – Sardines , para. 299;  Appellate Body Report, US – Carbon Steel , 
para. 142;  Appellate Body Report, US – Wheat Gluten , para. 151.   
2058Appellate Body Report, US – Wheat Gluten , para. 151. 
2059Appellate Body Report, EC – Fasteners (China) , para. 442.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 415  
 
  objectivity of the panel's assessment of the matter before it.
2060  Accordingly, it is insufficient for an 
appellant simply to disagree with a statement or  to assert that it is not supported by evidence. 
993. As we see it, in para graph 7.1772 of its Report, the Panel accepted the 
European Communities' submission that the aer onautics R&D subsidies provided Boeing with 
knowledge and experience as an integrator  of the various technologies.  That submission was made 
in, and the Panel quoted from, the European Commun ities' confidential oral statement at the first 
substantive meeting of the Panel.  The relevant paragraph of that oral statement, which the Panel 
quoted in its entirety, does not refer to any supporting evidence.2061   
994. The statement in paragraph 7.1772 challenged by the United States forms part of the Panel's 
analysis of the conditions of competition  in the LCA industry, which was the fourth pillar in its 
assessment of the effect of the aeronautics R&D subsidies on Boeing.  In that part of its Report, the 
Panel weighed various pieces of evidence before fi nding that "the conditions of competition in the 
LCA industry are such that a subsidy that e nhances an LCA manufacturer's ability to develop 
innovative technologies for application to its airc raft will potentially give rise to a significant 
competitive advantage to that manufacturer".2062  The Panel addressed, in paragraphs 7.1770 
and 7.1771 of its Report, two arguments by the Unit ed States that sought to rebut the proposition that 
the aeronautics R&D subsidies conferred a competitive advantage on Boeing relative to Airbus.  First, 
the Panel rejected the argument that the results of NASA-funded research are equally available to 
Airbus because they are "publicly disseminated".  The Panel recalled its earlier finding that there are 
"restrictions on the dissemination of certain aspect s of NASA-funded research results, and that public 
                                                      
2060Appellate Body Report, EC – Fasteners (China) , para. 499;  Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , para. 1318.  
2061Panel Report, para. 7.1772 (quoting European Communities' oral statement at the first Panel 
meeting (BCI), para. 14).  Even though the Panel did not refer to any item of evidence to support its statement in paragraph 7.1772, we have doubts about whether the issue of Boeing gaining knowledge and experience as an 
integrator of the various technologies as a result of the aeronautics R&D subsidies is unsupported by evidence 
on the Panel record as the United States suggests.  In particular, we note that paragraphs 15-18 of Panel Exhibit EC-1175 (HSBI/BCI) (Statement by Patrick Gavin et al. (8 November 2007)) contain an extensive explanation 
of how LCA manufacturers remain responsible for the integration of the various technologies and components 
from internal and external sources, and how Boeing has gained "integration" experience and knowledge from participating in the aeronautics R&D subsidies.  This exhib it was referred to by the Panel in paragraph 7.1771 of 
its Report, that is, the paragraph preceding the one in which the Panel referred to Boeing obtaining knowledge 
and experience as an integrator of the various technologies and on which the United States bases its claim under 
Article 11 of the DSU. 
2062Panel Report, para. 7.1769. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 416 HSBI omitted, as indicated [[HSBI]]  
 
  dissemination does not occur immediately".
2063  Second, the Panel addressed, in the last two sentences 
of paragraph 7.1771, the United States' argument that crucial technologies used on the 787 from 
third-party suppliers were equally available to Ai rbus.  The Panel found that the United States had 
failed to rebut a "critical assertion" made by th e European Communities in HSBI submissions, and 
supported by evidence2064, that technologies from third-party suppliers used on the 787 are not 
commercially available.2065  Only then did the Panel state, in paragraph 7.1772, that the United States' 
argument that critical technologies from third-part y suppliers are equally available to Airbus 
overlooked the importance of Boeing gaining expe rience and knowledge as an integrator of the 
various technologies on account of the aeronautics R&D subsidies.   
995. In our view, paragraph 7.1772 contains a mere passing observation by the Panel that, even if 
Airbus had access to technologies provided by thir d-party suppliers on a commercial basis, it would 
not have had the ability to use such technologies th e way Boeing did due to the experience the latter 
had gained, through the aeronautics R&D subsidies,  as an integrator of the various technologies.2066  
Thus, we do not consider that the statement in  paragraph 7.1772 was material to the Panel's 
disposition of the argument that critical technologi es from third-party suppliers were commercially 
                                                      
2063Panel Report, para. 7.1771 and footnote 3699 thereto.  We also recall that, in its analysis of financial 
contribution with respect to the NASA R&D programmes, the Panel found that certain contracts between NASA 
and Boeing under the ACT programme contained a "For Early Domestic Dissemination" clause, whereby a contractor would not be able to grant permission to pub lish data resulting from R&D or release such data to 
foreign parties without prior concurrence of the "Contracting Officer".  The intention of these clauses was to 
provide for early dissemination of significantly commercial data in the US Government and the domestic industry prior to general publication. ( Ibid., para. 7.1001)  Along similar lines, the Panel found that the 
"Technology Transfer" Handbook for the HSR programme st ates that the LERD clauses aim at restricting access 
to sensitive information generated in the HSR programme, and that these clauses serve the purpose of controlling the transfer of such sensitiv e information to foreign competitors. ( Ibid., para. 7.1007) 
2064The Panel referred to Statement by Patrick Gavin et  al. (8 November 2007) (Panel Exhibit EC-1175 
(HSBI/BCI)), but did not discuss its content or the reasons why it was persuaded by it.  However, we note that 
the United States does not challenge, under Article 11 of the DSU, the Panel's reliance on Panel Exhibit 
EC-1175 in the last two sentences of paragraph 7.1771.  In any event, having verified its content, we consider that this item of evidence was pertinent to the Panel's analysis.  
2065Panel Report, para. 7.1771.  We also observe that, subsequent to the filing of the 
European Communities' second written submission and Stat ement by Patrick Gavin et  al. (8 November 2007) 
(Panel Exhibit EC-1175 (HSBI/BCI)), the United States ma de certain statements that various technologies used 
on the 787 were developed by third-party suppliers and that such technologies were also available to Airbus. 
(See, for instance, United States' response to Panel Ques tion 208(a), para. 287;  and United States' comments on 
the European Communities' response to Panel Question 150(b), para. 187)  However, despite making certain 
assertions, the United States did not produce any supporting evidence of its own. 
2066We observe, in this respect, that the Panel had previously found that: 
… the real value of the aeronautics R&D subsidies was in having dozens of 
Boeing engineers immersed in composite design and manufacturing for 
several years, thus enabling Boeing to leverage the substantial accumulated knowledge and experience in any future composite-related R&D activity. 
(Panel Report, footnote 3684 to para. 7.1756 (referring to Statement by Patrick Gavin et al. (8 November 2007) 
(Panel Exhibit EC-1175 (HSBI/BCI)), para. 27;  and D. Wacht, "An Analysis of Selected NASA Research Programs and Their Impact on Boeing's Civil Aircraft Programs" (November 2006) (Panel Exhibit EC-15 
(BCI)), p. 67))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 417  
 
  available to Airbus, since this argument had alre ady been rejected by the Panel in the last two 
sentences of the preceding paragraph.  Therefor e, even in the absence of the statement in 
paragraph 7.1772, the Panel's rejection of the United States' argument that critical technologies used 
on the 787 from third-party suppliers are equally co mmercially available to Airbus would nevertheless 
stand.  
996. Thus, we find that the Panel did not act inconsis tently with Article 11 of the DSU, or lack a 
factual basis for its statement, in paragraph 7.1772 of the Panel Report, that "{t}he "ability to define 
and manage the complex interaction of design pro cesses, organization and tools so as to enable the 
robust development and manufacturing of an aircraft at minimum time and cost … is a challenge that 
Boeing can meet thanks in large part to NASA a nd {USDOD} funding".  It follows that we cannot 
accept  the United States' request that we reverse the Pa nel's finding, in paragraph 7.1772 of the Panel 
Report, that the aeronautics R&D subsidies at issu e afforded Boeing knowledge and experience as an 
"integrator of the various technologies". 
(d) Whether the Panel erred in its a ppreciation of the relevance of 
NASA's public dissemination of the results of the NASA R&D 
997. The United States argues that the Panel failed pr operly to take into account the fact that 
"NASA's public dissemination requirement"
2067 lessens the value of the aeronautics R&D subsidies to 
Boeing.  The United States highlights the Panel's finding that NASA restricts the public dissemination 
of "certain aspects"2068 of its research.  According to the Unite d States, the "critical implication" of 
this finding was that the data restriction clau ses, including LERD clauses, contained in NASA 
contracts with Boeing restrict dissemination of " certain aspects" of research results only for a limited 
time.2069  With respect to all of the other aspects—that is, those that are disseminated—the 
United States contends that the Panel should have  taken into account that some portion of the NASA 
aeronautics R&D subsidies valued at $2.6 billion is of less value in both a competitive and monetary 
sense.2070  The Panel, however, declined to discount the value of the aeronautics R&D subsidies in 
this way. 
                                                      
2067United States' other appellant's submission, p. 101, subheading VI.B.1.e.  By "NASA's public 
dissemination requirement", the United States appears to refer to its argument that the NASA research results 
are "publicly disseminated and therefore widely known and well understood within the global community of 
engineers and scientists working in a particular area". (Panel Report, para. 7.1770 (referring to Statement of Michael Bair (Panel Exhibit US-7), pa ras. 33 and 34;  and Affidavit of Branko Sarh (Panel Exhibit US-1254), 
para. 5)) 
2068Panel Report, para. 7.1771.  
2069United States' other appellant's submission, para. 250.   
2070United States' other appellant's submission, para. 250. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 418 HSBI omitted, as indicated [[HSBI]]  
 
  998. In response, the European Union argues that th e Panel correctly found, within the bounds of 
its discretion, that the dissemination by NASA of its  research results is limited because of contractual 
restrictions designed to favour US LCA manufacturers.
2071  Moreover, the European Union highlights 
that the Panel's finding was based on its acceptanc e of the European Comm unities' argument that 
NASA does not generally publicly disclose or dissem inate anything that is commercially useful or 
important.2072 
999. We recall that the Panel estimated the value of  the NASA subsidies at $2.6 billion, but was 
unable to quantify the value of the USDOD subsidies.2073  As we have noted above, the Panel 
considered the effect of NASA dissemination policies in  the fourth pillar of its analysis relating to the 
conditions of competition  in the US LCA industry.  There, the Panel addressed an argument of the 
United States that NASA aeronautics R&D subsidi es did not confer a "competitive advantage" on 
Boeing vis-à-vis Airbus because the results of NASA-funded research are widely disseminated and 
therefore widely known and well understood within the global community of engineers and scientists 
working in a particular area.2074  As we have also noted above, the Panel ultimately rejected this 
argument because it considered that there are rest rictions on the dissemination of the NASA results 
and because dissemination does not occur immediately.  In support, the Panel referred to the data 
restriction clauses in NASA and USDOD contracts—that is, the "(i) limited exclusive data rights {sic} {LERD}, (ii) for early domestic dissemination, and (iii) requirements for prior written approval 
before the release of certain technical information."
2075  The Panel noted that, "{a}lthough differing in 
their nature and scope, each of these limited access rights seek to delay the foreign transfer of 
commercially sensitive information or prevent its public release without prior written approval of 
NASA or {US}DOD."2076 
                                                      
2071European Union's appellee's submission, para. 402 (referring to Panel Report, footnote 3699 to 
para. 7.1771). 
2072European Union's appellee's submission, para. 403 (referring to European Communities' oral 
statement at the first Panel meeting (BCI), para. 22;  European Communities' second written submission to the 
Panel, paras. 793 and 829-833;  European Communities'  oral statement at the second Panel meeting (BCI), 
paras. 15-21;  Statement by Patrick Gavin et al. (8 November 2007) (Panel Exhibit EC-1175 (HSBI/BCI)), 
paras. 34-40;  and Declaration by Ray Kingcombe (9 November 2007) (Panel Exhibit EC-1177). 
2073Panel Report, paras. 7.1433 and 7.1760. 
2074Panel Report, para. 7.1770 (referring to Statement of Michael Bair (Panel Exhibit US-7), paras. 33 
and 34;  and Affidavit of Branko Sarh (Panel Exhibit US-1254), para. 5).  
2075Panel Report, footnote 3699 to para. 7.1771.   
2076Panel Report, footnote 3699 to para. 7.1771.  These statements of the Panel are consistent with 
earlier findings made in the course of its subsidy an alysis. For instance, the Panel referred to "For Early 
Domestic Dissemination" clauses (para. 7.1001), and LERD clauses (para. 7.1024).  As we have noted 
previously, the diminution of benefits, due to dissemination, is limited by the fact that Boeing held patent or 
exclusive data rights and, therefore, disseminated information was often not put to commercial use by others.  Therefore, the benefit flowing from aeronautics R&D subsidies to Boeing was not necessarily reduced by the 
dissemination of R&D results.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 419  
 
  1000.  The Panel's findings indicate that research results  subject to data restriction clauses were the 
most commercially sensitive information and, ther efore, of the most value to Boeing and its 
competitors.  The United States does not advance arguments as to how the competitive position of 
Airbus was improved—or how Airbus suffered lesser adverse effects—because "certain aspects" of the results of the NASA research programmes were di sseminated.  Nor does the United States explain 
what the impact of any reduction in the $2.6 b illion amount of the NASA subsidies would be on the 
Panel's findings with respect to the effects of those subsidies, especially given the fact that the Panel 
did not equate the effects of the aeronau tics R&D subsidies with their cash value.
2077  Finally, if the 
United States is seeking to have us step into the sh oes of the Panel and, ourselves, find that the value 
of the NASA aeronautics R&D subsidies was someth ing less than $2.6 billion, we do not see how we 
could do so given the limits on the scope of appellate review. 
1001.  In any event, the United States does not request that we disturb the other bases on which the 
Panel rejected the United States' arguments that  Boeing was less competitive due either to the 
dissemination of the NASA results or to the availab ility of the same research to Airbus.  As we have 
noted previously, the Panel made additional findings that:  
… it is {not} very realistic to  believe that NASA would so 
consistently and prominently state that the objectives of the 
aeronautics R&D programmes were  to provide a competitive 
advantage to U.S. subsonic transport by accelerating the development of key, high payoff technologies if all of the NASA-funded R&D were in fact research that was publicly disseminated and equally available to Airbus.  Nor is the Panel persuaded that the critical 
technologies that Boeing developed in collaboration with its 
suppliers are equally available to Airbus.  The Panel notes that the 
United States has failed to rebut a critical assertion made by the European Communities in its HSBI submissions and evidence in this 
regard.
2078 (footnote omitted) 
1002.  For these reasons, we dismiss the United States' argument that the Panel's findings concerning 
the dissemination of certain NASA research lessen the value of the aeronautics R&D subsidies, and 
thereby undermine the Panel's finding that the aer onautics R&D subsidies contribute in a genuine and 
substantial way to the 787 technologies. 
                                                      
2077Panel Report, para. 7.1760.  We discuss this in subsection (e) below. 
2078Panel Report, para. 7.1771. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 420 HSBI omitted, as indicated [[HSBI]]  
 
  (e) Whether the Panel erred in its assessment of the magnitude of the 
NASA aeronautics R&D subsidies  
1003.  Finally, the United States asserts that the $2.6 billion worth of aer onautics R&D subsidies 
found to have been provided to Boeing from 1989 to 2006 "is small compared to Boeing's own research and development spending"
2079, and that, therefore, any link between the research and 
Boeing's ability to develop and launch the technologica lly innovative 787 in 2004 "is that much more 
attenuated".2080   
1004.  In response, the European Union highlights th at the Panel properly recognized that the 
aeronautics R&D subsidies were "intended to multiply the benefit from a given expenditure"2081 and 
argues that the Panel "was not required to attach pa rticular significance to the amount of the financial 
contribution in comparison to other expenditure".2082 
1005.  We recall that the Panel dealt with the magnitude  of the subsidies, as compared with Boeing's 
own revenues and R&D expenditures, in response to an argument by the United States that Boeing's 
capacity and ability to conduct R&D would have a llowed it to conduct the sa me R&D with the same 
results, even in the absence of the NASA and USDOD funding.2083  In dismissing the relevance of the 
comparative insignificance of the known value of aeronautics R&D subsidies, the Panel made the 
following finding: 
The Panel is aware, however, that this amount {of at least 
$2.6 billion} perhaps may not appear significant when compared to Boeing's consolidated revenues or R&D expenditures over 1989-2006.  Indeed, as the United States points out, Boeing repurchased over $16 billion in  stock between 1986 and 2006. 
However, this sort of numerical comparison presupposes that the 
effects of the aeronautics R&D subsidies can essentially be reduced to their cash value, a proposition that we do not accept. ...  {T}he value to Boeing of the particular aeronautics R&D programmes in question is essentially a function of the technological 
advancements that those programmes provide.  Precisely because the 
nature of this kind of subsidy is that it is intended to multiply the 
benefit from a given expenditure, the Panel considers it unlikely that 
                                                      
2079United States' other appellant's submission, para. 251. 
2080United States' other appellant's submission, para. 252. 
2081European Union's appellee's submission, para. 391 (quoting Panel Report, para. 7.1760).  
2082European Union's appellee's submission, para. 394.  
2083Panel Report, para. 7.1759.  The Panel never pl aced a value on the amount spent by Boeing on 
R&D.  In its other appellant's submission, the United States argues that costs for a full aircraft development programme like the 787 are around $2 billion per year. (United States' other appellant's submission, para. 251 
(referring to The Boeing Company Annual Report  (2006) (Panel Exhibit US-126), p. 26 ($2,390 million in R&D 
for Boeing Commercial Aircraft in 2006)))  The United States argues that, even in 2000, the slowest year 
covered by the information before the Panel, Boeing's R&D spending ran at $574 million. ( Ibid., footnote 399 
thereto (referring to Statement of Michael  Bair (Panel Exhibit US-7), para. 42))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 421  
 
  the effects of such expenditure (to the extent that it was successfully 
deployed) would be reducible to its face amount. … As we have noted above …, there are large disincentives for private sector investment in research of the kind that was conducted under the aeronautics R&D subsidies, and any suggestion that a firm such as 
Boeing would have conducted such re search is subject to the same 
fundamental objection here.
2084 (footnote omitted) 
1006.  The Appellate Body has stated previously that, while the magnitude of subsidies is important, 
precise quantification is not an indispensable part of a serious prejudice analysis.2085  Moreover, the 
absolute value or size of a subsidy may not corresp ond directly to the impact that the subsidy may 
have in causing adverse effects.  Subsidies of a relatively small magnitude may nevertheless have 
substantial effects in a particular case or market.  We understand the Panel to ha ve found this to be the 
case as regards the effects of the aeronautics R&D subsidies. 
1007.  As the above finding of the Panel demonstrat es, the Panel itself recognized that the amount 
spent by NASA on the aeronautics R&D subsidies wa s not large as compared to Boeing's revenues 
and its own R&D expenditures.  However, the Panel stressed that the aeronautics R&D subsidies allowed Boeing to overcome the disincentives in inv esting in risky aeronautics R&D.  For the Panel, 
the relative magnitude of the amounts spent by NAS A and Boeing did nothing to reduce or diminish 
that important contribution.  We see no reason to disagree. 
1008.  The United States makes two additional arguments regarding the Panel's consideration of the 
magnitude of the subsidies.  First, it emphasizes th e Panel's statement that, "because the nature of this 
kind of subsidy is that it is intended to multiply the benefit  from a given expenditure, {it was} unlikely 
that the effects of such expend iture (to the extent that it was successfully deployed ) would be 
reducible to its face amount."
2086  For the United States, any "multiplying" of the benefit of a given 
expenditure would equally apply to Boeing's internal R&D expenditure.2087  Second, the United States 
                                                      
2084Panel Report, para. 7.1760.  
2085Appellate Body Report, US – Upland Cotton , para. 467.  We recall that the panel in EC and certain 
member States – Large Civil Aircraft  stated that "the relevant question is not the precise amount of subsidy 
attached to each unit of th e subsidized product, but rather whether th e subsidies in question are of sufficient 
magnitude, in light of their nature and effect, to have caused the serious prejudice alleged". (Panel Report, EC 
and certain member States – Large Civil Aircraft , para. 7.1968)  That issue was not appealed in that dispute.  
We also note that, in that same dispute, the Appellate Body treated Airbus' "financial viability" and, consequently its ability to self-fund R&D, as a factual ma tter that was not reviewable in the absence of a claim 
under Article 11 of the DSU. (Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
para. 1316) 
2086Panel Report, para. 7.1760. (emphasis added) 
2087United States' other appellant's submission, para. 254.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 422 HSBI omitted, as indicated [[HSBI]]  
 
  asserts that the Panel failed to take into account that many of the NASA payments found by the Panel 
to constitute subsidies were not "successfully deployed".
2088   
1009.  As regards the United States' first argument, it is  not clear to us that the Panel excluded the 
possibility of a "multiplier" effect for Boeing's ow n R&D expenditures.  Neither is it clear to us 
whether the Panel's reference to a "multiplier"  effect was based on a qualitative or quantitative 
assessment of the value of R&D expenditures.  More over, even if the value of Boeing's expenditures 
were multiplied, we do not see how this reduces the important contribution made by the NASA 
subsidies that, as explained above, were indispensable in allowing Boeing to overcome the disincentives it faced in investing in risky aeronautics R&D. 
1010.  With respect to the second argument, the Un ited States reads the Panel's parenthetical 
reference to "successfully deployed"
2089 expenditures to imply that the aeronautics R&D subsidies that 
funded research that was ultimately unsuccessful made  no contribution to the development of the 787 
technologies.  As we have already explained2090, however, the causal link found by the Panel 
incorporated within its scope even those research  programmes that were not directly related to 
technologies used on the 787, including research conducted under research programmes that resulted 
in failed technologies.  We therefore do not read  the Panel's statement that the benefits were 
multiplied to the extent that they were "successfully deployed"2091 as excluding altogether those 
programmes that resulted in failures, because, by the Panel's own account, these failed research efforts 
also contributed, albeit to a lesser extent, to the success of the 787.  
1011.  Accordingly, we do not accept that the differe nce in the magnitude of the aeronautics R&D 
subsidies and Boeing's own R&D spending attenuat es the Panel's intermediate finding that the 
subsidies contributed in a genuine and substantial way to the development of the technologies used on 
the 787 in 2004. 
(f) Conclusion 
1012.  We recall that, in this part of its appeal, th e United States seeks reversal of the Panel's legal 
finding that the aeronautics R&D subsidies cau sed adverse effects to the interests of the 
European Communities on the ground that a number of  the Panel's findings, "whe n considered in their 
totality", do not establish a genuine and substantia l relationship of cause and effect, as required under 
                                                      
2088United States' other appellant's submission, para. 255. 
2089Panel Report, para. 7.1760. 
2090See supra , subsection X.B.4.a. 
2091Panel Report, para. 7.1760.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 423  
 
  Articles 5 and 6.3 of the SCM Agreement .
2092  The United States raised five main arguments in 
support of its claims that the Panel failed properly to  apply the legal standard to the facts, and one 
argument that the Panel failed to make an objectiv e assessment of the matter under Article 11 of the 
DSU.  We have dismissed all five of the United St ates' arguments, either because the United States' 
arguments relate solely to factual matters not s ubject to a DSU Article 11 challenge, or because, on 
the merits, the United States has not succeeded in dem onstrating that the Panel failed properly to find 
the existence of a genuine and substantial causal link.   We have also rejected the United States' claim 
under Article 11 of the DSU.  Accordingly, we reject  the United States' request that we reverse the 
Panel's finding at the first stage of its analysis, in  paragraph 7.1773 of the Panel Report, as well as its 
request for consequential reversal of the Panel' s finding that the aeronautics R&D subsidies caused 
adverse effects to the interests of th e European Communities.  Instead, we find that the Panel did not 
err by finding, in paragraph 7.1773 of the Pa nel Report, that "the aeronautics R&D subsidies 
contributed in a genuine and substantial way to Boeing's development of technologies for the 787" 
in 2004. 
6. The Panel's Counterfactual Analysis 
(a) Introduction 
1013.  In its second set of arguments on appeal, the United States seeks reversal of the Panel's 
finding that, "absent the aeronautics R&D subsidies,  Boeing would not have been able to launch an 
aircraft incorporating all of the technologies that ar e incorporated on the 787 in 2004, with promised 
deliveries commencing in 2008"2093, as well as its "dependent" finding that the aeronautics R&D 
subsidies caused adverse effect s to the European Communities.2094  The United States alleges that 
these findings are in error because, in both the fi rst and second stages of its assessment of the 
technology effects, the Panel's counterfactual analysis was insufficient.  We reca ll, in this regard, that 
the first stage entailed an analysis of the effect  of the aeronautics R&D subsidies on Boeing, whereas 
the second stage was concerned with the effect  of the aeronautics R&D subsidies on Airbus. 
                                                      
2092United States' other appellant's submission, para. 257.  As we have noted, it is not clear whether the 
United States contends that our acceptance of any one of its arguments would call into question the Panel's 
overall conclusion or whether its argument is rather that, taken together, the various claims of deficiency require 
reversal of the Panel's ultimate finding on causation.  We have also explained that, while an appellant is free to frame its appeal as it sees fit, it must bear the conseque nces of that decision.  Wher e there is disagreement or 
ambiguity as to the nature of the appeal, the Appellate Body will act as the final arbiter in determining whether 
the claim is one that can be properly the subject of appellate review. 
2093Panel Report, para. 7.1775.   
2094United States' other appellant's submission, para. 278.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 424 HSBI omitted, as indicated [[HSBI]]  
 
  1014.  With respect to the first stag e, the United States asserts that, although the Panel posed the 
right counterfactual question—namely whether Boei ng would have launched the 787 when it did, and 
as it did, in the absence of the aeronautics R&D subs idies—it erred in applying Articles 5 and 6.3 of 
the SCM Agreement  through its "cursory" and "insuffi cient" counterfactual analysis.
2095  According to 
the United States, the Panel failed to take into account all of the findings that it had made at the first 
stage of its analysis, including those made with  respect to the nature of the aeronautics R&D 
subsidies;  Boeing's research priorities and activiti es, as well as its available resources;  and the 
conditions of competition in the LCA industry.  The United States argues that, when properly 
considered, these findings should have led the Panel to conclude that, even without the aeronautics 
R&D subsidies, Boeing would ha ve launched the 787 when it did and with the same level of 
technological innovation.2096 
1015.  The United States also challenges the adequacy of the Panel's counterfactual analysis as it 
relates to the second stage of its analysis.  These ar guments are set out in the United States' appellee's 
submission, which it submitted after the circulation of the Appellate Body report in EC and certain 
member States – Large Civil Aircraft .  Relying largely on the findings of the Appellate Body in that 
dispute, the United States asserts  that, in assessing the European Co mmunities' claims of significant 
lost sales, significant price suppression, and a threat of displacement and impedance, the Panel should 
have explored further a counterfactual scenario invol ving Boeing aircraft that the Panel had deemed 
"most likely"2097 to have occurred in the absence of subsidies. 
1016.  The finding that the United States would like reversed—namely that, absent the aeronautics 
R&D subsidies, Boeing would not have been able to launch an aircraft incorporating all of the 
technologies that are incorporated in the 787 in  2004, with promised deliveries commencing in 
2008—is found at the beginning of the second stage of the Panel's analysis, immediately following the 
Panel's in-depth analysis at the fi rst stage.  At that midway point of its overall analysis of the 
technology effects of the aeronautics R&D subsidi es, the Panel recalled the main counterfactual 
argument of European Communities, namely that: 
                                                      
2095United States' other appellant's submission, para. 258. 
2096United States' other appellant's submission, paras. 258 and 261. 
2097Panel Report, para. 7.1775.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 425  
 
  … but for the aeronautics R&D subsidies, (i)  Boeing could not have 
launched, in April 2004, a 787 family of LCA offering the many operating cost savings and enhancements in passenger comfort that have made it such a commercial success relative to the A330 and 
Original A350;  and (ii) Boeing c ould not have contractually bound 
itself to make significant deliveries of the 787 starting in 2008.
2098  
(footnotes omitted) 
1017.  The Panel noted that the evidence before it dem onstrated that Boeing needed to develop an 
LCA to replace the 767 in the 200-300 seat LCA market , and that it would have done so in the early- 
to mid-2000s.2099  The Panel considered that the only ques tion before it was "what sort of aircraft 
Boeing could have developed, and when that aircraft  could have been launche d and first entered into 
service, in the absence of th e aeronautics R&D subsidies."2100  The Panel found that, had Boeing not 
received the aeronautics R&D subsidies: 
… two scenarios {were} most likely:   Boeing would have developed 
a 767-replacement that incorporated all of the technologies that are incorporated on the 787, but its launch would have been significantly later than 2004 and it would not have been able to promise first deliveries for 2008, or Boei ng would have launched a 
767-replacement in 2004 that was technologically superior to 
the 767, but did not offer the degree of technological innovation of the 787.  We do not have to reach any definitive view on which of these outcomes would have occurred.  What is clear to us is that, absent the aeronautics R&D subsidies, Boeing would not have been 
able to launch an aircraft incorpor ating all of the technologies that are 
incorporated on the 787 in 2004, with promised deliveries commencing in 2008.
2101 
1018.  The Panel's reasoning demonstrates that it engage d in a counterfactual analysis of causation, 
as had been proposed by the Europ ean Communities.  The United States did not object to the use of 
the counterfactual analysis in the Panel proceedings2102, nor does it raise any objection to such an 
analysis on appeal.   
1019.  The provisions of Part III of the SCM Agreement  that deal with causation—that is, Articles 5 
and 6.3—require a demonstration that the market  phenomena specified in Article 6.3(a)-(d) be 
"caused" by, or be the "effect of", the subsidy.   Beyond this, these provisions do not prescribe the 
                                                      
2098Panel Report, para. 7.1774.  The Panel noted that, rather, according to the European Communities, it 
would have taken Boeing "years longer" as well as much more of its own money to do so. ( Ibid., footnote 3702 
thereto (referring to European Communities' first wr itten submission to the Panel, Annex C, para. 199)) 
2099This finding was based on the evidence before the Panel that Boeing had concluded in the late 
1990s that route fragmentation would lead to a larger number of lower-volume routes, best served by a mid-sized, extended range aircraft (a commercial assessment unrelated to the subsidies), and that such an 
aircraft was needed due to the age of the 767. (Panel Report, para. 7.1774)   
2100Panel Report, para. 7.1774. (footnotes omitted) 
2101Panel Report, para. 7.1775.  
2102Panel Report, para. 7.1657.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 426 HSBI omitted, as indicated [[HSBI]]  
 
  manner in which a panel must conduct its analysis of causation.  A counterfactual analysis is a form of 
analysis that a panel may find useful  in resolving questions of causation.
2103  The precise way in 
which counterfactual reasoning is deployed will va ry depending on how the causal problem presents 
itself in a particular dispute.  A counterfactual an alysis may be highly quantitative, or predominantly 
qualitative in nature, or it may involve both quantitative and qualitative elements.   
1020.  In seeking to discharge its burden of demonstr ating the effects of relevant subsidies, a 
complaining party may elect to employ a counterfactual analysis.  Indeed, a complaining party may 
well find it difficult to establish causation of certain  Article 6.3 phenomena (for example, impedance 
and price suppression) without counterfactual argum entation.  A panel evaluating the respective 
claims and defences of the parties will also have  to give due consideration to the use of a 
counterfactual analysis, especially when such an an alysis forms part of the arguments submitted by 
the parties.  The panel might decide to accept the counterfactual scenario(s) proposed by one party as 
to the market situation that would have preva iled absent the subsidies, but it is not bound to do 
so.2104  Rather, as part of its objective assessment of th e matter, a panel will have to form its own view 
as to what a market unaffected by subsidies would have looked like and may find it appropriate to 
construct its own counterfactual scenario(s).  A pane l is not required to identify and explore every 
possible hypothetical market scenario, especially wh ere the parties themselves have not elaborated 
upon, or substantiated the likelihood of, such possible scenarios.  The extent to which a panel may or 
must elaborate upon the specific details of its cons tructed alternative will vary by case, but, having 
selected a reasonable scenario, a panel should pursue its counterfactual analysis in a coherent and 
consistent fashion.   
1021.  Turning to the United States' criti cism of the Panel's counterfactua l analysis in this case, we 
note first that the United States identifies the "count erfactual portion" of the Panel's analysis as 
comprising the following "two findings": 
                                                      
2103The Appellate Body has found that a counterfactual analysis: 
… provides an adjudicator with a useful analytical framework to isolate and properly identify the effect s of the challenged subsidies.  ...  As with other 
factual assessments, panels clearly have a margin of discretion in 
conducting the counterfactual analysis.  
(Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1110 (footnote omitted))  
In some contexts, including in assessing claims of price suppression, the Appellate Body has explained that a 
counterfactual analysis is an "i nescapable" part of a causation analysis. (Appellate Body Report, US – Upland 
Cotton (Article 21.5 – Brazil) , para. 351)  See also Appellate Body Report, EC and certain member States – 
Large Civil Aircraft , footnote 2549 to para. 1162. 
2104In this regard, the Appellate Body in US – Upland Cotton (Article 21.5 – Brazil) , in discussing the 
approach to causation and non-attribution taken by the compliance panel in that dispute (in the context of a 
claim of significant price s uppression), noted that "a panel has a certa in degree of discretion in selecting an 
appropriate methodology for determining whether the 'e ffect' of a subsidy is significant price suppression". 
(Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 370 (quoting Appellate Body Report, 
US – Upland Cotton , para. 436))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 427  
 
  (i) "Boeing needed to develop an LCA to replace the 767 in the 200-300 seat wide-body 
product market, and … it would have done so in the early- to mid-2000s";  and 
(ii) "{A}bsent the aeronautics R&D subsidies, Boeing would not have been able to 
launch an aircraft incorporating all of the technologies that are incorporated on 
the 787 in 2004, with promised deliveries commencing in 2008."
2105 
1022.  Contrary to the argument of the United St ates, we do not understand the counterfactual 
enquiry engaged in by the Panel to  be limited to simply the two pa ragraphs in which these findings 
are contained.  The Panel explained that it would adopt a counterfactual approach to causation for 
both stages of its causation analysis.2106  That counterfactual analysis appears to us to have been 
underpinned by its consideration of:  (i) the counterfactual scenario presented by the 
European Communities that, without the subsidies, Boeing would not have launched the 787 in 2004, 
but rather would have done so later2107; and (ii) the counterfactual scenario presented by the 
United States, namely that, without the subsidies,  Boeing would have launche d the same 787 aircraft 
with the same technologies at the same time that it did because it had the financial capacity to do so, 
and because it was engaged in the same R&D research as NASA.2108   
1023.  The Panel based its analysis at the first stage on these respective counterfactual scenarios 
presented by the parties.  For instance, in finding that the aeronautics R&D s ubsidies accelerated the 
time at which Boeing was able to bring the tec hnologies on the 787 to commercial application, the 
Panel accepted the European Communities' contenti on that it was the aeronautics R&D subsidies that 
allowed Boeing to deliver the 787 earlier th an would have otherwise been possible.2109  Equally, in 
finding that, notwithstanding Boeing's financial capacity, as well as its own investment and participation in R&D, the aeronautics R&D subsidies contributed in a genuine and substantial way to 
the 787, the Panel rejected the counterfactua l scenario that had been advanced by the 
United States.
2110 
1024.  Having rejected the United States' counterfactual scenario at the first stage, the Panel appears 
to have conducted its analysis at the second st age on the basis of the European Communities' 
counterfactual scenario of a 787 that would not have been present in the market until "years later" 
                                                      
2105United States' other appellant's submission, para. 260 (referring to Panel Report, paras. 7.1774 
and 7.1775).   
2106Panel Report, para. 7.1659.  
2107We have already noted the argument of the European Communities to the Panel that it would have 
taken Boeing "years longer" as well as much more of its own money to do so. (Panel Report, footnote 3702 to 
para. 7.1774 (referring to European Communities' first wr itten submission to the Panel, Annex C, para. 199)) 
2108See, for instance, United States' or al statement at the second Panel meeting, paras. 144 and 145.   
2109See, for instance, Panel Report, para. 7.1748.   
2110See, for instance, Panel Report, para. 7.1758.   WT/DS353/AB/R BCI deleted, as indicated [***] 
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  (that is, not available to customers until well afte r 2004).  Under the European Communities' scenario, 
the market during the reference period would most  likely have consisted of the A330 and the 767, 
which were the two models available before 20 04.  The Panel found that the A330 was the 
"undisputed market leader" in the 200-300 seat LCA market
2111, with an 82% share of the market 
in 2003.2112  Without the subsidies, therefore, it is likel y that most sales would continue to have gone 
to that aircraft, and that increased demand2113 would have enabled the market leader to maintain or 
even raise prices.  
1025.  This is the basis upon which we understand the Pa nel to have proceeded in its counterfactual 
causation analysis and to have determined that, but  for the aeronautics R&D subsidies, Airbus would 
not have suffered significant lost sales and price suppression, and a threat of displacement and impedance of its LCA exports.  Yet, when it ar ticulated the counterfactual scenarios, the Panel 
appears, at least in part, to have deviated from th e arguments of the parties as well as from the basis 
upon which it conducted its own analys is.  As we have noted above, th e Panel considered that, in the 
absence of the aeronautics R&D subsidies, two scenar ios were "most likely".  The first involved the 
launch of a 767-replacement, which incorporated a ll of the technologies that are incorporated in 
the 787, but with a launch that would have been significantly later than 2004, and in which Boeing 
would not have been able to promise first deliver ies by 2008 (which we refer to as the "787-later" 
scenario).  This scenario is in essence the one pr esented by the European Communities.  The Panel 
also found it likely that Boeing would have launched a 767-replacement in 2004 that was 
technologically superior to the 767,  but did not offer the degree of technological innovation of the 787 
(which we refer to as the "767-plus" scenario).  This latter scenario of a 767-plus, however, had not 
been specifically advanced by either  of the parties, is not referred to  in the evidence on record, and is 
not reflected in the content of the Panel's counterfact ual reasoning.  For this reason, we find it difficult 
to sustain the arguments of the United States that are predicated on the counterfactual scenario 
involving a 767-plus aircraft. 
(b) The Panel's counterfactual analysis:  the first stage 
1026.  In its other appeal, the United States contends  that the Panel erred in its application of 
Articles 5 and 6.3 of the SCM Agreement  because of its "cursory" and "insufficient" counterfactual 
analysis.
2114  According to the United States, a proper c ounterfactual analysis required the Panel to 
consider the nature of the subsidies;  Boeing' s research priorities and activities, and available 
                                                      
2111Panel Report, para. 7.1777.  
2112See table at Panel Report, para. 7.1783.  
2113We have noted above the Panel's finding that ther e was an increase in demand in the 200-300 seat 
LCA market during the reference period. ( Supra , para. 932)   
2114United States' other appellant's submission, para. 258.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 429  
 
  resources;  and the conditions of competition in the LCA industry.
2115  The United States argues that 
these factors indicate that, in the absence of th e aeronautics R&D subsidies, Boeing would have 
followed the same course as it did with the subsidies:   investigating the same areas, at the same pace, 
and aiming for the same goal, namely, a technologica lly advanced aircraft commercially competitive 
with the A330.2116  Therefore, the Panel's analysis failed to establish the requisite causal link.  
Consequently, the United States requests us to reve rse the Panel's finding that, "absent the aeronautics 
R&D subsidies, Boeing would not have been able to launch an aircraft incorporating all of the 
technologies that are incorporated on the 787 in 2004, with promised deliveries commencing in 2008"
2117, and its "dependent" finding that those subs idies have caused adverse effects to the 
interests of the European Communities.2118 
1027.  The European Union responds that the United Stat es' arguments relate exclusively to facts and 
should have been brought under Article 11 of the DSU.   In any event, the European Union argues that 
the Panel's counterfactual analysis was sufficient a nd demonstrates that it properly completed the first 
step of its counterfactual analysis regarding how  Boeing's commercial behaviour in the 200-300 seat 
LCA market would have been different absent the aeronautics R&D subsidies.2119   
1028.  As a preliminary matter, we note that a panel' s counterfactual analysis will usually involve 
both factual and legal elements, which may not be easily distinguishable.  Here, the United States 
appears to accept the Panel's factual findings.  Acco rdingly, we will entertain the United States' 
arguments on appeal only to the extent they imp licate the Panel's ultimate legal finding that the 
aeronautics R&D subsidies were a genuine and substantial cause of the serious prejudice. 
1029.  Turning to the specific allegations, the United States  refers to six findings of the Panel that, in 
its view, should have led the Panel to conclude th at, even without the subsidies, Boeing would have 
launched an LCA in 2004 with all of the technologi cal innovations of the 787, capable of competing 
with the A330.2120  These findings are that:  (i) Boeing and Airbus "have strong commercial incentives 
to spend the resources needed to gain a technical advantage over competitors"2121;  (ii) Boeing knew 
what research needed to be done since the scope  and programme of research was arrived at in 
                                                      
2115United States' other appellant's submission, paras. 258 and 261. 
2116United States' other appellant's submission, para. 278.  
2117United States' other appellant's submission, para. 278 (referring to Panel Report, para. 7.1775).  
2118United States' other appellant's submission, para. 278.  
2119European Union's appellee's submission, para. 414.  
2120See United States' other appellant's submission, para. 278.  
2121United States' other appellant's submission, para. 263 (referring to Panel Report, paras. 7.1765 
and 7.1768). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 430 HSBI omitted, as indicated [[HSBI]]  
 
  collaboration with industry
2122;  (iii) NASA funded and conducted its research the same way that 
Boeing did, that is, by paying scientists to cond uct the research and obtain the use of facilities and 
equipment needed to perform the work2123;  (iv) any private party could engage the NASA facilities, 
equipment, and employees through reimbursable Sp ace Act Agreements and Boeing paid cash in 
exchange for those goods and services2124;  (v) Boeing was self-funding research on the same topics 
and at the same time as NASA2125;  and (vi) Boeing had sufficient funds to achieve the same learning 
and experience as that provided by the governme nt's aeronautics R&D expenditures at issue.2126 
1030.  Many of these findings have been challenged by the United States in the first part of its appeal 
and are already dealt with in the previous part of this Report.  By labelling these arguments as 
pertaining to the Panel's "counterfactual analysis", th e United States appears to be repackaging several 
arguments that we have already considered and dism issed above.  The Panel's causation analysis must 
be understood holistically as incorporating a counterf actual approach to causation.  In that analysis, 
the Panel assessed whether, but fo r the subsidies, Boeing could have developed the 787 by 2004.  In 
doing so, it expressly considered and engaged with arguments relating to Boeing's own involvement 
in research alongside NASA, its access to research facilities, as well as its substantial financial 
capabilities.  As we have noted above, while it took account of these factors and acknowledged their 
significance, the Panel still considered that the aerona utics R&D subsidies played an important role in 
accelerating the development of the 787 techno logies, and allowing Boeing to overcome the 
significant disincentives it faced in investing in  long-term, high-risk aeronautics R&D.  The 
United States' attempt to frame its arguments as on es relating to the Panel's counterfactual analysis 
does not undermine these key findings of the Pane l, which were indispensable to its finding that, 
absent the aeronautics R&D subsidies, Boeing would not  have developed the 787 by 2004, with all of 
the technologies on it, and with promised deliveries for 2008. 
1031.  The United States raises one observation of the Panel—made in the context of its 
consideration of the conditions of competition —with which we did not deal in the previous section, 
namely that the "{t}he essence of th e intense competition between Boeing and Airbus is to design and 
build better airplanes".2127  According to the United States, this statement suggests that LCA 
                                                      
2122United States' other appellant's submission, para. 264 (referring to Panel Report, 
paras. 7.1740-7.1745). 
2123United States' other appellant's submission, para. 265. 
2124United States' other appellant's submission, para. 266 (referring to Panel Report, footnote 2624 to 
para. 7.1082). 
2125United States' other appellant's submission, para. 267 (referring to Panel Report, para. 7.1746).  
2126United States' other appellant's submission, para. 268 (referring to Panel Report, paras. 7.1759, 
7.1830, and 7.1831). 
2127Panel Report, para. 7.1765 (quoting Dr. J. Jordan and Dr. G. Dorman, "Reply to the Report of 
Professor Cabral" (NERA Economic Consulting, 2007) (Panel Exhibit US-3), p. 11).   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 431  
 
  manufacturers have "strong incentives" to invest in  R&D, and thereby "gain a technical advantage 
over competitors".
2128  We understand the United States to ar gue that the Panel's reference to the 
intense competition between Boeing and Airbus over the design and development of aircraft cannot 
be reconciled with its finding that  Boeing faced large disincentives to invest in early-stage/high-risk 
R&D. 
1032.  We see no inherent contradiction between th ese two statements or between the Panel's 
statement regarding the "essence of the inten se competition between Boeing and Airbus" and its 
conclusion that, absent the subsidies, Boeing would not have been able to launch the 787 in 2004.  
This is because the incentives created by the fi erce competition between Airbus and Boeing do not 
exclude a finding that the investment required fo r aeronautics R&D was not warranted because of the 
inherent risk.  While the intensity of the comp etition provides an incentiv e for these companies to 
invest in R&D, that incentive does not mean th at the investment would necessarily have been 
undertaken by Boeing without the aeronautics R&D subsidies.  In any event, the Panel found otherwise. 
1033.  Finally, the United States makes a separate argu ment with respect to a response by the Panel 
to its argument that, compared to the $16 billion spent by Boeing on repurchasing stock between 1986 
and 2006
2129, the magnitude of the aeronautics R&D subsidies over a similar period was 
inconsequential.  Specifically, the Panel found that: 
{t}he United States' invitation to compare the amounts of the 
aeronautics R&D subsidies with Boei ng's payments to shareholders 
may be taken also to imply that the ultimate effect of the aeronautics 
R&D subsidies was merely to increase payments to Boeing's shareholders.  The Panel does not accept the proposition that the 
effect of the aeronautics R&D subsidies was essentially to benefit 
Boeing's shareholders by replacing funds that Boeing would otherwise have spent on R&D.
2130 
1034.  The United States argues that the proposition reject ed by the Panel—namely, that the effect of 
the subsidies was essentially to benefit Boeing's shareholders—is a necessary implication of the 
counterfactual analysis.  In the United States' view , if the characterization that the effect of the 
subsidies is "to increase payments" to shareholders  prevents a conclusion that, in the absence of 
subsidies, the relevant competitive situation would have remained the same, a counterfactual analysis 
                                                      
2128United States' other appellant's submission, para. 263.  
2129Panel Report, para. 7.1760 (referring to Unite d States' comments on the European Communities' 
response to Panel Question 78, para. 270).  
2130Panel Report, para. 7.1760.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 432 HSBI omitted, as indicated [[HSBI]]  
 
  becomes "meaningless" because it is always possibl e to say that the receipt of subsidies made 
someone better off.
2131   
1035.   Unlike the United States, we understand the Pa nel in the above-quoted passage to reiterate 
that the value of the aeronautics R&D subsidies to Boeing was not directly comparable to the cash 
amounts paid to shareholders, and that the effects of  the subsidies were not reducible to their cash 
value.  Rather, as the Panel found, the aeronautics R&D subsidies were intende d to have "multiplier" 
effects.2132  They also allowed Boeing to overcome th e significant disincentives that it otherwise 
faced.2133  Therefore, the Panel considered that a comparison of dollar amounts of the aeronautics 
R&D subsidies with Boeing's available financial resources over the same period would not be an 
appropriate metric by which to predict Boeing's likely commercial behaviour in the absence of the 
subsidies.   
1036.  In the light of the above, we do not agr ee with the United States that the Panel's 
counterfactual analysis, as applied in the first stage of its analysis, was insufficient or undermines the 
genuine and substantial causal link th at the Panel found to exist.  Accordingly, we are unable to agree 
with the United States that the Panel erred in conc luding, in paragraph 7.1775 of the Panel Report, 
that, "absent the aeronautics R&D subsidies, Boeing w ould not have been able to launch an aircraft 
incorporating all of the technologies that are incorporated on the 787 in 2004, with promised 
deliveries commencing in 2008".2134  Therefore, we reject the United States' request for reversal of the 
above finding and for consequential reversal of the Panel's finding that the aeronautics R&D subsidies 
caused adverse effects to the inte rests of the European Communities.2135   
(c) The Panel's counterfactual analysis:  the second stage 
1037.  The United States asserts that the Panel's count erfactual analysis is deficient because, in 
assessing the effect of the aeronautics R&D subsidies on Airbus' sales and prices at the second stage, 
the Panel failed to explore "what the market woul d look like" under the counterfactual scenario of a 
                                                      
2131United States' other appellant's submission, para. 276. 
2132Panel Report, para. 7.1760.  
2133Immediately following the above-quoted section, the Panel stated: 
As we have noted above … we have no reason to doubt the evidence that 
there are large disincentives for private sector investment in research of the 
kind that was conducted under the aeronautics R&D subsidies, and any suggestion that a firm such as Boeing would have conducted such research 
is subject to the same fundamental ob jection here.  Moreover, we consider 
that it is implausible that such speci fically earmarked and scrutinized R&D 
funds disbursed over such a period of time were effectively nothing more 
than a transfer to shareholders.  
(Panel Report, para. 7.1760) 
2134Panel Report, para. 7.1775.  
2135United States' other appellant's submission, para. 278.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 433  
 
  767-plus.
2136 Relying in particular on findi ngs of the Appellate Body in EC and certain member States 
– Large Civil Aircraft , the United States distinguishes the 767-plus scenario in this dispute from two 
of the four scenarios considered by the Appellate Bo dy in that dispute involving the complete absence 
of the recipient's aircraft in the ma rket in the absence of the subsidies2137, and for which the 
Appellate Body found that no furt her counterfactual analysis was necessary.  The United States argues 
that the 767-plus scenario is more analogous to the two other scenarios considered by the Appellate 
Body in EC and certain member States – Large Civil Aircraft  involving a weaker, unsubsidized 
recipient entering the market in  the absence of the subsidies2138, for which the Appellate Body found 
that a more detailed counterfactual analysis was required.2139   
1038.  Based on its understanding of the Appellate Body report in EC and certain member States – 
Large Civil Aircraft , the United States argues that the Panel in  this dispute could not have established 
the existence of a genuine and substantial causal relationship between the aeronautics R&D subsidies 
and the alleged serious prejudice without analyzing the 767-plus counterfactual scenario that it itself had identified.
2140  Specifically, the United States asserts th at the Panel should have made findings as 
to how a Boeing 767-plus would have competed against the older Airbus A330 or whether the 
Original A350 would have been  launched at all, given that it was a response to the 787.2141  Moreover, 
in its examination of price suppression, the Panel looked only at the 787's impact on A330 and Original A350 prices, not at what price impact would have resulted from a 767-plus.  Likewise, adds the United States, in its assessment of lost sales and threat of displacement or impedance, the Panel 
failed to consider whether those airlines in resp ect of which it found lost sales would necessarily have 
ordered from Airbus if the 787 had not been ava ilable, or what would have happened had Boeing 
offered them a 767-plus.
2142   
1039.  In sum, the United States argues th at, when viewed in the light of EC and certain member 
States – Large Civil Aircraft , the Panel's analysis in this case reveals shortcomings in its use of a 
counterfactual analysis.  As we have explained abov e, the adequacy of a counterfactual analysis must 
                                                      
2136We recall that this scenario of a "767-plus" involved a 767-replacement in 2004 that was 
technologically superior to the 767, but did not offer the degree of technological innovation of the 787. (Panel 
Report, para. 7.1775) 
2137United States' appellee's submission, para. 284 (referring to Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1264).  
2138United States' appellee's submission, para. 281 (referring to Panel Report, EC and certain member 
States – Large Civil Aircraft , para. 7.1993).  
2139Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1264.  
2140United States' appellee's submission, para. 286.  
2141United States' appellee's submission, para. 285. 
2142United States' appellee's submission, para. 285.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 434 HSBI omitted, as indicated [[HSBI]]  
 
  be determined according to, inter alia , the scenarios, arguments, and evidence on the record of a 
particular dispute.
2143   
1040.  On appeal, the United States' arguments that th e Panel's counterfactual analysis at the second 
stage was inadequate are all based on the 767-plus scenario posited by the Panel.  As we observed 
above, however, this scenario was not based on an y counterfactual arguments of the parties.  
Moreover, it was a scenario adverted to in passing by the Panel in the introduction to the second stage 
of its analysis, even though there are no indications  in the Panel's reasoning or factual findings to 
support the statement that Boeing might have in troduced a new LCA model before all of the 
technologies found on the 787 were ready for commercial application.  Accordingly, we are unable to 
agree with the United States' argume nt that the Panel's failure to pursue the counterfactual involving 
a 767-plus was in error, and calls into question the genuine and substantial link found by the Panel to 
exist between the aeronautics R&D subsidies and the relevant adverse effects.  Accordingly, we 
consider that the Panel did not err in its use of a counterfactual analysis or in finding, in 
paragraph 7.1794 of the Panel Report, that " but for " the effects of the aeronautics R&D subsidies, 
Airbus would not have suffered serious prejudice.  We therefore also reject the United States' request 
for consequential reversal of the Panel's finding  that the aeronautics R&D subsidies caused adverse 
effects to the interests of  the European Communities. 
7. The Panel's Analysis of the Effects of the Aeronautics R&D Subsidies on 
Airbus  
1041.  The United States also separately appeals findi ngs of the Panel at the second stage of its 
analysis in which it examined the effects of th e aeronautics R&D subsidies on Airbus' prices and 
sales.  We begin by recounting the relevant findings of the Panel. 
1042.  Having reached the conclusion that, absent the subs idies, Boeing would not have been able to 
launch an aircraft with all of the technologies of the 787 in 2004, with projected deliveries in 20082144, 
the Panel proceeded with its analysis of the Euro pean Communities' claims of serious prejudice.  
Specifically, the European Communities had allege d that the aeronautics R&D subsidies adversely 
affected Airbus' interests through: 
                                                      
2143See supra , paras. 1019 and 1020.  We recall that the Appellate Body in EC and certain member 
States – Large Civil Aircraft  did not find a further counterfactual anal ysis necessary in two scenarios for which 
it found it likely that, absent the subsidies, it would not have been possible for Airbus to have entered the market at all. (Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1264) 
2144Panel Report, para. 7.1775.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 435  
 
  (i) significant price suppression of the A330, Original A350, and 
A350XWB-800; 
(ii) significant lost sales of the A330 and Original A350;   
(iii) displacement and impedance of imports  of the A330 and Original A350 into 
the United States
2145;  
(iv) displacement and impedance of exports of the A330 and Original A350 in 
various third-country markets;  and  
(v) a threat of significant price suppression with respect to future orders  of the 
A330 and A350XWB-8002146;  or, in the alternative, a threat of significant 
price suppression, a threat of significant lost sales, and a threat of displacement and impedance of imports and exports with respect to future 
deliveries  of Airbus LCA.
2147 
1043.  The Panel began by examining the European Communities' allegations of significant lost 
sales.  It determined that the "performance characte ristics of the 787 and/or its scheduled entry into 
service in 2008 appear to have been the decisi ve factors in the outcomes of the Qantas, 
Ethiopian Airlines, and Icelandair campaigns in 2005 and the Kenya Airways campaign in 2006".2148  
For this reason, the Panel found that, " but for  the effects of certain aeronautics R&D subsidies, Airbus 
… would not have suffered significant lost sales within the meaning of Article 6.3(c) of the 
SCM Agreement."2149 
1044.  Based on market share data for the relevant third-country markets in which the Panel had 
found lost sales (that is, Australia, Ethiopia, Kenya, and Iceland), the Panel also concluded that there 
was a threat of displacement and impedance of EC exports in those third-country markets, within the 
                                                      
2145As is evident from this list, the European Comm unities did claim that the effect of the aeronautics 
R&D subsidies was displacement and impedance of imports of Airbus LCA into the US market within the 
meaning of Article 6.3(a) of the SCM Agreement .  Although the Panel did not explicitly make a finding on this 
allegation, it appears that the Panel considered that it had disposed of this claim in finding that, with respect to the sales campaigns involving US airlines—Continenta l and Northwest Airlines—factors other than the 
aeronautics R&D subsidies were responsible for Boei ng's success. (Panel Report, para. 7.1786 and 
footnote 3725 thereto)  In any even t, the European Union does not raise th e absence of a ruling with respect to 
its Article 6.3(a) claim as an issue on appeal. 
2146Panel Report, para. 7.1776.   
2147Panel Report, footnote 3705 to para. 7.1776 (re ferring to European Communities' first written 
submission to the Panel, para. 1342).  This alternative claim was conditional upon the Panel disagreeing with the 
European Communities' contention that the Panel should assess serious prejudice on the basis of orders rather 
than deliveries.   
2148Panel Report, para. 7.1786. 
2149Panel Report, para. 7.1788. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 436 HSBI omitted, as indicated [[HSBI]]  
 
  meaning of Article 6.3(b) of the SCM Agreement .
2150  These findings were based on actual delivery 
data (for the years up to and including 2006) and projected future deliveries (for the years 2007 
onwards) for sales campaigns involving Qantas, Ethiopian Airlines, Kenya Airways, and 
Icelandair.2151  Having considered these data, the Panel was satisfied that, " but for  the effects of 
certain of the aeronautics R&D subs idies, Airbus would have obtaine d additional orders for its A330 
or Original A350 LCA from customers in third-c ountry markets in Australia, Ethiopia, Kenya, and 
Iceland, and thus would not have suffered the threat  of displacement or impedance of its exports from 
third country markets within the meaning of Article 6.3(b) of the SCM Agreement".2152  
1045.  Finally, the Panel turned to the European Communities' allegations of significant price 
suppression suffered by Airbus in the 200-300 seat LCA market.  The Panel considered pricing 
information and market share data with respect to the A330.  The Panel accepted "the proposition that 
with the launch of a technologically-advanced aircraft  {that is, the 787}, the price of the competing, 
older technology aircraft can be expected to decline (along with its residual values)."2153  The Panel 
was "satisfied that this is what happened to th e A330 when the 787 was launched in 2004", which 
"left Airbus in a position in which it had to lower th e price of the A330 in order to try to mitigate its 
loss of market share to the 787."2154  The Panel noted that "demand for 200-300 seat wide-body LCA 
fell in 2002 (largely due to the events of {the 11 September 2001 attacks on the World Trade Center} and the SARS epidemic)"
2155 and saw "in the data submitted … an indication that price trends for the 
A330 declined after 2004 and that, from its former pos ition as market leader in this product market, it 
lost market share to Boeing."2156  The Panel considered that the ma rket share figures "show the rather 
dramatic erosion of Airbus' market share in the 2004 to 2006 period, compared with the 2000-2003 
period", which "coincides with the introduction of the 787 in 2004."2157  In conclusion, the Panel 
noted that "{t}he evidence concerning the pricing tr ends for the A330, combined with the market 
share data, are consistent with what we woul d expect to occur from the introduction of a 
technologically-superior aircraft, offering operati ng cost advantages over older-technology aircraft, 
for around the same price."2158  
                                                      
2150Panel Report, paras. 7.1790 and 7.1791. 
2151Panel Report, para. 7.1790 (referring to "Airbus and Boeing LCA Deliveries and Projected 
Deliveries in the Challenged Markets – Projected deliveries  as of 31 December 2006" (Panel Exhibit EC-1173)). 
2152Panel Report, para. 7.1791. (original emphasis) 
2153Panel Report, para. 7.1781. 
2154Panel Report, para. 7.1781.  
2155Panel Report, para. 7.1782.  
2156Panel Report, para. 7.1781. 
2157Panel Report, para. 7.1785. 
2158Panel Report, para. 7.1785.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 437  
 
  1046.  The Panel also referred to BCI evidence su bmitted by the European Communities that 
demonstrated that Airbus was able to secure sales by offering [            ***            ] in order to offset 
the technological advantages and opera ting cost savings offered by the 787.
2159  The Panel concluded 
that the "evidence concerning the degree of price co ncessions that Airbus offered in order to secure 
sales of its A330 and Original A350 indicates that a further effect of the aeronautics R&D subsidies 
was significant price suppression with respect to the A330 and Original A350."2160  
1047.  The Panel referred to, but rejected, the European Communities' claims that a further effect of 
the aeronautics R&D subsidies was significant price suppression of the A350XWB-800, on the 
grounds that the European Communities had not pre sented evidence of price trends or actual pricing 
for this Airbus model.2161  
1048.  On the basis of the evidence it had reviewed , the Panel found that "the aeronautics R&D 
subsidies contributed in a genuine and substantia l way to Boeing's development of technologies for 
the 787 and that, as a result, but for the effects of these subsidies": 
- Airbus would have obtained add itional orders for its A330 and 
Original A350 LCA from customers in third country markets Australia, Ethiopia, Kenya and Iceland in 2005 and 2006, and the European Communities would not have suffered the threat of 
displacement or impedance of e xports from third country markets 
within the meaning of Article 6.3(b) of the SCM Agreement; 
- Airbus would have made add itional sales of the A330 and 
Original A350 over the same period, and to that extent Airbus would not have suffered significant lost sales in the 200-300 seat wide-body LCA product market, within the meaning of 
Article 6.3(c) of the SCM Agreement;  and 
- prices of the A330 and the Original A350 in the 2004 to 2006 
period would have been significantly higher, and to that extent, Airbus would not have suffered significant price suppression in the 200-300 seat wide-body LCA product market, within the 
meaning of Article 6.3(c) of the SCM Agreement.
2162 
                                                      
2159Panel Report, para. 7.1792 (referring to Europ ean Communities' first written submission to the 
Panel, para. 1393;  and European Communities' second written submission to  the Panel, Full HSBI Appendix, 
para. 10).  
2160Panel Report, para. 7.1792.  
2161Panel Report, para. 7.1793. 
2162Panel Report, para. 7.1794.  WT/DS353/AB/R BCI deleted, as indicated [***] 
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  1049.  The Panel therefore concluded overall that: 
… the effect of the aeronautics R&D subsidies is a threat of 
displacement and impedance of Eu ropean Communities' exports from 
third country markets within the meaning of Article 6.3(b) of the SCM Agreement, with respect to the 200-300 seat wide-body LCA product market, and significant lost sales and significant price suppression, within the meaning of Article 6.3(c) of the 
SCM Agreement with respect to that product market, each of which 
constitute serious prejudice to the interests of the European Communities within the meaning of Article 5(c) of the SCM Agreement.
2163  
8. The United States' Appeal relating to the Second Stage of the Panel's 
Analysis of the Technology Effects of the Aeronautics R&D Subsidies 
1050.  Before addressing the specific grounds of the United States' appeal, we note the pertinent 
provisions of the SCM Agreement , that is, Articles 5(c) and 6.3(b) and (c), which provide, in relevant 
part: 
5. 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, i.e.: 
... 
(c)  serious prejudice to the interests of another Member. 
(footnote omitted) 
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: 
… 
(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{.} 
                                                      
2163Panel Report, paras. 7.1797;  see also paras. 7.1854(a) and 8.3(a)(i).  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  (a) Significant lost sales 
1051.  We begin with the United States' challenge to the Panel's finding that the effect of the 
aeronautics R&D subsidies was significant lost sal es to Airbus in the same market, within the 
meaning of Article 6.3(c) of the SCM Agreement .  
1052.  The Appellate Body has defined a "lost sale"  as one that a supplier "failed to obtain".
2164  The 
Appellate Body has understood that concept as "rela tional", entailing 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", due to the effect of the subsidy.2165  Sales can be lost "in the same market", 
within the meaning of Article 6.3(c), only if the subsidized product and the like product compete in 
the same product market.  With respect to the meani ng of "significant", the Appellate Body has noted 
that this term means "importa nt, notable or consequential"2166, and has both quantitative and 
qualitative dimensions.2167   
1053.  In this dispute, the European Communiti es relied on evidence from ten sales campaigns2168  
to substantiate its claims of significant lost  sales.  This evidence was discussed in the 
European Communities' first written submission to the Panel, and the details of the relevant 
campaigns within the 200-300 seat LCA market were se t out in an HSBI Annex to that submission 
—Annex D.  According to the European Communities, customers chose the 787 due to some or all of 
the following subsidy-induced characteristics:  its technological innovation;  early availability;  and 
low prices.2169  The United States responded that reasons ot her than the R&D subsidies explained the 
failure of Airbus to secure sales in the rele vant sales campaigns.  For instance, although the 
United States agreed that the A330 and Original  A350 lost sales to the 787 because of the latter's 
advanced technological features, it argued that these features were not the result of the subsidies, but 
were the product of work and invest ment by Boeing and its suppliers.2170  The United States agreed 
that the Original A350 lost sales because of the earlie r availability of the 787;  however, it attributed 
that fact, not to the aeronautics R&D subsidies, but to the different strategies employed by Airbus and 
                                                      
2164Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1214. 
2165Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1214. 
2166Appellate Body Report, US – Upland Cotton , para. 426 (referring to Panel Report, US – Upland 
Cotton , para. 7.1326). 
2167Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1218. 
2168See Panel Report, footnote 3724 to para. 7.1786.  The sales campaigns relied on by the 
European Communities were:  All Nippon Airways (2004) ;  Japan Airlines (2004);  Continental Airlines 
(2004-2006);  Icelandair (2005);  Northwest (2005);  Air Canada (2005);  Qantas (2005);  Kenya Airways 
(2006);  Ethiopian Airlines (2005);  and Royal Air Maroc (2005). 
2169European Communities' first written submission to the Panel, Annex D (BCI version), paras. 5-77.  
See also Panel Report, para. 7.1786. 
2170United States' first written submission to the Panel, para. 997.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 440 HSBI omitted, as indicated [[HSBI]]  
 
  Boeing.
2171  Finally, the United States referred to sal es campaign evidence submitted as an HSBI 
Annex to its first written submission, which it alleged proved that the European Communities' 
arguments were unfounded and demonstrated that cu stomers chose the 787 for reasons other than its 
low price.2172 
1054.  The Panel agreed with the European Communitie s that in four of the 10 sales campaigns 
referred to by the European Communities—that is, the sales campaigns involving Qantas (2005), 
Ethiopian Airlines (2005), Icelandair (2005), and Kenya Airways (2006)—the effect of the 
aeronautics R&D subsidies was significant lost sales in the same market, within the meaning of 
Article 6.3(c) of the SCM Agreement .  In the Panel's view, the "performance characteristics of the 787, 
and/or its scheduled entry into service in 2008" were  "decisive factors" in Boeing's ability to secure 
these sales.2173  By contrast, for the other six sales ca mpaigns—that is, those involving All Nippon 
Airways (2004), Japan Airlines (2004), Continental Airlines (2004-2006), Northwest (2005), 
Air Canada (2005), and Royal Air Maroc (2005)— the Panel did not find the aeronautics R&D 
subsidies to be the cause of the lost sales, citing factors "other than the performance characteristics of 
the 787 over the A330 or Original A350, and the 2008 delivery date for the 787" that played a 
"significant part" in the loss of these particular sales to Boeing.2174  These other factors included 
Boeing's relationship with the airline in question;  the particular routes to be serviced and range of 
aircraft;  the effect of the competition between the A340 and Boeing's 777 and the airline's preference 
for a mixed fleet;  and Airbus' failure to submit a formal offer.2175 
1055.  In the course of its brief analysis, the Panel discussed the Qantas sale, which involved an 
order of 45 Boeing 787s, plus 20 options and a further 50 purchase rights.  The Panel noted the 
"extremely competitive" nature of that sale, and c oncluded, based on the size of the order and various 
factors that singled out that campaign as being of strategic importance to Boeing and Airbus, that Airbus' loss of this sale alone was "significant".
2176  The Panel was therefore satisfied that, but for the 
effect of the subsidies, Airbus would have made  additional sales of the Original A350 and would not 
have suffered significant lost sales within the meaning of Article 6.3(c).   
                                                      
2171United States' first written submission to the Panel, para. 998.  
2172United States' first written submission to the Pane l, para. 999, referring to US Campaign Annex 
(HSBI).  
2173Panel Report, para. 7.1786.  The Panel also referred to evidence that, for customers, the "extremely 
low pricing offered by Boeing" informed their choice of the 787. ( Ibid.) 
2174Panel Report, para. 7.1786.  
2175Panel Report, footnote 3725 to para. 7.1786.  
2176Panel Report, para. 7.1788.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 441  
 
  (i) Whether the Panel erred by "double-counting" each 787 sale 
as two lost sales for Airbus 
1056.  The United States asserts that the Panel's finding of significant lost sales is in error because it 
implies that sales of both the A330 and the Original A350 were lost in the Qantas, Ethiopia Airlines, 
Icelandair, and Kenya Airways sales campaigns.  The United States argues that the Panel "double 
counted" lost sales when it treated each sale won by  the 787 as two lost sales—namely, one for the 
Original A350 and one for the A330—even though no  customer intended to buy both airplanes and 
Airbus could only lose each sale once.
2177  The United States contends that, for the lost sales found by 
the Panel, Airbus either made no bid at all, rem oved the A330 from consideration in favour of the 
Original A350, or offered only the Original A350 against the 787.2178  Therefore, the Panel's finding 
that Airbus lost sales for the A330  does not meet the requirements of Article 6.3(c) of the 
SCM Agreement  and, in the United States' view, must be reversed.  Since the finding of a threat of 
displacement and impedance of the A330 is based "exclusively" on the "invalid" lost sales finding, the 
United States asserts that it must also be reversed.2179   
1057.  The European Union responds that it had never alleged before the Panel that a single sales 
campaign in which Airbus offered the A330 and Or iginal A350 should count as two sales.  Moreover, 
the Panel's finding only reflects that, in several of  the sale campaigns, Airbus  offered a mix of A330s 
and Original A350s, and, hence, lost sales of both these aircraft.2180   
1058.  Through this argument on appeal, the United St ates raises an issue of how properly to 
construe the Panel's finding of lost sales.  We not e that, in arguing that the Panel "double-counted" 
lost sales, the United States appears to focus on the Pa nel's statement at the end of its analysis that, but 
for the effects of the R&D subsidies, Airbus "would have made additional sales of the A330 and 
Original A350 over the same period, and to that ex tent, would not have suffered significant lost sales 
in the 200-300 seat wide-body LCA product market, w ithin the meaning of Article 6.3(c) of the 
SCM Agreement".2181   
1059.  That finding must, however, be read together with the prior reasoning contained in the body 
of the Panel's analysis.  The Panel began its cons ideration of the European Communities' claims of 
lost sales by discussing the evidence fro m the sales campaigns presented by the 
European Communities.  The Panel found that the evidence regarding specific sales campaigns that 
                                                      
2177United States' other appellant's submission, para. 279.  
2178United States' other appellant's submission, para. 283.  
2179United States' other appellant's submission, para. 281.  
2180European Union's appellee's submission, paras. 443 and 444.  
2181Panel Report, para. 7.1794. (emphasis added)   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 442 HSBI omitted, as indicated [[HSBI]]  
 
  occurred in the 200-300 seat LCA market betwee n 2004 and 2006 demonstr ated that customers 
decided to purchase Boeing's 787 either because th ey "perceived that Airbus' A330 family and 
Original A350 family LCA were not as capable as Boeing's 787 family LCA in fulfilling {their} 
technical or delivery schedule requirements";  or because they "considered Airbus' A330 family and 
Original A350 family LCA to be capable of meeting {their} technical and delivery schedule 
requirements, but {were} 'swayed by the extremely low pricing offered by Boeing'."
2182  The Panel 
concluded that, in the specific sales campaigns invo lving Qantas, Ethiopian Airlines, Icelandair, and 
Kenya Airways, sales were lost to the 787 due to the "advanced technological features of the 787, the availability of which at that time was a ccelerated by the aeronautics R&D subsidies".
2183  The Panel 
then proceeded to discuss in fu rther detail the sales campaign involving Qantas and, at the close of 
that discussion, found that the evidence before it supported a conclusion that, but for the subsidies, 
Airbus would have made additional sales of the Original A350.2184  The Panel neither stated nor 
implied that it considered that two sales had b een lost by Airbus for each 787 ordered.   
1060.  We understand the reasoning of the Panel to be contained in its explanation that customers 
chose the 787 because of their perception that it was more technologically advanced than either the 
A330 or the Original A350, as well as on account of  its low price.  We know from the evidence 
presented to the Panel, and referred to by the Unit ed States, that, in at least one sales campaign, 
Airbus did not offer either of these two aircraft2185 and, in another, both the A330 and Original A350 
were offered.2186  Since the Panel found that customers considered the 787 to be the more advanced 
aircraft, it appears that, for at least two sales camp aigns, the customers either considered neither the 
A330 nor the Original A350, or  considered both the A330 and  the Original A350, but rejected them in 
favour of the 787. 
1061.  We also note that, in concluding that there was a threat of displacement and impedance, the 
Panel explicitly stated that, but for the aeronau tics R&D subsidies, "Airbus would have obtained 
additional orders for its A330 or Original A350" from customers in third-country markets in 
Australia, Ethiopia, Kenya, and Iceland.2187  The Panel's threat of displacement and impedance finding 
was a consequence of its lost sales finding and was based on the same sales campaigns that Boeing 
                                                      
2182Panel Report, para. 7.1786. 
2183Panel Report, para. 7.1787.  
2184Panel Report, para. 7.1788.  
2185United States' other appellant's submission, para. 283.  
2186The participants appear to accept that, with respect to at least one sales campaign, Airbus initially 
offered both the A330 and the Original A350.  Although  the United States argues that "Airbus … removed the 
A330 from consideration in favour of the Original A350" in that specific sa les campaign, there is no evidence of 
such withdrawal and the Panel made no finding in this regard. (United States' other appellant's submission, 
para. 283)  The European Union argues that, in a number of sales campaigns, Airbus offered the airline customer a mix of A330s and Original A350s. (European Union's appellee's submission, para. 444)  
2187Panel Report, para. 7.1791. (emphasis added)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 443  
 
  won and Airbus lost.  Thus, the Panel's use of "or", rather than "and", in its finding regarding a threat 
of displacement and impedance suggests to us th at, far from "double-counting" lost sales for each 
specific campaign, the Panel treated each lost sale to Boeing as being a loss of either  the A330 or the 
Original A350.
2188 
1062.  Finally, we also note that the Panel's u ltimate finding of significant lost sales, in 
paragraphs 7.1797 and 8.3(a)(i) of the Panel Report, is, in any event, made with respect to the 
200-300 seat LCA market generally, rather than with  respect to either or both specific Airbus LCA 
models.2189  
1063.  For the above reasons, we do not read the Pane l's finding as suggesting that for each sale of 
the 787 gained by Boeing, two were lost by Airbus.  Nor do we consider that the Panel's finding of 
significant lost sales in the same market is justifie d only with respect to the Original A350, and not 
the A330.  Accordingly, we reject the United States' request for reversal of the Panel's finding of lost 
sales of the A330 because of "double-counting".  For that same reason, we also reject the 
United States' request for consequential reversal of the Panel's finding of a threat of displacement and 
impedance with respect to the A330. 
(ii) Whether the Panel erred by failing properly to consider 
other factors 
1064.  Second, the United States argues that, in concl uding that the Ethiopian Airlines, Icelandair, 
and Kenya Airways sales campaigns resulted in lost  sales for the A330 and Original A350, the Panel 
failed to take into account "customer-specific s ituations" showing that Boeing's victory in these 
campaigns was not the effect of the aeronautics R&D subsidies.2190  These "customer-specific 
situations" include "'Boeing's relationship with th e airline (Continental Airlines, All Nippon Airways, 
Japan Airlines)' and Airbus' 'failure to submit a fo rmal offer within the time limit specified by the 
airline (Royal Air Maroc)'".2191  The United States highlights that the Panel recognized that such 
factors could be critical when it rejected allegations  of lost sales in these other sales campaigns on the 
                                                      
2188We recall the European Union's assertion that it ha d never presented arguments that two sales were 
lost to Airbus for each sa le of the Boeing 787. ( Supra , para. 1057) 
2189The Panel found that: 
… the effect of the aeronautics R&D subsidies is … significant lost sales … within the meaning of Article 6.3(c) of the SCM Agreement with respect to 
{the 200-300 seat LCA} market, … which constitute{s} serious prejudice to 
the interests of the European Communities within the meaning of Article 5(c) of the SCM Agreement. 
(Panel Report, para. 7.1797) 
2190United States' other appellant's submission, para. 286. 
2191United States' other appellant's submission, para. 286 (quoting Panel Report, footnote 3725 to 
para. 7.1786). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 444 HSBI omitted, as indicated [[HSBI]]  
 
  basis that these factors, rather th an the aeronautics R&D subsidies, explained the customer's choice.  
Yet the Panel neglected to consider similar factor s for the campaigns involving Ethiopian Airlines, 
Icelandair, and Kenya Airways.  Accordingly, argue s the United States, the Panel's lost sales finding 
under Article 6.3(c) of the SCM Agreement  is in error.
2192  Moreover, since the Panel's finding of lost 
sales formed the "sole" basis for the Panel's conclu sion that there was a threat of displacement and 
impedance, the United States requests the Appellate Body to reverse the threat of displacement and 
impedance finding of the Panel.2193   
1065.  In response, the European Union asserts that the Panel considered, and properly rejected, 
relevant other factors.  The European Union explai ns that the Panel could not explain its finding in 
more detail due to the HSBI nature of the sales campaign evidence.  Moreover, the European Union 
posits that the arguments of the United States implicate the Panel's weighing of evidence and should 
have been raised under Article 11 of the DSU.2194 
1066.  We begin with the United States' argument th at the Panel failed to ascribe sufficient 
importance to Boeing's pre-existing customer rela tionships in its treatment of the Icelandair, 
Kenya Airways, and Ethiopian Airlines sales campaigns  as compared with its treatment of that same 
factor with respect to the sales campaigns involv ing Continental Airlines, All Nippon Airways, and 
Japan Airlines.  The evidence on the Panel record  suggests that, as with Continental Airlines, 
All Nippon Airways, and Japan Airlines, three of the airlines for which the Panel concluded there were lost sales—namely Ethiopian Airlines, Icel andair, and Kenya Airways—also had all-Boeing or 
predominantly Boeing fleets.
2195  We have no reason to doubt that the Panel assessed this factor in 
considering these sales campaigns, and weighed it differently in considering the sales campaigns involving Continental Airlines, All Nippon Airways, and Japan Airlines.  Yet the reason for this 
difference in treatment is not evident from the Panel's reasoning.
2196  We have concerns about the 
scarcity of the Panel's analysis.  However, the claims brought by the United States can only be 
properly dealt with if brought under Article 11 of the DSU2197 since they challenge the objectivity of 
the Panel's assessment of the facts and seek to have us attribute a different weight to a specific factor 
                                                      
2192United States' other appellant's submission, para. 286.  
2193United States' other appellant's submission, para. 294.  
2194European Union's appellee's submission, paras. 446 and 447.  
2195In this respect, we observe that, before the Panel, the United States noted that the following airlines, 
including those referred to here on appeal, either had all-Boeing LCA fleets or operated only Boeing 767s as 
their mid-size LCA. (United States' other appellant's submission, para. 288 (referring to United States' first 
written submission to the Panel, Full HSBI  Appendix, footnote 2 to para. 10))  
2196The European Union's counterargumen t that the evidence that was before the Panel is HSBI in 
nature is not entirely convincing, given that the Panel wa s able to articulate reasons for the Qantas sales, even 
though the evidence from that campaign was also HSBI-designated. (See Panel Report, para. 7.1788) 
2197See, for example, Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 292, 
293 and footnote 618 thereto, 294, and 295.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 445  
 
  than did the Panel.  In the absen ce of such a claim, we see no basi s to interfere with the Panel's 
exercise of its fact-finding authority solely on the ground that it came to different conclusions in 
circumstances where the facts surrounding these campaigns illustra ted that they shared one 
characteristic with other campaigns for which the Panel did not find lost sales.   
1067.  The United States also argues that the Icelanda ir sales campaign shared features with the 
Royal Air Maroc sales campaign for which the Panel rejected the European Communities' claim of 
lost sales because of Airbus' "failure to submit a fo rmal offer within the time limit specified" by that 
airline.
2198  According to the United States, the situation arising in the Icelandair sales campaign is as 
compelling a reason to find that no causal link exists as a late bid.2199  For the same reasons given 
above, we do not entertain this claim of the United States in the absence of a claim under Article 11 of 
the DSU.   
1068.  In the light of the above, and even accepting that the Panel could have provided a fuller 
explanation as to how the evidence from the three sales campaigns supports a finding of significant 
lost sales in the same market, we are not persuaded that the Panel erred in applying Article 6.3(c) of 
the SCM Agreement  in its consideration of the sales campaigns involving Ethiopian Airlines, 
Icelandair, and Kenya Airways, and therefore reject the United States' request for reversal of the lost 
sales finding.  For that same reason, we reject the United States' request for reversal of the Panel's 
consequential finding of a threat of displacement and impedance. 
(b) Threat of displacement and impedance 
1069.  In addition to its requests for consequential reve rsal (deriving from the alleged flaws in the 
finding of lost sales) of the Panel's finding that the aeronautics R&D subsidies caused a threat of 
displacement and impedance of exports of Airbus ai rcraft in the "third-country markets" of Ethiopia, 
Kenya, and Iceland, the United States al so independently appeals that finding.2200  The United States 
alleges that the Panel failed to establish that Ethi opia, Kenya, and Iceland constitute "third-country 
markets" within the meaning of Article 6.3(b)2201, and that this failure constitutes legal error because, 
as the Appellate Body has previously  found, panels considering a clai m of displacement or impedance 
have an "obligation to assess the re levant market" under Article 6.3(b).2202  M o r e o v e r ,  t h e  
                                                      
2198United States' other appellant's submission, para. 289 (quoting Panel Report, footnote 3725 to 
para. 7.1786).  
2199United States' other appellant's submission, para. 289. 
2200We note that the United States has not appealed the Panel's finding of a threat of displacement and 
impedance of the European Union's exports in Australia. 
2201United States' other appellant's submission, para. 295.  
2202United States' appellee's submission, para. 295 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1131). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 446 HSBI omitted, as indicated [[HSBI]]  
 
  United States asserts that the Pa nel's threat of displacement and impedance finding for those countries 
contradicts its legal finding elsewhere that treating a single sales campaign as a "market" nullifies the 
meaning of that term.
2203  The United States also argues that the low volume of orders involved in the 
sales campaigns involving Ethiopia, Iceland, and Kenya demonstrates that there was no "trend" of 
Airbus exports being threatened with displacement and impedance.2204   
1070.  The European Union supports the Panel's finding that it did not need to "consider whether the 
European Communities ha{d} established th e existence of such country markets"2205 because, in this 
dispute, both parties accepted that the relevant  product market was 200-300 seat LCA market, and the 
relevant geographic markets of Ethiopia, Kenya, and Iceland were "indisputable".2206  Moreover, even 
if the Panel were under an obligation to make find ings on the extent of the market within a third 
country, the European Union maintains that the Pa nel was still correct since the unappealed finding 
that there was a world market for 200-300 seat LC A means there could not be multiple geographic 
markets within each country.2207   
1071.  Before addressing the specific arguments on appeal , we recall the meaning of the concepts of 
displacement and impedance as previously stated by the Appellate Body.  In EC and certain member 
States – Large Civil Aircraft , the Appellate Body explained that "displacement" refers to an economic 
mechanism in which exports of a like product are replaced by the sales of the subsidized product.2208  
Specifically, it found that "displacement" connotes that  there is "a substitution effect between the 
subsidized product and the like product of the complaining Member" and, in the context of 
Article 6.3(b), "displacement arises where exports of the like product of the complaining Member are 
substituted in a third country market by  exports of the subsidized product."2209  The existence of 
displacement depends upon there being a competitiv e relationship between these two sets of products 
in that market and, when this is the case, certa in behaviour such as "{a}ggressive pricing" may "lead 
to displacement of exports … in {that} particular market".2210  An analysis of displacement should 
assess whether this phenomenon is discernible by examin ing trends in data relating to export volumes 
and market shares over an appropriately representative period.2211  With respect to "impedance", the 
Appellate Body expressed the view that this concep t may involve a broader range of situations than 
                                                      
2203United States' other appellant's submission, para. 295 (referring to Panel Report, para. 7.1675). 
2204See United States' appellee's submission, paras. 299-301. 
2205Panel Report, para. 7.1674. 
2206European Union's appellee's submission, para. 464.   
2207European Union's appellee's submission, para. 465.  
2208Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1119. 
2209Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1160. 
2210Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1119. 
2211See Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1165, 
1166, and 1170.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 447  
 
  displacement and arises both in "situations where th e exports or imports of the like product of the 
complaining Member would have expanded had they not been 'obstructed' or 'hindered' by the 
subsidized product", as well as when such exports or imports "did not materialize at all because 
production was held back by the subsidized product".
2212  While there may be some overlap between 
the concepts, "displacement" and "impedance" are therefore not interchangeable concepts. 
1072.  In this dispute, the Panel's finding of a thr eat of displacement and impedance was based on 
delivery data for the four countries where the sales campaigns on which its lost sales finding was 
based took place.2213  The Panel had found earlier in its analysis that the existence of the serious 
prejudice phenomena of displacement and impedance of  imports or exports could only be definitely 
established by relevant delivery data , and that orders for LCA represent, by and large, deliveries that 
will occur some years subsequently.2214  For the Panel, evidence concerning orders obtained in 
2004-2006 was capable of showing that  future imports or exports woul d be displaced or impeded and, 
therefore, of establishing the existence of a threat  of serious prejudice.2215   
1073.  The evidence on which the Panel relied for its  finding of a threat of displacement and 
impedance in the 200-300 seat LCA market included actual delivery data (up to and including 2006) 
and projected future deliveries (for 2007 onwar ds), which were based on actual order data.2216  The 
Panel explained that, given the delay between the order of aircraft and their delivery, the impact of the 
aeronautics R&D subsidies would not be reflected in  delivery data until the 787 was delivered some 
years after 2006.2217   
                                                      
2212Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1161.  The 
Appellate Body noted that it was not required to consider the meaning of impedance in that appeal.  
Nevertheless, the Appellate Body considered that this co ncept, which is found within the same provision of the 
SCM Agreement , serves as relevant context for "a better understanding of displacement". ( Ibid.)   
2213Having concluded that the orders obtained by Boeing in the Qantas, Icelandair, Kenya Airways, and 
Ethiopian Airlines sales campaigns demonstrated  significant lost sales, the Panel noted the 
European Communities' argument that, to the extent that it had identified orders as the cause of displacement or 
impedance, but such orders had not yet resulted in  deliveries, those orders constituted evidence of a threat  of 
displacement and impedance. (Panel Report, para. 7. 1789 (referring to European Communities' first written 
submission to the Panel, paras. 1455-1458, 1466-1468, 1552-1555, 1562, 1640-1643, 1650, and 1651;  and 
European Communities' oral statement at the first Panel meeting (BCI), para. 90)) 
2214The Panel's focus on evidence of future deliveries of aircraft was consistent with an earlier finding 
that, for purposes of its displ acement and impedance findings under Article 6.3(a) and (b) of the 
SCM Agreement , the reference to "imports" and "exports" in th ese provisions suggested that these forms of 
serious prejudice could arise only on delivery of the aircraft to customers. (See Panel Report, para. 7.1685) 
2215Panel Report, para. 7.1686.  Although the word "threat" is not expressly included in the text of 
Article 6.3(b), the Appellate Body in EC and certain member States – Large Civil Aircraft  explained that a 
finding under that provision could include situations in  which displacement was only threatened. (Appellate 
Body Report, EC and certain member States – Large Civil Aircraft , para. 1171) 
2216Panel Report, para. 7.1790 (referring to "Airbus and Boeing LCA Deliveries and Projected 
Deliveries in the Challenged Markets – Projected deliveries  as of 31 December 2006" (Panel Exhibit EC-1173)). 
2217Panel Report, para. 7.1791.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 448 HSBI omitted, as indicated [[HSBI]]  
 
  Table 5.  Actual and proj ected future deliveries of  Airbus and Boeing LCA 
  Airbus Boeing 
Australia 2002 2 100% -- -- 
2003 4 100% -- -- 
2004 5 100% -- -- 
2005 3 100% -- -- 
2006 1 100% -- -- 
2007 4 100% -- -- 
2008 4 50% 4 50% 
2009 3 27% 8 73% 
2010 1 10% 9 90% 
2011 -- -- 7 100% 
2012 -- -- 14 100% 
2013 -- -- 3 100% 
Ethiopia 2003 -- -- 1 100% 
2004 -- -- 1 100% 
2005 -- -- 1 100% 
2006 -- -- -- -- 
2008 -- -- 1 100% 
2009 -- -- 1 100% 
2010 -- -- 3 100% 
2011 -- -- 2 100% 
2012 -- -- 3 100% 
Kenya 2001 -- -- 3 100% 
2010 -- -- 2 100% 
2011 -- -- 4 100% 
2012 -- -- 3 100% 
Iceland 2010 -- -- 2 100% 
2012 -- -- 2 100% 
Source :  Panel Report, Table at para. 7.1790 ;  Panel Exhibit EC-1173, Figure 1. 
 
1074.  Having set out the above table, the Panel considered it "clear" that, after 2006, the 
European Communities would "suffer serious prejudice in the form of displacement and impedance of 
its exports from these third country markets".2218   
1075.  The first argument of the United States in this part of its appeal concerns the proper meaning 
to be attributed to the term "market" in Article 6.3(b) of the SCM Agreement .  That provision requires 
a demonstration that the effect of the subsidy is to "displace or impede" the exports of a like product 
of another Member from a "third country market".   
1076.  In EC and certain member States – Large Civil Aircraft , the Appellate Body clarified that a 
"market", within the meaning of Article 6.3(a) and (b) of the SCM Agreement , is a particular set of 
products that are in actual or potential competition with each other within a particular geographical 
area.  An assessment of the competitive relationshi p between products in the market is required in 
                                                      
2218Panel Report, para. 7.1791.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 449  
 
  order to determine "whether and to what  extent one product may displace another".
2219  There is "both 
a geographic and product market compone nt to the assessment of displacement"2220 and, by 
implication, impedance.2221  In principle, the manner in which the geographic dimension of a market 
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 the conditions of competition for sales 
of the product in question may provide an appr opriate foundation for a finding that a geographic 
market exists within  that area, for example, a region.  Th ere may also be cases where the geographic 
dimension of a particular market exceeds na tional boundaries or could be the world market.2222  A 
plain reading of Article 6.3(b), however, reveals that a finding of displacement or impedance under 
that provision is to be limited to the territory of th e third country at issue.  Accordingly, findings of 
displacement and impedance are to be made only w ith respect to the territory of the third country 
involved, even though, from an economic perspectiv e, the geographic market may not be national in 
scope.  Thus, the Appellate Body explained that, even in cases where the geographic dimension of a 
particular market exceeds national boundaries or is  worldwide, a panel faced with a claim under 
Article 6.3(b) should "focus the analysis of di splacement and impedance on the territory of the … 
third countries involved."2223   
1077.  In this dispute, the Panel found that the LC A market is a global market geographically and 
that competition in each of the three LCA produc t markets that it had identified takes place on a 
worldwide basis.2224  The Panel also recognized that Articl e 6.3(b) expressly requires the examination 
of displacement and impedance on the basis of "a th ird country market".  Thus, the Panel considered 
that, in assessing the European Co mmunities' claim of displacement and impedance, it was "not 
required to consider whether the European Commu nities ha{d} established the existence of such 
country markets".2225  Rather, the Panel considered the i ssue before it as being whether, "based on 
evidence of sales occurring in those countries, {it was}  satisfied that there ha{d} been displacement 
and impedance … in the particular country market."2226   
                                                      
2219Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1119.   
2220Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1168. 
2221Appellate Body Report, EC and certain member States – Large Civil Aircraft , footnote 2466 to 
para. 1119. 
2222Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1117.  Where 
the geographic dimension of the market is smaller in scop e than the entire territory of the third-country Member 
concerned, the wording of Article 6.3(b) suggests that a panel will nonetheless have to ensure that any finding reached relates to that territory as a whole, and explain why this is so. 
2223Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1117. 
2224Panel Report, paras. 7.1671 and 7.1674.   
2225Panel Report, para. 7.1674.  
2226Panel Report, para. 7.1674.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 450 HSBI omitted, as indicated [[HSBI]]  
 
  1078.  We see no error in this approach of the Panel.   As we have noted, the Panel found that 
competition between Boeing and Airbus for sales in the 200-300 seat LCA market takes place on a 
global basis.  Both parties accepted the Panel's identification of the 200-300 seat LCA market and did 
not dispute that it is a global market.
2227  The United States did not suggest to the Panel, and has not 
argued before us, that Kenya, Iceland, and Ethiopi a do not form part of such a global market, or 
pointed to any reason why the conditions of compe tition within the territory of any of these Members 
would differ from the conditions of competition on the worldwide market.  The sales campaign 
evidence relied upon by the European Communities to support its claim related to, inter alia , sales in 
Ethiopia, Iceland, and Kenya, and both Boeing an d Airbus competed in these sales campaigns.  The 
Panel was clearly aware that Article 6.3(b) requir es an analysis of displacement and impedance to 
focus on a particular country market and deemed  it unnecessary to establish separately the existence 
of a third-country market.  Such an appro ach accords with Article 6.3(b) and with the 
Appellate Body's understanding of that provision as set out in EC and certain member States – Large 
Civil Aircraft.  For these reasons, we do not accept the conten tion of the United States that, in its 
analysis of displacement and impedance, the Pane l erred in assuming the existence of third-country 
markets, and failed to establish that they existed. 
1079.  We also reject the argument of the United States that, by relying on individual sales 
campaigns for its displacement and impedance finding with respect to Ethiopia, Kenya, and Iceland, 
the Panel contradicted its own legal conclusion that treating a single sales campaign as a "market" 
nullifies the meaning of that term.2228  This argument by the United States appears to us to 
misconstrue the Panel's finding and to conflate distinct  issues.  While it is true that the Panel declined 
to accept an argument by the European Communiti es that a single LCA sales campaign could be 
considered a relevant market, in doing so it was considering the definition of "market" under 
Article 6.3(c), and not under Article 6.3(b), of the SCM Agreement .  Under Article 6.3(b), the Panel 
was required to focus its analysis on sales occurring w ithin the territory of each relevant third-country 
Member, irrespective of how many sales campaigns took place in that territory during the reference 
period.   
                                                      
2227Panel Report, paras. 7.1670 and 7.1671. 
2228See Panel Report, para. 7.1675.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 451  
 
  1080.  A second argument by the United States relates to the evidentiary basis for the Panel's finding 
of a threat of displacement and impedance in Et hiopia, Kenya, and Iceland.  The United States 
contends that the volume of orders involved in these third-country market campaigns was too low to 
be capable of demonstrating a threat of displaceme nt and impedance, and that there were insufficient 
"trends" of Airbus exports.
2229   
1081.  We begin with the Panel's finding of displace ment.  We recall the guidance provided by the 
Appellate Body in EC and certain member States – Large Civil Aircraft  as to the meaning of 
"displacement" in Article 6.3(a) and (b).  Referring to Article 6.4 of the SCM Agreement , which 
provides, inter alia , that, for purposes of Article 6.3(a) and (b ), changes in relative market shares shall 
be demonstrated "over an appropriately representativ e period sufficient to demonstrate clear trends in 
the development of the market for the product concer ned", the Appellate Body considered that this 
suggests that the effect of a subsidy must be examin ed "'over a sufficiently long period of time and is 
not limited to the year in which it was paid' b ecause consideration of developments over a longer 
period 'provides a more robust basis for a serious prejudice evaluation'."2230  The Appellate Body also 
noted that a panel assessing a claim of displacement would have to look at whether trends are 
discernible.2231  The Appellate Body explained that the iden tification of a trend will be more accurate 
the larger the data set used in the analysis.2232   
1082.  The Appellate Body's analysis in EC and certain member States – Large Civil Aircraft  
suggests that the following characteristics will normally be necessary before a panel can reach a 
finding of displacement under Article 6.3(b):  first, that at least a portion of the market share of the 
exports of the like product of the complaining Memb er must have been taken over or substituted by 
                                                      
2229See United States' appellee's submission, paras. 299-301. 
2230Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1166 (quoting 
Appellate Body Report, US – Upland Cotton , para. 478). 
2231Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1166.  
2232Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1167.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 452 HSBI omitted, as indicated [[HSBI]]  
 
  the subsidized product;  and second, it must be possible to discern trends in volume and market 
share.
2233   
1083.  Although the Panel engaged in no an alysis of the data before it, when we consider the data for 
the four markets for which the Panel found a threat  of displacement, we find evidence of Boeing 
taking over Airbus' market share only in Australia.   The data relied on by the Panel for Australia 
demonstrate that, after 2006, Boeing progressed from having no deliveries in Australia to having 50% 
of deliveries by 2008, and 100% of deliveries by 201 1, thus supplanting Airbus in Australia.  Airbus' 
market share progressively declined from 2002 to 2010 , with deliveries projected to cease in 2011.  
The Panel's analysis of the Qantas sales campaign, of  the Australian market, and its finding of a threat 
of displacement and impedance in Australia ha ve not been appealed by the United States. 
1084.  The data further show that, in the other three third-country markets at issue, Boeing was the 
sole supplier in all years for which data was provided.   In contrast to Australia, there is no evidence 
that Airbus made or was projected to make deliver ies in any of these third-country markets prior to, 
during, or after the reference period.  This mean s that there was no taking over or substituting by 
Boeing of Airbus' market share for 200-300 seat LCA in those third-country markets.  Rather, while 
the number of deliveries fluctuated, Boeing held 100%  of the market share in every year considered 
by the Panel.  On this basis alone, we cannot sustain the Panel's finding of a threat of displacement  in 
these third-country markets. 
1085.  In its discussion of displacement and impedance,  the Panel did not distinguish between these 
concepts, even though the Appellate Body in EC and certain member States – Large Civil Aircraft  
stated that the principle of effective treaty interp retation suggests that there is a distinction between 
                                                      
2233The Appellate Body in EC and certain member States – Large Civil Aircraft  reasoned that: 
... displacement arises under Article 6.3(a) of the SCM Agreement  where 
imports of a like product of the comp laining Member are declining in the 
market of the subsidizing Member, and are being substituted by the 
subsidized product.  Similarly, unde r Article 6.3(b), displacement arises 
where exports from the like product of the complaining Member are 
declining in the third country market  concerned, and are being substituted 
by exports of the subsidized product.  As noted above, displacement must be 
discernible.  The identification of di splacement under this approach should 
focus on trends in the markets, looking at both volumes and market shares.  
The trend has to be clearly identifiabl e and an assessment based on a static 
comparison of the situation of the subs idized product and the like product at 
the beginning and at the end of the re ference period would be inadequate.  
(Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1170)  In that dispute, the 
Appellate Body explained how it would apply the test of displacement and stated that there could be no 
displacement either where sale s of Boeing aircraft (the competitor of th e subsidized product in that dispute) 
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 supplier in a product market. ( Ibid., 
para. 1179)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 453  
 
  them.
2234  We also observe that, when making findings, the Panel always referred to both 
displacement and impedance.  For this reason, we wi ll proceed on the basis th at the Panel meant that, 
in each of the countries it considered, there was a threat of both displacement and impedance.  We 
therefore proceed to consider the Panel's finding of a threat of impedance .  
1086.  As we have noted above, in EC and certain member States – Large Civil Aircraft , the 
Appellate Body explained that impe dance refers to a situation where the exports or imports of the like 
product of the complaining Member would have expa nded more had they not been "obstructed" or 
"hindered" by the subsidized product, or wher e exports or imports of the like product did not 
materialize at all becaus e production was "held back" by the subsidized product.2235  We observe that 
Article 6.4 of the SCM Agreement , which applies to both phenomena re ferred to in Article 6.3(a) 
and (b), requires that, as with displacement, a findi ng of impedance should be supported by evidence 
of changes in the relative market share in favour of the subsidized product, over a sufficiently 
representative period, to demonstrate "clear trends " in the development of the market concerned. 
Since, unlike with displacement, however, impeda nce may not be a visible phenomenon, evidence of 
trends may not be dispositive, or may hold l ess probative value, for a finding of impedance. 
1087.  In this dispute, the Panel considered that th ere was evidence of a threat of impedance in 
Ethiopia, Kenya, and Iceland on the basis of th e data provided in Table 5 above.  Although no 
supporting reasons were provided, the Panel's findi ng appears to have followed from its perception 
that the data concerning actual and projected deliv eries of Boeing LCA were sufficient to supply a 
basis for that finding.  We observe, however, that , in each of these third-country markets, Boeing's 
market share remained at 100% over all the periods  considered by the Panel, even though the number 
of annual deliveries fluctuated.  The data for I celand cover only the years 2010 and 2011, and Boeing 
deliveries remained stable at two per year, which, by any measure, cannot constitute a trend .  The data 
for Kenya relate to the years 2001, 2010, 2011, and 2012.  There were three deliveries in 2001, two 
projected for 2010, four projected for 2011, and three projected for 2012.  We do not consider that this 
represents a clear trend either.   
1088.  The picture for Ethiopia is more mixed.  There was one delivery per year from 2003 through 
2009 (with the exception of 2006, when there were none).  Projected deliveries rose to three for 2010, 
two for 2011, and three for 2012.  Although there was an increase in the number of deliveries in 
Ethiopia from 2009 to 2010, and this increase was proj ected to be sustained in the following years, 
                                                      
2234Appellate Body Report, EC and certain member States – Large Civil Aircraft , footnote 2548 to 
para. 1161 (referring to 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).  
2235Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1161.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 454 HSBI omitted, as indicated [[HSBI]]  
 
  deliveries were projected to fluctuate between tw o and three for 2011 and 2012.  We are not entirely 
convinced that this is a clear trend.  
1089.   Consequently, we consider that the data are in sufficient to demonstrate "clear trends" in any 
of the third-country markets concerned, as required by Article 6.4 of the SCM Agreement .  Moreover, 
the Panel did not provide a specific explanation or reasoning as to how it reached its finding of a 
threat of impedance.  For these reasons, we are unabl e to sustain the Panel's finding of a threat of 
displacement and impedance of expor ts of Airbus LCA with respect to  the three relevant third-country 
markets. 
1090.  Based on the above analysis, we reject the United States' appeal that the Panel erred by failing 
to identify and establish third-country "markets" in Iceland, Kenya, and Ethiopia within the meaning 
of Article 6.3(b) of the SCM Agreement .  However, we reverse  the Panel's finding that there was a 
threat of displacement and impedance in those same third-country markets.
2236 
(c) Significant price suppression 
1091.  The United States advances three separate arguments as to why the Panel's finding of price 
suppression should be reversed.  Before turning to these arguments, we recall that the Appellate Body 
has provided the following definition of price suppression:  
"{P}rice suppression " refers to 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.  Price depression  refers to the 
situation where "prices" are pressed down, or reduced.
2237 (original 
emphasis) 
1092.  Price suppression is therefore concerned with "whether prices are less than they would 
otherwise have been in con sequence of … the subsidies".2238  For this reason, a counterfactual 
analysis is likely to be of particular utility for pa nels faced with claims that subsidies have caused 
price suppression. 
                                                      
2236We recall that the United States has not appealed th e Panel's finding of a threat of displacement and 
impedance of Airbus LCA in Australia.  
2237Appellate Body Report, US – Upland Cotton , para. 423 (quoting Panel Report, US – Upland Cotton  
para. 7.1277).  Like the panel in US – Upland Cotton , we use the term "price suppression" to refer both to an 
actual decline (which otherwise would not have declined , or would have done so to a lesser degree) and an 
increase in prices (which otherwise would have increas ed to a greater degree). (Appellate Body Report, US – 
Upland Cotton , para. 423;  Panel Report, US – Upland Cotton , footnote 1388 to para. 7.1277)  
2238Appellate Body Report, US – Upland Cotton  (Article 21.5 – Brazil) , para. 351.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 455  
 
  1093.  Turning to this dispute, we recall briefly th e claims made by the European Communities to 
the Panel.  In its first written submission, the European Communities set out its arguments with 
respect to the alleged significant price suppression of the A330 family separately from its arguments 
with respect to the alleged significant price suppression of the A350 family (including both the 
Original A350 and the A350XWB-800), and explaine d that the aeronautics R&D subsidies affected 
these two LCA families "somewhat differently".
2239 
1094.  The main difference between the evidence that the Europ ean Communities submitted with 
respect to the A330 family and to the A350 fa mily was that, for the A330 family alone, the 
European Communities submitted a chart reflecting actual data on annual A330 orders and indexed 
prices-per-seat for that aircraft from 2000 through 2006.2240  Another difference was that, because the 
Original A350 was not launched until 2005, th e European Communities used a two-year 
(2005-2006)2241 rather than a three-year (2004-2006) refe rence period for the A350 family.  Overall, 
however, there were many common elements in  the arguments and evidence submitted by the 
European Communities to prove that the prices of  the A330 and A350 families had been suppressed.  
First, the European Communities based both of its price suppression arguments on the alleged effects 
of all of the subsidies at issue, rather than on th e effects of the aeronautics R&D subsidies alone.  
Second, the European Communities adduced, as ev idence of price suppression for both the A330 and 
the A350 families, evidence relating to:  (i) the natu re of the subsidies;  (ii) the magnitude of the 
subsidies (as calculated by the International Trade Resources LLC (the "ITR"));  (iii) the estimated 
price effects of the subsidies (as calculated in  part in the report by Professor Luís Cabral2242 (the 
"Cabral Report"));  (iv) the conditions of comp etition in the 200-300 seat LCA market;  and (v) the 
results of a number of specific sales campaigns ( as set out in Annex D to the European Communities' 
first written submission to the Panel).2243   
1095.  The evidence and arguments relating to each of these five elements were broadly similar or 
even identical (in particular the conditions of competition in the 200-300 seat LCA market for both 
the A330 and A350 families).  The European Commun ities provided additional empirical information 
with respect to the A330 family in the form of  charts mapping the counterfactual A330 prices that 
would have prevailed absent the subsidies:  assu ming that the full per-aircraft subsidy magnitude 
                                                      
2239European Communities' first written submission to the Panel, para. 1387. 
2240European Communities' first written submission to the Panel, para. 1389 and graph provided at 
Figure 30 (BCI) to para. 1389.  The European Communities also submitted a graph (BCI) reflecting actual data 
on 200-300 seat LCA orders and in dexed prices-per-seat from 2000 through 2006. (European Communities' 
response to Panel Question 306, para. 784, Figure 3)  
2241See European Communities' first written submission to the Panel, para. 1409.  
2242Professor L.M.B. Cabral, "Impact of Development Subsidies Granted to Boeing" (New York 
University and CEPR, March 2007) (Panel Exhibit EC-4). 
2243European Communities' first written submission to the Panel, para. 1409.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 456 HSBI omitted, as indicated [[HSBI]]  
 
  calculated by the ITR was used by Boeing to lower its 787 pricing;  and absent the price effects of the 
subsidies, as calculated in part in the Cabral Re port.  Although no such information was provided for 
the Original A350, the European Communities' argume nts under the fifth factor, relating to the results 
of specific sales campaigns, were more elaborated for the A350 family than for the A330 family.   
1096.  In support of its claims of price suppression with  respect to both the A330 and A350 families, 
the European Communities set out the details of th ree LCA sales campaigns in Annex D.  The sales 
campaigns in question, which were all concluded in 2005, involved the International Lease Finance 
Corporation ("ILFC"), CIT Group, and Air Europa.
2244  The European Communities relied on two of 
these campaigns as evidence of price suppression of both the A330 and the A350 families;  and on 
one of them as evidence of price suppression of the A350 family alone.  More specifically:  
- [      * * *  
   
      2245   
      * * *            
2246] 
- [      * * *  
     
2247   
      * * *  
     .2248   
      * * *    
2249] 
- [ 
      * * *  
 
   2250] 
                                                      
2244Panel Report, footnote 3411 to para. 7.1622. 
2245European Communities' first written submission to the Panel, Annex D (BCI version), para. 99. 
(footnote omitted) 
2246European Communities' first written submission to the Panel, Annex D (BCI version), para. 101. 
2247European Communities' first written submission to  the Panel, Annex D (BCI version), para. 83. 
2248European Communities' first written submission to  the Panel, Annex D (BCI version), para. 84. 
2249European Communities' first written submission to  the Panel, Annex D (BCI version), para. 92. 
2250European Communities' first written submission to  the Panel, Annex D (BCI version), para. 93.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 457  
 
  The total number of sales arising from these three sales campaigns during the reference period is 31 
Original A350s and four A330s. 
1097.  The vast majority of the arguments and ev idence submitted by the European Communities 
pertaining to the A350 family related only to the Or iginal A350.  With respect to price suppression of 
the A350XWB-800—which was not launched until  December 2006—the European Communities' 
claim was that the price suppression of the Origin al A350 in turn affected the pricing of the 
A350XWB-800 as [    *** 
    ***    ], and therefore the prices of the A350XWB-800 were also suppressed.
2251 
1098.  In its analysis of the European Communities'  price suppression claim, the Panel appears to 
have segmented its analysis between the various Ai rbus LCA models.  The evidentiary basis for the 
Panel's finding of price suppression differed for th e A330 and the Original A350.  As regards the 
A350XWB-800, the Panel made no findings as it c onsidered that the European Communities had 
presented no evidence as to the price trends for th at model, and no evidence concerning the actual 
pricing of that model in the context of specific LCA sales campaigns.2252  
1099.  As regards the A330, the Panel relied on da ta provided by the European Communities 
showing, inter alia , the evolution in the indexed prices-per-seat of the A330 for the period 2000-2006. 
Orders for 200-300 seat LCA vs. price per seat of A330 family LCA in constant dollars: 2000-2006 
 
    
     
 
    
 
   
  
Source :  Graph provided at Panel Report, para. 7.1782 (based on European Communities' response to 
Panel Question 306, para. 784, Figure 3 (BCI)).  The Panel noted that the pricing information here is 
based on Airbus proprietary data.  Order information is based on Aircla ims CASE Database, query as of 
19 January 2007 (Panel Exhibit EC-3). (Panel  Report, footnote 3719 to para. 7.1782) 
                                                      
2251European Communities' first written submission to the Panel, paras. 1408, 1409, and 1424.  In 
support if its argument, the European Communities relied on a statement by C. Scherer, Airbus SAS, 
"Commercial Aspects of the Aircraft Business from the Perspective of a Manufactur er" (March 2007) (Panel 
Exhibit EC-11 (BCI), para. 114. 
2252Panel Report, para. 7.1793. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 458 HSBI omitted, as indicated [[HSBI]]  
 
   
The Panel also compiled and presented order data with respect to the A330 and Original A350 
(combined) and the 767 and 787 (c ombined) to illustrate the global market share for these LCA orders 
in the period 2000-2006.  
Table 6.  Market share in the 200-300 seat wide -body LCA market (based on order data):  2000-2006  
Year Airbus  
A330 and 
Original A350 Airbus  
market share Boeing  
767 and 787 Boeing  
market share 
2000 95 91% 9 9% 
2001 52 57% 40 43% 
2002 24 75% 8 25% 
2003 49 82% 11 18% 
2004 51 46% 59 54% 
2005 129 34% 251 66% 
2006 117 40% 173 60% 
Source :  Table provided at Panel Report, pa ra. 7.1783 (referring to data compiled from Airclaims CASE Da tabase, query as 
of 19 January 2007, 2004-2006 Orders (Panel Exhibit EC-1287) an d Airclaims CASE Database, query as of 19 January 2007 
(Panel Exhibit EC-3)). 
 
1100.  Based on this evidence, the Panel noted that: 
{the} erosion of the dominance of the A330 in {the 200-300 seat 
LCA} product market coincides with the introduction of the 787 in 2004.  The evidence concerning the pricing trends for the A330, combined with the market share data, are consistent with what we would expect to occur from the introduction of a technologically-
superior aircraft, offering opera ting cost advantages over older-
technology aircraft, for around the same price.  Clearly, one would expect that prices of the A330 would fall, and that it would lose market share, even in the face of significantly increased demand in 
that product market.
2253 (footnote omitted) 
1101.  In concluding that there was significant price suppression in the 200-300 seat LCA market, 
the Panel also relied on evidence from the three sales campaigns detailed in Annex D.2254  The Panel 
noted that, for "certain sales campaigns", Airbus had been able to secure sales by offering [     ***      
   ***   ] in order to offset the technological  advantages and operating cost savings offered by 
the 787.2255  The Panel was therefore "satisfied" that th e technologies applied to the 787 resulted in an 
aircraft that offered substantial ope rating cost reductions to customers, and that the combination of the 
superior technology and lower operating costs of th e 787 "clearly affected the comparative value of 
                                                      
2253Panel Report, para. 7.1785.  
2254See supra , bullet points at para. 1096. 
2255Panel Report, para. 7.1792.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 459  
 
  Airbus' A330 and Original A350, leav ing Airbus no other option but to reduce the prices of its aircraft 
in order to compete".
2256  The Panel also highlighted that the evidence concerning the degree of price 
concessions that Airbus offered in order to secure sal es of its A330 and Original A350 indicated that a 
further effect of the aeronautics R&D subsidies was "significant" price suppression with respect to the 
A330 and Original A350.2257 
(i) The United States' Appeal 
1102.  The United States seeks reversal of what it characterizes as "three findings" made by the 
Panel with respect to significant price suppression, na mely:  (i) that an effect of the aeronautics R&D 
subsidies is significant price suppression with regard to the A330 in the world market;  (ii) that an 
effect of the aeronautics R&D subsidies is signifi cant price suppression with regard to the Original 
A350 in the world market;  and (iii) that an eff ect of the aeronautics R&D subsidies is significant 
price suppression with regard to Airbus 200-300 seat LCA.2258   
1103.  As a preliminary matter, we are not persuaded that the United States is correct by referring to 
"three" Panel findings.  The ultimate conclusion that the Panel reached was that "the effect of the aeronautics R&D subsidies is … significant price suppr ession, within the meaning of Article 6.3(c) of 
the SCM Agreement with respect to" the 200-300 seat LCA market.
2259  This finding was in turn 
based on the Panel's conclusion th at the evidence before it showed that "the aeronautics R&D 
subsidies contributed in a genuine and substantia l way to Boeing's development of technologies for 
the 787 and that, as a result, but for  the effects of these subsidies … prices of the A330 and the 
Original A350 in the 2004 to 2006 period would have been significantly higher, and to that extent, Airbus would not have suffered significant pr ice suppression in the 200-300 seat wide-body LCA 
product market, within the meaning of Article 6.3(c) of the SCM Agreement."
2260  Although, as 
described above, the evidence that the Panel relied upon with respect to A330 prices was not entirely 
coextensive with the evidence reli ed upon with respect to the Original A350 prices, we do not see 
that, as the United States seems to suggest, the Pa nel made separate findings with respect to A330 
prices, on the one hand, and Original A350 prices, on the other hand.  In any event, we consider each 
of the three arguments presented by the United States on this ground of appeal. 
                                                      
2256Panel Report, para. 7.1792. (footnote omitted) 
2257Panel Report, para. 7.1792.  The Panel noted that Airbus sold the Original A350 to one customer for 
significantly less than it had sold the A330 to that same customer several years earlier. ( Ibid., footnote 3733 
thereto (referring to European Comm unities' second written submission to the Panel, Full Version HSBI 
Appendix, para. 71))   
2258United States' other appellant's submission, para. 314.  
2259Panel Report, para. 7.1797;  see also para. 8.3(a)(i). 
2260Panel Report, para. 7.1794. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 460 HSBI omitted, as indicated [[HSBI]]  
 
  (ii) Whether the Panel improperly relied on a perceived 
coincidence between the 2004 launch of the 787 and a decline of prices for the A330 
1104.  The United States argues that, in its analysis of price suppression, the Panel improperly relied 
on a perceived coincidence between the launch of  the 787 in 2004, and a decline in A330 prices 
during the reference period.  The United States asserts  that there is no such correlation.  Although its 
arithmetic is correct, the Panel failed to look "more rigorously" at the evolution of these trends, which 
reveals "no discernible correlation" between the 787's presence in the market and the A330 prices.
2261  
Relying on the A330 pricing and market  share data set out by the Panel2262, the United States argues, 
for instance, that: 
- the A330's share of the market for 200-300 seat LCA in 2004 declined by 36%  from 2003 as 
the 787 attained a significant market presence upon its introduction.  Yet, A330 order prices 
[           ***            ]; 
- Airbus' market share declined to a far lesser  extent in 2005 from 2004, yet A330 prices 
[                 ***                  ].  The difference in 2005 that explains these developments is that Airbus marketed the Original A350 [          ***          ];  and 
- Airbus' market share in 2006 increased by 6% from 2005, yet A330 prices [      ***      ].  
Considering that the 787's market share had decreas ed to within 6% of its 2004 level, this can 
be explained on the basis that Airbus was offering [                 ***                  ] the Original A350.
2263   
1105.  The European Union responds on appeal that th e United States seeks to reargue the facts by 
focusing on discrete data points rather than clear trends over time.  The European Union argues that 
an examination of the evidence as a whole demons trates that there is a direct correlation between 
the 787 launch and the drop in A330 prices.2264  The European Union a dds that, even accepting the 
United States' focus on isolated data  points, its arguments cannot succeed.2265  In this regard, the 
European Union explains that the launch of the 787 in April 2004 had no [           ***           ] impact 
on A330 prices in 2004, because the 787 first needed  to gain the confidence of the market and 
                                                      
2261United States' other appellant's submission, para. 302. 
2262See supra , para. 1099.  
2263United States' other appellant's submission, para. 302 (referring to Panel Report, paras. 7.1782 
and 7.1783;  and C. Scherer, Airbus SAS, "Commercial Aspects of the Aircraft Business from the Perspective of 
a Manufacturer" (March 2007) (Panel Exhibit EC-11 (BCI)), paras. 101-104 and 106). 
2264European Union's appellee's submission, para. 468. 
2265European Union's appellee's submission, para. 470.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 461  
 
  potential buyers that the 787's composite structure was indeed as good as advertised by Boeing.
2266  
Once Boeing had successfully convinced customers of th e significant operating cost advantages of the 
composite 787, A330 prices in 2005 and 2006 [             ***             ].  According to the 
European Union, the launches of the Original A350 and the A350XWB-800 were responses to that 
fundamental cause of the price effects, not independent causes of [***] A330 prices.2267 
1106.  We understand the United States to suggest that , in order to draw conclusions about the 
existence of price suppression, the Panel was require d to establish a direct and continuous correlation 
between the 787's share of the market in the refe rence period and the A330 prices during these years.  
In this regard, the United States refers to specifi c figures relating to the 787's market share and A330 
prices during the reference period, which it explains on  the basis of reasons other than those given by 
the Panel in reaching its conclusion.   
1107.  We note that the Panel drew its conclusions about the effects of the 787 on A330 prices on the 
basis of the overall  trends demonstrating erosion of Airbus' market share as compared with the 
preceding four years, together with decreases in the (indexed) A330 prices during the reference 
period.  According to the Panel: 
{t}he … market share figures show the rather dramatic erosion of 
Airbus' market share in the 2004 to 2006 period, compared with the 
2000 – 2003 period.  This erosion of the dominance of the A330 in this product market coincides with the introduction of the 787 in 2004. The evidence concerning the pricing trends for the A330, 
combined with the market share data,  are consistent with what we 
would expect to occur from the introduction of a technologically-
superior aircraft, offering opera ting cost advantages over older-
technology aircraft, for around the same price.   Clearly, one would 
expect that prices of the A330 would fall, and that it would lose market share, even in the face of significantly increased demand in 
that product market.
2268 (footnote omitted;  emphasis added) 
1108.  From the above quote, it is clear that the Panel considered the relevance of the trends in the 
light of its economic logic, which dictated that the introduction of a superior product at comparable 
prices would normally be accompanied by decreases in prices of the incumbent competing product. 
1109.  Elsewhere in its analysis, the Panel explained why the A330 prices could be expected to, and 
did, fall upon the introduction of the 787, namely, th at "the combination of the superior technology 
and lower operating costs of the 787 clearly aff ected the comparative value of Airbus' A330 …, 
                                                      
2266European Union's appellee's submission, para. 470 (referring to European Communities' first written 
submission to the Panel, Annex C, paras. 22-25). 
2267European Union's appellee's submission, para. 470.  
2268Panel Report, para. 7.1785.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 462 HSBI omitted, as indicated [[HSBI]]  
 
  leaving Airbus no other option but to reduce the prices of its aircraft in order to compete".
2269  The 
United States does not dispute this economic logic and line of reasoning employed by the Panel.  We 
consider that the Panel's explanation of the inferences and conclusions that it drew from the 
movements in A330 prices over the reference period, following the launch of the 787, in the light of 
the strong surge in demand and Boeing's increasing market  share, are consistent with and find a basis 
in the evidence.   
1110.  Furthermore, we do not see any basis for the United States' assertion that the Panel was 
required to attach decisive weight to specific data points in particular years of the reference period 
that, when viewed in isolation, appear to be at  odds with the Panel's economic reasoning and with the 
data taken as a whole.  The Panel set out its theo ry as to how the entry of the 787 into the market 
affected competing LCA, which the United States does not contest on appeal.  The Panel tested its 
theory against the evidence before it.  As we see it, the Panel provided a coherent and reasoned 
explanation of how the evidence of market share a nd price trends, both within  the reference period, 
and as compared to the preceding period, supporte d and confirmed its theory of causation.  The 
United States argues that there is no "discernible correlation"2270 between the 787's market presence 
and the A330 prices by comparing A330's 36% decrease in market share from 2003-2004 with the 
much [            ***            ] in A330 prices during those years.  Yet, the fact that the A330 prices were not affected immediately by the launch of the 787,  or did not drop to the same degree as Airbus' 
market share declined, may well reflect the fact th at Airbus did not change its pricing strategy 
immediately upon the introduction of the 787, but did so with a time-lag, and only after appreciating 
the extent of the market share acquired by Boeing.  The United States also argues that Airbus' market 
share declined to a far less  extent in 2005 from 2004 than in the previous year, yet A330 prices 
[             ***              ].  Similarly, the United States argues that in 2006 A330 prices [    ***    ] even though Airbus' overall share of the 200-300 seat LCA market increased by 6% from 2005, and the 
share of that market held by the 787 decreased by 6% from what it had been in 2004.  As we see it, 
the [             ***             ] in th e A330 prices between 2005 and 2 006 may explain why Airbus was 
able to recover some market share.  Moreover, the United States does not explain why the temporary loss of market share within an overall trend of si gnificantly increasing market share or the extent of 
the decrease in A330 prices means that the Panel coul d not properly have concluded that the effect of 
the aeronautics R&D subsidies was significant price suppression.   
                                                      
2269Panel Report, para. 7.1792.  
2270United States' other appellant's submission, para. 302.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 463  
 
  1111.  Even accepting that the eviden ce of market share and price trends referred to by the 
United States do not support the Panel's reasoni ng—which we do not necessarily agree is so—we do 
not consider that the points of criticism raised by the United States undermine the Panel's theory or 
analysis of the evidence in its totality, or estab lish that the Panel coul d not have reached the 
conclusion that it did.  Moreover, the arguments ma de by the United States on appeal take no account 
of the broader data set or of the clear and steep decline in Airbus market share [          ***          ] 
during the reference period, as compared to the 2000-2003 period.
  
1112.  Finally, and in any event, we note that these ar guments of the United States seek to have us 
draw different inferences from the data than the Pane l did.  The reasons offered by the United States 
for the movements in A330 prices may not be unreasona ble inferences to be drawn from the data;  yet, 
we cannot, for this reason alone, substitute them fo r the Panel's own appreciation of the evidence and 
reasoning over the facts before it.  Accordingly,  we see no basis upon which to interfere with the 
Panel's finding.  We also note that no claim by the United States has been raised under Article 11 of 
the DSU.  
1113.  For these reasons, we do not consider that the conclusions drawn by the Panel from the data 
concerning the 787 market share and the A330 prices during the reference period are in error or 
indicate that the Panel erred in concluding that the effect of the aeronautics R&D subsidies was 
significant price suppression in the 200-300 seat LCA market. 
(iii) Whether the Panel's findings are insufficient to support 
conclusions about overall pricing levels for the Original A350 
1114.  Second, the United States asser ts that the Panel's finding of price suppression for the 
Original A350 must be reversed because, with "no pricing data of any kind" and "anecdotal evidence" 
that covered "barely 30%" of sales of the Or iginal A350 in the 200-300 seat LCA market, the 
evidence is insufficient to support any conclusion about overa ll pricing levels.
2271  I n  t h e  
United States' view, the absence of "critical pieces of information" reflects, in the first place, a failure 
by the European Communities to establish a prima facie  case.2272  The United States also argues that 
the information relied upon by the Panel does not e xplain what happened with Original A350 pricing 
in the majority of sales of that aircraft, and that it is therefore impossible to infer that Original A350 
prices were suppressed or that the degree of price suppression was "significant".2273   
                                                      
2271United States' other appellant's submission, para. 304.  
2272United States' other appellant's submission, para. 304.  
2273United States' other appellant's submission, para. 310.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 464 HSBI omitted, as indicated [[HSBI]]  
 
  1115.  The European Union responds that, in order to establish a prima facie  case, it was not 
required to present the level of detailed prici ng information for the Original A350 that the 
United States demands.  In any event, the European  Union asserts that it did present evidence of total 
Original A350 prices in the context of its lo st sales and price suppression sales campaign evidence.
2274  
In addition, the European Union argues that, wherea s the Panel's detailed analysis of A330 prices was 
important—because it confirmed the [     ***      ] impact of the 787 launch on those prices—for other 
Airbus models (the Original A350 and A350XWB -800), such evidence was less important, because 
the effect of the aeronautics R&D subsidies, through the launch of the 787, would not be as visible 
given that those Airbus models were launched only after  the 787.2275  As prices for these two types of 
aircraft were never unaffected by the existence of  the 787, precise pricing information would not have 
revealed the price effects of the aeronautics R&D subsidies.   
1116.  Here, we understand the United States to argue th at the Panel did not have a sufficient basis 
on which to base a finding of price suppression with r espect to the Original A350, and to suggest that 
the Panel was required to rely on price trend  data for the Original A350 to reach such a finding.  We 
disagree.  We recall that, in contrast to its reasoni ng with respect to the A330, the Panel did not refer 
to pricing trend data in its reasoning with respect to  the Original A350.  Rather, the Panel noted that 
the European Communities had identified "certain sa les that Airbus was able to secure by offering 
[              ***             ] in order to offset the technological advantages and operating cost savings offered by the 787".
2276  It appears from the evidence submitte d by the European Communities to the 
Panel that the Panel was referring to the three sal es campaigns involving the ILFC, CIT Group, and 
Air Europa.2277  As we noted above, the total number of orders of the Original A350 resulting from 
these sales campaigns was 31.  The United States notes that these sales account for 30.4% of the total 
number of Original A350 sales during the reference period (given that the total number of sales of Original A350s during that time was 102).
2278  In our view, evidence from sales campaigns accounting 
for about one third of Original A350 sales dur ing the reference period constitutes direct and 
sufficiently representative evidence of what was happening to the prices of the Original A350 during 
the reference period.  We see no reason why evidence relating to such sales could not, in this market, 
supply a sufficient basis upon which the Panel coul d conclude that there was price suppression with 
respect to the Original A350. 
                                                      
2274European Union's appellee's submission, paras. 471 and 477.  
2275The European Union notes that Airb us started offering the Original  A350 in December 2004 and the 
A350XWB in July 2006. (European Union's appellee's submission, para. 476 and footnote 933 thereto (referring 
to Panel Report, paras. 4.279 and 4.280))   
2276Panel Report, para. 7.1792.  
2277See supra , para. 1096. 
2278See United States' other appellant's submission, para. 310.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 465  
 
  1117.  Turning to the United States' assertion that the Pa nel was required to have before it price trend 
data in order to conclude that there was price suppression for the Original A350, we note that the 
United States relies upon a statement by the Appellate Body in US – Upland Cotton  that "{a}n 
assessment of 'general price trends' is clearly rele vant to significant price suppression (although, as the 
{p}anel itself recognized, price trends alone are not conclusive)."
2279  Yet this statement itself shows 
that, while the Appellate Body has found price trend data relevant, it has also declined to deem such 
evidence conclusive of the existence of pri ce suppression.  Moreover, we agree with the 
European Union that the Appellate Body's statement in US – Upland Cotton  that general price trends 
are "clearly relevant" was a function of the particul ar counter-cyclical and pric e-contingent nature of 
the subsidies at issue in that dispute.2280  Finally, we see some merit in the argument of the 
European Union that pricing trends for the Origin al A350 would not have been particularly probative 
in this dispute given that prices for the Original  A350 were never unaffected by the existence of 
the 787.  Since the Original A350 was launched in  a market where the effects of the subsidies 
—through the presence of the 787—were already being felt, any subsequent price trends would not 
have been particularly probative as to the effects on Airbus prices of the aeronautics R&D 
subsidies.2281   
1118.  The United States further argues that the eviden ce relied on by the Panel with respect to the 
Original A350 fails to demonstrate that any price suppression was "significant".2282  W e  n o t e  t h e  
Panel's explanation that the "degree of price concessi ons" that Airbus had to offer to secure sales of 
the A330 and Original A350 meant that a furthe r effect of the aeronautics R&D subsidies was 
significant price suppression.2283  The United States does not appeal this aspect of the Panel's finding, 
and we find no error in this finding of the Panel,  which was based on the sales campaign evidence set 
out in Annex D to the European Co mmunities' first written submission. 
                                                      
2279United States other appellant's submission, para. 306 (quoting Appellate Body Report, US – Upland 
Cotton , para. 434).  
2280Because the amount of the cotton subsidies increased  with falling world prices, tracking price trends 
was of particular relevance in understanding the pric e suppressive effects of subsidization granted to the 
US cotton industry. (See European Union's appellee's submission, paras. 472-474) 
2281European Union's appellee's submission, para. 476.  
2282United States' other appellant's submission, para. 310.  We have noted above that the Appellate 
Body has understood "significant" to mean "important, notable or consequential", and that an assessment of that term has both quantitative and qualitative dimensions. ( Supra , para. 1052) 
2283Panel Report, para. 7.1792.  In an accompanying footno te to its finding, the Panel noted that Airbus 
sold the Original A350 to one customer for significantly less than it had sold the A330 to that same customer several years earlier. ( Ibid., footnote 3733 thereto (referring to European Communities' second written 
submission to the Panel, Full HSBI Appendix, para. 71))  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 466 HSBI omitted, as indicated [[HSBI]]  
 
  1119.  For these reasons, we reject the United States' re quest to reverse the Panel's finding that the 
aeronautics R&D subsidies caused significant pr ice suppression in the 200-300 seat LCA market 
because of the alleged insufficiency of pr icing data concerning the Original A350. 
(iv) Whether the Panel was required, but failed, to determine the 
existence of significant price suppression for the product as a whole 
1120.  The final argument of the United States is that the Panel was required, but  failed, to determine 
the existence of significant price suppression for the product "as a whole".
2284  In support, the 
United States recalls that the panel in Korea – Commercial Vessels  observed that Article 6.3(c) of the 
SCM Agreement  does not require a panel to assess price suppression by examining each model 
comprising the complaining Member's product but it do es require that the ultimate conclusion relate 
to the complaining Member's product as a whole.2285  The United States argues that the "product in 
question" consists of all three of the 200-300 seat Airbus models identified by the 
European Communities:  the A330, Original A350,  and A350XWB-800.  Accordingly, "a finding in 
favour of the {European Union} … would be valid only if the effect of the subsidy is significant price 
suppression generally for Airbus 200-300 seat aircraft."2286  The United States observes, however, that 
the Panel chose to examine prices on a model basis and made findings that were based on actual 
prices for only one model (that is, the A330), which acc ounted for about two thirds of Airbus' sales in 
the 200-300 seat LCA market.   
1121.  The European Union responds that the Pa nel properly found price suppression based on 
detailed pricing information for the A330, and some pricing information for the Original A350.  With 
respect to the A350XWB-800, the European Union poi nts out that, since that aircraft was launched 
only in 2006, the Panel would have  been able to assess only a single data point, which would have 
been of limited relevance.2287 
1122.  First, we observe that, in support of its argum ent, the United States relies on a finding of the 
panel in Korea – Commercial Vessels .2288  In particular, it refers to a statement by the panel that, in an 
assessment of the existence of a causal relationship between the subsidy and the movements in prices 
of products of concern to the complaining party, a "main focus of the analysis would be levels and 
trends in the price for the product in question, as a whole, in the relevant market (i.e., 'the same 
                                                      
2284United States' other appellant's submission, paras. 312 and 313.  
2285United States' other appellant's submission, para. 312 (referring to Panel Report, Korea – 
Commercial Vessels , para. 7.557). 
2286United States' other appellant's submission, para. 313.  
2287European Union's appellee's submission, para. 478.  
2288United States' other appellant's submission, para. 312.    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 467  
 
  market'), as a whole, and th e various reasons behind them."
2289  We are not entirely persuaded of the 
United States' interpretation of the panel's reasoning in Korea – Commercial Vessels , nor, for that 
matter, of whether that panel's reasoning should be  applied outside the particular facts of that 
dispute.2290   
1123.  Even assuming, however, that a finding of price suppression should have been made for 
Airbus' "product as a whole" in the 200-300 seat LC A market, we do not see any error in the Panel's 
approach in this dispute.  It is true that the Panel's ultimate finding of price suppression was based 
upon its analysis of the A330 and the Original A350 , and not upon evidence as to price effects on the 
A350XWB-800.  However, the United States does not  point to any evidence on the Panel record 
suggesting that the sales or the price levels of the A350XWB-800 during the re ference period were so 
significant that, had they been taken into account, they would have prevented the Panel from reaching 
the finding that it did on the basis of its examinati on of A330 and Original A350 prices.  Indeed, the 
Panel noted that the A350XWB-800 was not launched until the very end of the reference period, in 
December 20062291, and thus was not present in the relevant  market for virtually the entirety of the 
reference period.2292  We fail to see, and the United States do es not explain, how consideration of the 
A350XWB-800 could have altered the Panel's analysis of, or findings  regarding, price suppression in 
the 200-300 seat LCA market.   
1124.  Second, the European Communities submitted price trend data in respect of all sales of the 
A330 during the reference period.  According to th e United States' own estimates, sales of the A330 
accounted for 65.7% of total sales of Airbus aircraft during that time.2293  Moreover, as we have 
explained above, the Panel's ultimate finding was not based exclusively on sales data for the A330, 
but also on data relating to certain sales involving th e Original A350. We have already determined the 
data relied on by the Panel for the Original A350 to be sufficient.  Thos e data comprised sales 
campaign evidence with respect to the Original A350, accounting for 30.4% of total Original A350 
sales, or 10.4% of overall Airbus orders for 200-300 seat LCA during the reference period.2294  Taken 
                                                      
2289Panel Report, Korea – Commercial Vessels , para. 7.557.  
2290We note, for example, that in US – Upland Cotton  the Appellate Body found that the panel had not 
erred in examining only world cotton prices in general,  and in not separately examining the prices of the 
complainant in the world market. (Appellate Body Report, US – Upland Cotton , paras. 416-418) 
2291Panel Report, para. 7.1777.  
2292The Panel noted that, in December 2006, Airb us announced the launch of the redesigned 
A350XWB programme, first deliveries of which were scheduled to be made in 2013. (Panel Report, 
para. 7.1777)  
2293United States' other appellant's submission, para. 313 (referring to Panel Report, para. 7.1783 and 
Airclaims CASE Database, query as of 19 January 2007 (Panel Exhibit EC-3)).  The United States asserts that, 
of the 297 total sales of the A330 and Original A350 in the reference period, there were 195 orders for the A330. 
2294The 31 orders for the Original A350 accounted for 10.4% of the total 297 Airbus orders during the 
reference period. (See United States' other appellant's submission, para. 310 and footnote 486 to para. 313) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 468 HSBI omitted, as indicated [[HSBI]]  
 
  cumulatively, the pricing data for the A330 and Or iginal A350 considered by the Panel would account 
for roughly three quarters of Airbus' sales in th e 200-300 seat LCA market during the reference 
period.
2295  We therefore cannot accept the United States' argument that the Panel failed to undertake a 
price suppression analysis in the 200-300 seat LCA market that related to Airbus' "product as a 
whole". 
1125.  For the above reasons, we do not agree with th e United States that the Panel erred in its 
treatment of the evidence concerning the prices of Airbus LCA in the 200-300 seat LCA market, and 
in concluding overall that the effect of the aerona utics R&D subsidies is significant price suppression 
with respect to the 200-300 seat LCA product market.2296 
(d) Conclusion 
1126.  We have found that, in its analysis of the t echnology effects of the aeronautics R&D subsidies 
in the 200-300 seat LCA market, the Panel did no t err in its interpreta tion and application of 
Articles 5(c) and 6.3 of the SCM Agreement  by finding that the aeronautics R&D subsidies 
contributed in a genuine and substantial way to Boeing's development of technologies for the 787.  
We have further found that the United States has not established that th e Panel erred in its 
counterfactual analysis of the effects of the aeronautics R&D subsidies on Boeing's or on Airbus' 
prices and sales.  We have found no reason to disturb the Panel's findings that the effects of the 
aeronautics R&D subsidies are significant lost sales and significant price suppression within the 
meaning of Article 6.3(c) of the SCM Agreement .  With respect to the Panel's finding of a threat of 
displacement and impedance within th e meaning of Article 6.3(b) of the SCM Agreement , we have 
found that the Panel did not err in failing to est ablish separately the existence of "third-country 
markets" with respect to Kenya, Iceland, and Ethiop ia, and did not, in reaching that finding, contradict 
its own articulation of the meaning of an LCA "mar ket".  We have neverthe less reversed the Panel's 
finding that the aeronautics R&D subsidies caused a threat of displacement and impedance of 
EC exports, to the extent that such finding relates to  the third-country markets of Kenya, Iceland, and 
Ethiopia (but not insofar as it relates to Australia ), because the Panel did not identify clear trends 
demonstrating such a threat. 
1127.  For these reasons, we modify and uphold  the Panel's overall conclusi on, in paragraphs 7.1797, 
7.1854(a), and 8.3(a)(i) of the Panel Report, th at the aeronautics R&D subsidies, through their 
technology effects, caused serious prejudice to the interests of the European  Communities within the 
                                                      
2295As the European Union points out, given that  the A350XWB-800 was launched only in December 
2006 (the end of the reference period), the Panel would ha ve been able to assess only one single data point for 
that model. (See European Union's appellee's submission, para. 478) 
2296Panel Report, para. 8.3(a)(i).   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 469  
 
  meaning of Article 5(c) and Article 6.3(b) and (c) of the SCM Agreement with respect to the 200-300 
seat LCA market. 
C. Article 11 of the DSU 
1128.  We now turn to the European Union's claim that the Panel failed to conduct an objective 
assessment of the matter as required under Article 11 of the DSU.  In particular, the European Union 
contends that the Panel failed to ensure due process in finding, in paragraph 7. 1701 of its Report, that, 
save for the ManTech and DUS&T programmes, there was insufficient evidence to determine whether 
the USDOD RDT&E programmes funded "predominan tly" assistance instruments, as opposed to 
procurement contracts, or a mixture of assistance instruments and procurement contracts. 
1129.  Before proceeding to our analysis of the European Union's arguments, we lay out the 
background against which the Panel reached this findi ng in paragraph 7.1701 of  its Report.  In its 
analysis of financial contribution regarding the USDOD RDT&E programmes, the Panel found that 
payments and access to facilities pursuant to USDOD procurement contracts  did not constitute 
financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement , whereas 
payments and access to facilities through USDOD assistance instruments  did constitute direct 
transfers of funds and provisions of goods or services under Article 1.1(a)(1)(i) and (iii), respectively.
2297  The Panel further found that at least two of the 23 USDOD RDT&E programmes at 
issue—namely, ManTech and DUS&T—were funded "primarily if not exclusively" through 
assistance instruments.2298  The Panel recalled these findings later in its analysis, in paragraph 7.1701, 
when it turned to assess whether the NASA and USDOD aeronautics R&D subsidies caused serious 
prejudice to the interests of the European Communities.   
1130.  In paragraph 7.1701 of its Interim Report, th e Panel recalled its findings that only assistance 
instruments, and not procurement contracts, were specific subsidies, and that two of the 23 USDOD RDT&E programmes—ManTech and DUS&T—"were f unded through cooperative agreements or 
other cost shared arrangements".
2299  As regards the other 21 USDOD RDT&E programmes, the Panel 
found that, given the absence of evidence necessary to determine which transactions between the 
USDOD and Boeing were made under assistance instru ments, as opposed to procurement contracts, it 
would not consider the assistance instrument s funded through these other 21 USDOD RDT&E 
programmes as part of its serious prejudice analysis .  Accordingly, the Pa nel conducted its adverse 
                                                      
2297Panel Report, para. 7.1171.  See Part VI of this Report. 
2298Panel Report, para. 7.1165.  The Panel also found that the ManTech and DUS&T programmes had 
the explicit objective of developing "dual-use" R&D, that is, technology that could be used both in military and in commercial aircraft. ( Ibid., paras. 7.1148 and 7.1740) 
2299Panel Interim Report, para. 7.1701, referring to para. 7.1148. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 470 HSBI omitted, as indicated [[HSBI]]  
 
  effects analysis relating to the USDOD RDT&E pr ogrammes only with respect to the ManTech and 
DUS&T programmes.
2300   
1131.  In its comments on the Interim Report, the Eu ropean Communities requested the Panel to 
expand its adverse effects analysis to all assist ance instruments funded through any of the USDOD 
RDT&E programmes at issue—and not only ManTech and DUS&T—because there was evidence on the record indicating which transactions under such  programmes were funded pursuant to assistance 
instruments.
2301  The European Communities therefore request ed the Panel to include in its adverse 
effects analysis " any of the challenged RDT&E {programmes} to the extent that the {programme} has 
funded assistance instruments with Boeing".2302  
1132.  In its Final Report, the Panel addressed th e comments that the European Communities had 
made at the interim review stage on the Panel's a pproach, and on its exclusion of all but two USDOD 
RDT&E programmes for purposes of its adverse effect s analysis.  In particular, the Panel recognized 
that the record included certain assistance instru ments funded through the other USDOD programmes, 
and stated that it would reformulate paragraph 7.1701 of its Report to clarify "that its serious 
prejudice evaluation includes assistance instruments funded under the ManTech and DUS&T 
programmes as well as under the 21 other programmes under the RDT&E Program".2303  In the final 
version of that paragraph, the Pane l identified "the need to ensure that it consider{ed} the effects only 
of those {USDOD} measures that it ha{d} found cons titute specific subsidies", notwithstanding that 
the European Communities had presented its serious  prejudice arguments "without distinguishing 
between effects which are attributable to proc urement contracts under {the USDOD} programmes and 
those which are attributable to assistance instruments".2304  Although the Panel acknowledged that 
there was some evidence on the record  of specific assistance instrume nts used to provide funding, it 
considered that, generally, there was insuffici ent evidence of the effects of those assistance 
instruments as distinct from the overall effects of the RDT&E programmes.  The Panel recalled, 
however, that it had found in paragraph 7.1 148 of its Report that the ManTech and DUS&T 
programmes "were predominantly funded through  cooperative agreements or other assistance 
                                                      
2300Panel Interim Report, para. 7.1701. 
2301The European Communities submitted that there was sufficient evidence on the record to enable the 
Panel to determine which transactio ns were USDOD procurement contracts and which were USDOD assistance 
instruments.  The European Communities further identified a large number of discrete assistance instruments on the record, and attached a chart setting out several of th ese USDOD assistance instrument s.  On this basis, the 
European Communities affirmed that "{a}ll of this information on the record makes clear that several 
{US}DOD RDT&E {programme} other than  the ManTech and DUS&T programmes funded assistance 
instruments with Boeing". (European Communities' comments on the Interim Report, p. 22 (original emphasis)) 
2302Panel Report, para. 6.117 (quoting European Communities' request for interim review, p. 24). 
(emphasis added by the Panel) 
2303Panel Report, para. 6.124. 
2304Panel Report, para. 7.1701.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 471  
 
  instruments", and considered that, for this reason, it was "highly likely that the effects of {those two} 
programmes pertain to the effects of assistance  instruments funded through those programmes".
2305  
The Panel, here, added the adverb "predominantly ", which had not appeared in the corresponding 
sentence of its Interim Report. 
1133.  The Panel, however, found itself unable to take  the same approach for the other 21 USDOD 
RDT&E programmes, that is, to assume that the effects of those programmes pertained to the effects 
of assistance instruments, as opposed to procurement contracts.  Rather, the Panel considered that 
there was "insufficient eviden ce on the record that those other RDT&E programmes funded 
predominantly assistance instruments".2306  Therefore, the Panel explained, the "end result is that the 
European Communities has not advanced sufficient argument or evidence regarding the effects of 
assistance instruments funded through RTD&E progra mmes other than in relation to the ManTech 
and DUS&T programmes".2307  In its subsequent analysis of the adverse effects of the USDOD 
DUS&T programmes, the Panel took account only of the ManTech and DUS&T programmes. 
1134.  On appeal, the European Union contends that, in setting out its "predominance" approach in 
paragraph 7.1701 of the Final Repor t, the Panel failed to ensure due process on two grounds.  First, 
the Panel's "predominance" approach, set out for the first time in the Final Report, could not have 
been anticipated and, conse quently, the European Communities did not have a "meaningful 
opportunity to respond to" this approach.2308  Second, the European Union argues that, despite 
recognizing that it had insufficient evidence to ascer tain the effects of assistance instruments alone, 
the Panel failed to seek the necessary information from the United States, even though the Panel was 
aware that the United States had consistently ignor ed the European Communities' requests to produce 
information that would have permitte d a contract-by-contract analysis.2309  For the European Union, 
the Panel was required, but failed, to direct inquiries to the United States under Article 13 of the DSU, 
                                                      
2305Panel Report, para. 7.1701. 
2306Panel Report, para. 7.1701.  
2307Panel Report, para. 7.1701. 
2308European Union's appellant's submission, para. 244 (quoting Appellate Body Report, US – 
Gambling , para. 273).  The European Union ar gues that, in the Interim Report, the Panel explained that the only 
reason for excluding all but two USDOD RDT&E programme s was the insufficient evid ence about whether they 
funded assistance instruments or procurement contracts.  In the Final Report, however, the Panel introduced a 
different approach, namely, that its analysis was co nfined to the ManTech and DUS&T programmes as those 
were the only programmes that " funded predominantly assistance instruments ". (Ibid., para. 246 (quoting Panel 
Report, para. 7.1701) (emphasis added by the European Union))  
2309European Union's appellant's submission, paras. 251 and 255. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 472 HSBI omitted, as indicated [[HSBI]]  
 
  and to draw adverse inferences from instances of  the United States' non-cooperation in disclosing 
relevant contracts.
2310 
1135.  In response, the United States argues that pa rties are not entitled to comment on a panel's 
revision to its interim report because, otherwise,  the interim review stage would turn into 
"a potentially indefinite cycle of comments and changes".2311  Moreover, the Panel's approach in 
paragraph 7.1701 was not "unexpected"2312 or "surprising"2313, because the European Communities 
had "early and clear notice", including through cer tain of the Panel's questions, that the USDOD 
RDT&E programmes funded different categories of c ontracting instruments and that such categories 
could be treated differently under Article 1 of the SCM Agreement .2314  The United States emphasizes 
that the Panel was not obliged, under Article 13 of th e DSU, to "develop information on behalf of the 
complaining party".2315  The United States further asserts that  it did not fail to cooperate with the 
information-gathering process2316 and the Panel did not fail to request necessary information from the 
United States.2317  Finally, the United States considers that the European Union "misunderstands" the 
Panel's adverse effects finding, in that the Panel did not imply that it needed more contracts to be placed on the record in order to permit it to make  findings with respect to more programmes, but, 
rather, that it lacked arguments and evidence from the European Communities "relating to the effects 
of the assistance instruments that the United States had placed on the record years earlier".
2318 
                                                      
2310European Union's appellant's submission, paras. 256 and 257.  While the European Union requests 
the Appellate Body to reverse the Panel's finding that the USDOD RDT&E programmes—other than ManTech and DUS&T—do not cause the same effects as the other R&D subsidies, the European Union states that it does 
not request the Appellate Body to complete the analysis. ( Ibid., para. 259) 
2311United States' appellee's submission, para. 223.  The United States further argues that, in any event, 
the European Communities had every opportunity to present arguments and evidence to support its prima facie 
case. ( Ibid., para. 226) 
2312United States' appellee's submission, para. 227 (quoting European Union's appellant's submission, 
para. 244). 
2313United States' appellee's submission, para. 227 (quoting European Union's appellant's submission, 
para. 247). 
2314United States' appellee's submission, para. 227 (quoting European Union's appellant's submission, 
paras. 244 and 247). 
2315United States' appellee's submission, para. 239. 
2316The United States contends that it "complied with th e relevant decisions and rulings of the DSB, the 
representative of the DSB in the information-gathering process under Annex V of the SCM Agreement in US – 
Large Civil Aircraft …  and the Panel in US – Large Civil Aircraft (Second Complaint) ."  The United States adds 
that it went to "great lengths to identify, assemble, and provide as many responsive documents as possible", and 
that it "discussed individual contracts and assistance instruments at length". (United States' appellee's submission, para. 240 (footnote omitted)) 
2317The United States contends that the Panel "ask ed numerous questions about the contracts and 
assistance instruments submitted by the United States".  (United States' appellee's submission, para. 241 
(referring to Panel Questions 131, 190-192, 194, 195, 205, 210, 212, 213, 321, and 360)) 
2318United States' appellee's submission, para. 243;  see also para. 236.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 473  
 
  1136.  At the outset of our analysis, we observe th at the European Union styles its claim under 
Article 11 of the DSU as a "due process" claim.
2319  In this respect,  the Appellate Body has recognized 
the central role of due process in WT O dispute settlement, noting that:   
… {due process} informs and finds reflection in the provisions of the 
DSU.  In conducting an objective assessment of a matter, a panel is 
"bound to ensure that due process is respected".   Due process is 
intrinsically connected to notions of fairness, impartiality, and the 
rights of parties to be heard and to be afforded an adequate opportunity to pursue their claims, make out their defences, and establish the facts in the context of proceedings conducted in a balanced and orderly manner, according to established rules.  The 
protection of due process is thus a crucial means of guaranteeing the 
legitimacy and efficacy of a rules-based system of adjudication.
2320 
(footnotes omitted) 
1137.  The first of the European Union's arguments in  support of its due process claim is that the 
Panel introduced the "predominance" approach for th e first time in paragraph 7.1701 of its Final 
Report, thereby depriving the European Communities of any meaningful opportunity to comment on 
such a "novel theory".2321  We understand that, on this ground of appeal, the European Union does not 
take issue with the Panel's use of the predominance test per se  but, rather, with the fact that it 
appeared for the first time in the Final Report.  We  observe, in this respect that the predominance test 
appears to have emerged from repeated exchanges between the parties and the Panel over the course 
of the Panel proceedings.  Even if the word "predo minantly" was not used in the Interim Report, the 
essence of this test could be discerned from ea rlier parts of the Interim Report, notably 
paragraphs 7.1148 and 7.1165.2322  We therefore do not accept the European Union's assertion that the 
Panel's predominance approach was unexpected because it appeared only in the Final Report.  In any 
                                                      
2319European Union's appellant's submission, paras. 235 and 258.  The European Union confirmed at 
the oral hearing that it is pres enting a single due process claim consisting of two arguments.   
2320Appellate Body Report, Thailand – Cigarettes (Philippines) , para. 147. 
2321European Union's appellant's submission, para. 258.  The European Union clarified at the oral 
hearing that its claim concerning the Panel's finding in paragraph 7.1701 of the Final Report relates exclusively to whether the Panel violated due process, and not whethe r the Panel acted inconsistently with Article 15 of the 
DSU.   
2322In the Interim Report, the Panel had set out that it would take into account only two USDOD 
RDT&E programmes—namely, the ManTech and DUS& T programmes—since they "were funded through 
{assistance instruments}". (Interim Report, para. 7.1701)  In the Final Report, the Panel confirmed this approach 
but clarified that the reason for considering only th e ManTech and DUS&T programmes in its analysis was 
because they "funded predominantly  assistance instruments". (Panel Report , para. 7.1701 (emphasis added))  It 
is true that the Panel added the word "predominantly" to qualify its statement in the Interim Report that the 
ManTech and DUS&T programmes funded assistance instruments.  Yet the Panel had previously found in paragraph 7.1165—a paragraph that was identical in both the Interim and the Final Report—that the ManTech 
and DUS&T programmes were "funded primarily if not exclusively  through cooperative agreements or other 
cost-shared 'assistance instruments'".  (emphasis added)  Thus, even at  the interim review stage, the 
European Communities would have been aware of the Pa nel's view that these two programmes "primarily" 
funded assistance instruments, as opposed to procurement contracts. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 474 HSBI omitted, as indicated [[HSBI]]  
 
  event, although a panel must fully explore with the pa rties all pertinent issues arising in the dispute 
over the course of the proceedings, th is does not imply that it is requi red to engage with the parties 
upon the findings and conclusions that it intends to adopt in resolving the dispute.
2323  Indeed, it would 
be impossible to do so, in particular since the panel's views may evolve over the course of the 
proceedings.  Accordingly, we do not agree with th e European Union that the mere inclusion of new 
language in paragraph 7.1701 of th e Final Report means that the Panel acted inconsistently with 
Article 11 of the DSU by failing to provide the parti es with an opportunity to comment on the alleged 
"novel" approach in paragraph 7.1701 of the Final Report.   
1138.  The European Union further contends that th e Panel failed to comply with its duties under 
Article 11 of the DSU by not seeking out factual information from the United States that would have enabled it to "consider the evidence necessary to  reach a conclusion based on {the predominance} 
theory".
2324  We observe that, under Article 13 of the DSU,  panels are endowed with the authority to 
request information from relevant sources, including from WTO Members.2325  We recall, moreover, 
that the exercise of this authority may prove "i ndispensably necessary" to enable a panel to 
objectively assess the matter before it.2326  Furthermore, a panel ma y need to seek information 
"'in order to evaluate evidence already before it'  so as to make an objective assessment of whether the 
complaining party has established a prima facie case".2327 
1139.  In our view, the extent to which Article 11 of  the DSU may require a panel to exercise its 
authority to seek out further information is a functio n of the particular facts and circumstances of each 
dispute.  It is of course indisputable that par ties carry the burden of adducing evidence in support of 
their claims or defences.2328  Indeed, it is because the parties have  such a burden that we can conceive 
of circumstances in which a party cannot reasonably be  expected to meet that burden by adducing all 
relevant evidence required to make out its case, most notably when that information is in the exclusive 
possession of the opposing or a third party.  In such circumstances, a panel may be unable to make an 
objective assessment of the matter without exercising its authority under Article 13 of the DSU to 
                                                      
2323We note that, even if a panel is not required to ventilate its intended analysis in advance of 
rendering its decision, a panel should not, in adopting an approach that departs radically from the cases put 
forward by the parties, "leave it to the parties to gue ss what proof it will require". (Appellate Body Report,  
US – Continued Zeroing , para. 347) 
2324European Union's appellant's submission, para. 258.   
2325Appellate Body Report, Canada – Aircraft , para. 185. 
2326Appellate Body Report, Japan – Agricultural Products II , para. 127 (quoting Appellate Body 
Report, US – Shrimp , paras. 104 and 106). 
2327Appellate Body Report, US – Continued Zeroing , para. 347 (quoting Appellate Body Report, 
Canada – Aircraft , para. 192). 
2328Appellate Body Report, EC – Hormones , para. 109 (referring to Appellate Body Report, US – Wool 
Shirts and Blouses , pp. 14-16, DSR 1997:I, 323, at 335-338).  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 475  
 
  seek out that information, in particular if the pa rty that needs this evidence can show that it has 
diligently exhausted all means to acquire it,  to the extent such means exist.   
1140.  We note, in this regard, that one aspect of en suring that the proceedings are fairly conducted 
is that each party must be entitled to know the case that it has to make or to answer and must be 
afforded a fair and reasonable opportunity to do so.  In  general, panels are best  situated to determine 
how this should be accomplished in the particular circumstances of each case
2329, including through 
the exercise of their authority to seek informati on.  The use of this authority, however, is not 
untrammelled.  In considering whether to exerci se its authority under Article 13 of the DSU—in 
particular when a party has made an explicit requ est that it do so—a panel should have regard to 
considerations such as what information is need ed to complete the record, whose possession it lies 
within, what other reasonable means might be u sed to procure it, why it has not been produced, 
whether it is fair to request the party in possession of the information to submit it, and whether the 
information or evidence in question is likely to  be necessary to ensure due process and a proper 
adjudication of the relevant claim(s).   
1141.  The issue before us is whether, in the circumst ances of this dispute, the Panel was required to 
request certain information from the United States be fore applying the predominance test articulated 
in paragraph 7.1701 of the Final Report.  As noted above, the Panel decided not to include the effects 
of the USDOD RDT&E programmes—save for ManTech and DUS&T—in its analysis of adverse effects on the basis that there was insufficient evidence establishing that these programmes funded 
predominantly assistance instruments, as opposed to procurement contracts.  This was the 
consequence of the Panel's earlier decision to cond uct an analysis based on the type of contract 
used—that is, to distinguish between the ch aracterization under Article 1.1(a)(1) of the 
SCM Agreement  of procurement contracts and that of assi stance instruments—ra ther than conducting 
a programme-based analysis of the USDOD RDT&E pr ogrammes.  Although it decided to pursue an 
analysis based on contract type, the Panel did not exercise its authority under Article 13 of the DSU to 
request information and evidence from the parties re garding the extent to which different contract 
types were used under each programme.
2330   
1142.  We also note certain other circumstances of this dispute that we consider relevant to the issue 
before us.  We recall, for example, the Panel's Pr eliminary Ruling of 30 July 2007, in which the Panel 
rejected requests by the European Communities to find that an Annex V procedure had been initiated 
                                                      
2329Appellate Body Report, Thailand – Cigarettes (Philippines) , para. 150. 
2330Although the Panel appears to have posed certain questions regarding the differences between 
assistance instruments and procurement contracts, these enquiries related to the issue of financial contribution 
and benefit under Article 1 of the SCM Agreement . (See, for instance, Panel Ques tions 19, 20, 154, 191, 192, 
195, and 321) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 476 HSBI omitted, as indicated [[HSBI]]  
 
  or, in the alternative, to exercise its authorit y under Article 13 of the DSU to seek out certain 
information from the United States.
2331  The European Communities had attached to its request for 
preliminary rulings questions that it had sought to pose to the United States in an Annex V procedure.  
In its alternative request, the Eu ropean Communities sought to have the Panel pose these questions to 
the United States.  The European Communities explicitly asked for a " list of all contracts … involving 
Boeing or {McDonnell Douglas} from FY 1991 thr ough present" related to the USDOD RDT&E 
programmes at issue including an indication of "t he nature or subject" of each such contract.2332  The 
European Communities further requ ested the contracts themselves.2333  M o r e o v e r ,  t h e  
European Communities repeatedly argued before the Panel that there was information in the 
United States' exclusive possession that was central to  its subsidy and adverse effects claims regarding 
the USDOD RTD&E programmes.2334  The Panel, however, did not advert to any of these 
circumstances in finding that "the European Commu nities ha{d} not advanced sufficient argument or 
evidence regarding the effects of assistance in struments funded through RTD&E programmes other 
than in relation to the ManTech and DUS&T programmes".2335  Nor did the Panel acknowledge in any 
way that the "insufficien t evidence on the record"2336 was at least in part the consequence of its own 
passivity. 
1143.  In short, the Panel's use of a contract-type analys is meant that information as to the extent to 
which assistance instruments were used under each of  the USDOD programmes was critical to enable 
application of the test that it had articulated.  Info rmation regarding the extent to which different kinds 
of contracts were used under each of the USDOD programmes was within th e exclusive possession of 
the United States.  The European Communities had sought  to obtain this information and, when it was 
unable to do so, had explicitly requested the Panel to  do so.  In such circumstances, the only way in 
                                                      
2331See Part V of this Report.  
2332European Communities' questions for the United States pursuant to Annex V of the SCM Agreement  
(Panel Exhibit EC-1), questions 127 and 128. 
2333See, for example, European Communities' questions for the United States pursuant to Annex V of 
the SCM Agreement  (Panel Exhibit EC-1), questions 130, 131, and 138. In response to the 
European Communities' request for the Panel to pose, under Article 13 of the DSU, all or some of the questions originally intended under Annex V to the United States, the Panel declined to do so on the grounds that:  
... the Panel does not consider it necessary or  appropriate to use its discretion under 
Article 13 of the DSU to remedy the par ties' inability to reach agreement on the 
initiation of an Annex V procedure, or to remedy the parties' inability to reach 
agreement on a means for transferring the information obtained during the DS317 
Annex V procedure to the present Panel. 
(Panel Report, para. 7.23) 
2334We observe that, on numerous occasions before  the Panel, the European Communities voiced its 
concern that critical evidence in relation to, inter alia , the USDOD RDT&E programmes was exclusively in the 
United States' possession. See, for instance, Panel Report, paras. 7.1056, 7.1103, and 7.1203, where the 
European Communities maintained that information be fore the Panel regarding the NASA and USDOD R&D 
measures was insufficient to make out its claims "unless the United States disclose{d} evidence".  
2335Panel Report, para. 7.1701. 
2336Panel Report, para. 7.1701.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 477  
 
  which the Panel could have afforded the European Communities a fair opportunity to produce 
evidence necessary to make out its prima facie case was through the exercise of its authority under 
Article 13 of the DSU by requesting the United States to submit the information that would have 
enabled the Panel  to assess the claim of serious  prejudice before it using its chosen approach. 
1144.  Overall, we consider that the particular circum stances of this dispute demanded that the Panel 
assume an active role in pursuing a train of inquiry  that would enable it to apply its predominance 
approach.  In failing to seek additional informa tion regarding the use of assistance instruments under 
all of the USDOD programmes, the Panel compro mised its ability to assess properly whether the 
effects of all 23 RDT&E programmes, and not only ManTech & DUS&T, caused adverse effects to the interests of the European Communities.  Had th e Panel sought information from the United States 
regarding the extent to which each USDOD RD T&E programme was funded by assistance 
instruments, as opposed to procurement contracts, then it would have been able to determine the 
extent to which those programmes funded assist ance instruments, as opposed to procurement 
contracts.  The Panel could have done so either on the basis of information provided by the United States or, perhaps, in the event that such  information was not forthcoming, on the basis of 
adverse inferences. 
1145.  In the light of the above, we find that, by failing to exercise its authority to seek out relevant 
information to satisfy its predominance approach  in assessing the claim before it, the Panel acted 
inconsistently with its obligati on under Article 11 of the DSU to ma ke an objective assessment of the 
matter before it in finding, in paragraph 7.1701 of  the Panel Report, that there was "insufficient 
evidence on the record that {the USDOD RDT&E programmes other than ManTech and DUS&T} 
funded predominantly assistance inst ruments, as opposed to procurement contracts, or a mixture of 
assistance instruments and procurement contracts".  Th e European Union requests that, if we find that 
the Panel acted inconsistently with Article 11 of  the DSU, we reverse the Panel's finding, in 
paragraph 7.1701 of the Panel Report, that "the {US}DOD RDT&E programmes (other than 
ManTech and DUS&T) do not cause the same effects as the other aeronautics R&D subsidies" at least to the extent that those remaining USDOD RDT&E programmes are funded through assistance 
instruments.
2337  We do not, however, see that the Panel made  any such finding in that paragraph.  To 
the contrary, we read the Panel as having r ecognized that the other 21 USDOD RDT&E programmes 
may well also have had adverse effects to the extent that they were funded through assistance 
instruments.  Accordingly, there is no finding for us to reverse, and the European Union does not, in 
any event, seek to have us  complete the analysis. 
                                                      
2337European Union's appellant's submission, para. 259. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 478 HSBI omitted, as indicated [[HSBI]]  
 
  D. Price Effects 
1146.  The United States also appeals the Panel's findings, in paragraph 8.3(a)(ii) and (iii) of its 
Report
2338, that: 
(ii) the effects of the FSC/ETI subsidies and the B&O tax 
subsidies provided by the State of Washington under {House Bill} 
2294 are significant price suppression, significant lost sales and displacement and impedance of exports from third country markets, with respect to the 100-200 seat single-aisle LCA product market;  {and} 
(iii) the effects of the FSC/ETI subsidies and the B&O tax 
subsidies provided by the State of Washington under {House Bill} 2294 and by the City of Everett are significant price suppression, significant lost sales and displacement and impedance of exports from third country markets, with respect to the 300-400 seat wide-
body LCA product market{.} 
1147.  The United States requests us to reverse these fi ndings on the grounds that, in reaching them, 
the Panel erred in its interpretation and applica tion of Articles 5(c) and 6.3(b) and (c) of the 
SCM Agreement .
2339  According to the United States, the Pane l failed to undertake a proper analysis of 
these subsidies, and therefore did not establish a genuine and substantial relationship of cause and 
effect between the subsidies and the adverse eff ects alleged by the European Communities.  The 
United States also argues that the Panel committe d specific errors in reaching its findings of 
significant price suppression, significant lost sales, and displacement and impedance.   
1148.  The European Union responds that each of these al legations by the United States is baseless.  
In the view of the European Union, the United Stat es is improperly using its appeal to repeat its 
arguments before the Panel, including with respect to the evidence that it advanced unsuccessfully.  
The European Union also maintains that the United States' appeal presents an incomplete account of 
the Panel's analysis and findings.  The European  Union considers that, contrary to what the 
United States claims, the Panel reached findings th at complied with the relevant requirements of 
Articles 5(c) and 6.3(b) and (c) of the SCM Agreement . 
                                                      
2338See also Panel Report, paras. 7.1823, 7.1833, and 7.1854(b) and (c).  
2339These provisions are set out in full in section X.B.7 of this Report.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  1149.  The United States' appeal thus concerns the Panel's analysis of the price effects
2340 of the tied 
tax subsidies—namely, the FSC/ETI subsidies and th e Washington State and the City of Everett B&O 
tax rate reductions.  The Panel's finding that the price effects of these subsidies led to serious 
prejudice within the meaning of Articles 5(c) and 6.3(b) and (c) of the SCM Agreement2341, and the 
United States' appeal, are limited to the 100-200 seat and 300-400 seat LCA markets.  Our analysis of 
the issues relating to the price effects of the tied tax subsidies likewise focuses only on these two 
product markets. 
1150.  In order to evaluate the United States' claims of e rror, we consider it useful, first, to set out, in 
subsection 1, certain backgr ound on the 100-200 seat and 300-400 seat LCA markets.  In 
subsection 2, we outline the structure of the Euro pean Communities' claim before the Panel.  In 
subsection 3, we recount the Panel's analysis and find ings regarding the tied tax subsidies.  Finally, in 
subsection 4, we address the United States' appeal.   
1. Background on the 100-200 Seat and 300-400 Seat LCA Markets 
1151.  We set out below certain basic features rega rding the two relevant LCA product markets on 
the basis of common cause facts on the Panel record.   
                                                      
2340We note that the concept of "price effects", as used in this dispute, should be distinguished from the 
concept of "price suppression" under Article 6.3(c) of the SCM Agreement.   When the European Communities 
referred to the "price effects" of subsidies before the Pa nel, it was referring to the effects of the subsidies on 
Boeing's LCA prices. (Panel Report, paras. 4.305, 7.1598, 7. 1697, and 7.1699;  see also footnote 3388 to 
para. 7.1613 and footnote 4139 to para. 6 of Appendix VII.F.2 – The Cabral Model, p. 758)  The 
European Communities further argued that, "through th e mechanism of price effects", the subsidies caused 
various of the market phenomena set out in Article 6.3 of the SCM Agreement, including significant price 
suppression within the meaning of Article 6.3(c). ( Ibid., para. 4.314)  As did the Panel, we use the term "price 
effects" to refer to the effects of the subsidies on Boeing's LCA prices. 
2341Although the European Communities had argued that these subsidies caused serious prejudice by 
reason of their price effects in all three of the relevant LCA pro duct markets, the Panel was not satisfied that 
these subsidies caused significant price suppression, significant lo st sales, or displacement or impedance in the 
200-300 seat LCA market.  As explained supra , footnote 1882, the European Communities did not claim that 
the FSC/ETI subsidies had adverse effects in the 200-300 seat LCA market, and the Panel conducted its analysis 
on the basis that these subsidies had no effects in that pr oduct market.  Therefore, in assessing the effects of the 
tied tax subsidies in the 200-300 seat LCA market, the Pa nel considered the price effects of only the B&O tax 
rate reductions, and not of the FSC/ETI subsidies.  The Panel found that there was "insufficient evidence … to 
conclude that {the B&O tax rate reductions} are of a magnitude that would enable them, on their own, to have such an effect on Boeing's prices of the 787 as would lead to a finding {of serious prejudice} in the 200-300 seat 
wide-body market". ( Ibid., para. 7.1824)  The European Union has appealed this finding, and contends that the 
Panel erred in failing to undertake an assessment of the collective effects of the aeronautics R&D subsidies and the B&O tax rate reductions in the 200-300 seat LCA mark et.  Our evaluation of this claim of error on appeal is 
set out in section X.E of this Report. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 480 HSBI omitted, as indicated [[HSBI]]  
 
  (a) 100-200 seat LCA market 
1152.  This product market consists of single-aisle ai rcraft with a capacity of 100 to 200 passengers 
in a two-class configuration (or the respective car go equivalent), and flown on routes with a short to 
medium range.
2342  The relevant aircraft families meeting these specifications include the 
Boeing 737NG and the Airbus A320.2343   
1153.  The parties accepted that the 737NG and A320 are in direct competition.2344  They further 
acknowledged that price was a major factor infl uencing sales campaign outcomes in this product 
market, although in some campaigns, differences in  capacity, operating costs, or delivery dates may 
have been decisive.2345  In late 2004 or early 2005, Boeing a ltered its pricing strategy and became 
more "aggressive" on price.2346  
1154.  In 2006, the list prices of the A320 family ranged from $50,200,000 to $79,400,000, while 
those of the 737NG family ranged from $47,000,000 to $70,000,000.2347  Based on data supplied by 
the parties, the overall size of the market for 100- 200 seat LCA, as well as Boeing's share of that 
market in terms of orders, increased over the reference period.2348   
                                                      
2342Panel Report, para. 7.1669.  
2343Panel Report, para. 7.1670.   
2344The European Communities stated that the 737NG and A320 families "closely resemble{d}" one 
another and competed on the basis of their "size, number of seats, range, and other characteristics" (European Communities' first written submission to the Panel, para. 1167);  "competed equally on technical and 
performance characteristics" (European Communities' re sponse to Panel Question 81, para. 324);  and are 
characterized by "very close substitutability" (Europea n Communities' first written submission to the Panel, 
para. 1506) and "close inter-changeability" (European Co mmunities' comments on the United States' response to 
Panel Question 282, para. 433).  The United States also  recognized the close competition between the A320 and 
737NG. (See, for example, United States' first writte n submission to the Panel, paras. 1027-1038)   
2345Panel Report, para. 7.1694;  European Communitie s' response to Panel Question 81, paras. 323 
and 324;  United States' first written submission to the Pa nel, paras. 1027-1038;  United States' comments on the 
European Communities' responses to Panel Question 287, para. 532 and Panel Question 288, para. 535. 
2346Panel Report, Appendix VII.F.2 – The Cabral Model, p. 777, para. 68 and footnote 4250 thereto. 
2347List Price, Airclaims CASE database, query as of 23 November 2006 (Panel Exhibit EC-663).  
These price ranges reflect the fact that the A320 and 7 37NG families were composed of differentiated models.  
As explained supra , para. 907, due to credits and price concessions offered to customers by LCA manufacturers, 
the airframe prices negotiated at the time LCA are ordered are typically lower than list prices.  
2348According to the United States, the total number of LCA ordered in the 100-200 seat LCA market 
during the reference period was as follows:  457 in 2004;  1,410 in 2005;  and 1,558 in 2006.  Boeing's share of 
these orders was:  32% in 2004;  40% in 2005;  and 47% in 2006. (United States' first written submission to the Panel, para. 1095)  The European Communities, however, a sserted that Boeing's world market share of orders 
increased between 2005 and 2006 from 47% to 52%. (E uropean Communities' comments on the United States' 
response to Panel Question 299, para. 551)  The United St ates additionally claimed that, in terms of deliveries, 
Boeing's market share was:  46% in 2004;  42% in 2005;  and 47% in 2006. (United States' first written 
submission to the Panel, para. 1095)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 481  
 
  (b) 300-400 seat LCA market 
1155.  This product market consists of twin-aisle aircra ft with a capacity of 300 to 400 passengers in 
a three-class configuration (or th e respective cargo equivalent), a nd flown on routes with a long to 
ultra-long range.
2349  The relevant aircraft families meeting these specifications include the 
Boeing 777 and the Airbus A340.2350   
1156.  Despite the similarities of the 777 and A340 airc raft in terms of seating, range, and other 
characteristics2351, the two-engine 777 is more fuel efficient than the four-engine A340.2352  T h i s  
advantage was accentuated when fuel pr ices increased during the 2004-2006 period.2353   
1157.  In 2006, the list prices of the A340 family  ranged from $192,800,000 to  $222,400,000, while 
those of the 777 family ranged from $190,000,000 to $237,000,000.2354  Based on data supplied by the 
parties, the overall size of the market for 300-400 seat LCA, as well as Boeing's share of that market 
in terms of orders, increased over the refere nce period from 2004 to 2006, peaking in 2005.2355   
2. The European Communities' Price Effects Claim before the Panel 
1158.  Before we turn to the Panel's findings and the United States' appeal, we consider it useful to 
outline the structure of the European Communities'  price effects claim before the Panel.   
                                                      
2349Panel Report, para. 7.1669.  
2350Panel Report, para. 7.1670.  The European Comm unities also advanced a claim of threat of 
significant price suppression in the 300-400 seat LCA market with respect to future orders of the 
A350XWB-900/1000 aircraft. ( Ibid., para. 7.1595)  The Panel exercised ju dicial economy with respect to this 
claim. ( Ibid., para. 7.1851) 
2351European Communities' first written submission to the Panel, para. 1180. 
2352European Communities' response to Panel Question 81, paras. 330 and 331;  United States' first 
written submission to the Panel, paras. 1117 and 1139, referring to estimates that the 777 is 24% more fuel 
efficient than the A340.  
2353European Communities' response to Panel Question 81, paras. 331 and 334;  United States' first 
written submission to the Panel, paras. 715, 1139, and 11 40, and para. 1113, referring to estimates that fuel 
prices increased by 125% between 2004 and 2006. 
2354List Price, Airclaims CASE database, query as of 23 November 2006 (Panel Exhibit EC-663).  
These price ranges reflect the fact that the A340 and 77 7 families were composed of differentiated models.  As 
noted earlier, however, actual airframe prices are often lower than the base list price. (See supra , para. 907) 
2355According to the United States, the total number of LCA ordered in the 300-400 seat LCA market 
during the reference period was as follows:  70 in 2004;  169 in 2005;  and 92 in 2006.  Boeing's share of these 
orders was:  60% in 2004;  92% in 2005;  and 84% in 2006. (Panel Exhibit US-364, containing order statistics for the 777 and A340, 1990-2006)  A graphical depiction of world market share supplied by the 
European Communities appears consistent with this da ta. (European Communities' first written submission to 
the Panel, para. 1626)  The United States additionally clai med that, in terms of deliveries, Boeing's market share 
was:  56% in 2004;  63% in 2005;  and 73% in 2006. (United States' first written submission to the Panel, 
para. 1171) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 482 HSBI omitted, as indicated [[HSBI]]  
 
  1159.  In presenting its claim of serious prejudice to the Panel in respect of the 100-200 seat and 
300-400 seat LCA markets, the European Communiti es argued that all of the subsidies benefiting 
Boeing's 737NG and 777 families "have one principal effe ct:  they allow Boeing to lower the prices at 
which it offers {these aircraft} (the 'price effects')".
2356  According to the European Communities, "the 
evidence shows that since 2004, Boei ng has focused its US subsidy benefits on offering exceptionally 
low prices".2357  As a result of these price effects, the European Communities asserted, Airbus has 
experienced displacement and impedance within th e meaning of Article 6.3(b), and significant price 
suppression and significant lost sales within the meaning of Article 6.3(c) of the SCM Agreement . 
1160.  The European Communities structured its claim by addressing:  (i) the nature of the subsidies;  
(ii) the magnitude of the subsidies;  (iii) the pri ce effects of the subsidies;   and (iv) evidence from 
specific sales campaigns.   
1161.  With regard to the nature of the subsidi es, the European Communities argued that the 
"structure, design, and operation"2358 of the subsidies operate through one of two price mechanisms.  
One group of subsidies—the tied tax subsidies—has the effect of lowering the taxes and fees paid by 
Boeing with respect to the production and sale of LCA,  rendering receipt of these subsidies contingent 
on the production and sale of individual LCA.  The European Communities thus claimed that the tied 
tax subsidies directly reduce Boeing's marginal unit costs for the production and sale of individual LCA.
2359  The European Communities maintained that the tied tax subsidies "have particularly strong 
price effects, allowing Boeing to lower its LCA pr ices by $1 for each dollar of subsidies received".2360  
The European Communities further maintained that, because the tie d tax subsidies are prohibited 
subsidies, they are "particularly pernicious in causing adverse effects to EC interests given their 
promotion of Boeing LCA exports outside the United States".2361  The other subsidies—that is, those 
other than the tied tax subsidies2362—are not triggered by the produc tion and sale of individual LCA.  
                                                      
2356European Communities' first written submission to the Panel, paras. 1471 and 1565.  
2357European Communities' first written submission to the Panel, paras. 1471 and 1565.   
2358European Communities' first written submission to the Panel, paras. 1474 and 1568. 
2359European Communities' first written submission to the Panel, para. 1234.  
2360European Communities' first written submission to the Panel, paras. 1477 and 1571.  
2361European Communities' first written submission to the Panel, paras. 1477 and 1571.  
2362These subsidies consist of the following:  (i) the ae ronautics R&D subsidies;  (ii) the property and 
sales tax abatements provided to Boeing pursuant to I RBs issued by the City of Wichita, Kansas;  (iii) the 
Washington State B&O tax credits fo r preproduction development, computer software and hardware, and 
property taxes;  (iv) the Washington State sales and use tax exemptions for computer hardware, peripherals, and software;  (v) the Washington State workforce development programme and Employment Resource Center;  (vi) 
the reimbursement of a portion of Boeing's relocation expenses by the State of Illinois;  (vii) the 15-year EDGE 
tax credits provided by the State of Illinois;  (viii) th e abatement or refund of a portion of Boeing's property 
taxes provided by the State of Illinois;  and (ix) the payment to retire the lease of the previous tenant of Boeing's 
new headquarters building in Chicago.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 483  
 
  Rather, these subsidies are considered "fungible"
2363 resources that provide Boeing with additional 
cash flow "that Boeing can invest in lower prices and additional R&D so as to lower its costs of 
research, development, produc tion, and sale of {} LCA".2364   
1162.  The European Communities also submitted that the magnitude of the subsidies was "large 
enough to have adversely impacted Airbus"2365, and that this was so whether magnitude was viewed in 
terms of all LCA orders within a particular product market, or only LCA orders from competitive 
campaigns.  The European Communities distinguish ed between "competitive" and "non-competitive" 
sales campaigns, defining a competitive campai gn as one in which both Airbus and Boeing are 
actively involved.2366  The European Communities argued that Boeing's incentive to price down LCA 
is "far greater in competitive campai gns than in non-competitive campaigns".2367  T h e  
European Communities thus calculated the magnit ude of per-LCA subsidies on the basis of all 
orders2368, as well as on the basis of only competitive orders.2369  The European Communities 
considered that "these represent two extremes, wi th the likely reality being that Boeing uses its 
subsidy benefits to price down its LCA in bot h competitive and non-competitive campaigns, but does 
so to a greater extent in competitive campaigns".2370 
                                                      
2363European Communities' first written submission to the Panel, para. 1279. 
2364European Communities' first written submission to the Panel, paras. 1480 and 1574.  
2365European Communities' first written submission to the Panel, paras. 1485 and 1583.  
2366European Communities' first written submission to the Panel, para. 1222: "the 
European Communities uses the term 'competitive campaign' to mean a campaign in which both Airbus and Boeing were actively involved, and where Airbus [  ***  ]." 
2367European Communities' first written submission to the Panel, para. 1224: "{G}iven the economies 
of scale that result from a high order volume, and the pr ice-sensitive nature of campa igns involving substitutable 
Airbus and Boeing LCA in a highly-competitive duopolis tic market, Boeing has every incentive to lower its 
prices to try to win sales at Airbus' expense in competitive campaigns."  
2368Attributing the total amount of subsidies to all campai gns, the European Communities calculated a 
per-LCA magnitude during the reference period of $[***] million (approximately [***]% of aircraft price) in 
the 100-200 seat LCA market, and $[***] million (approxima tely [***]% of aircraft price) in the 300-400 seat 
LCA market. (European Communities' first written submission to the Panel, paras. 1486 and 1590 (referring to 
International Trade Resources LLC, "Calculating on a Per-Aircraft Basis the Magnitude of the Subsidies 
Provided to US Large Civil Aircraft" (20 February 2007) (Panel Exhibit EC-13));  see also ibid., Annex E – 
737NG Campaign Annex (HSBI), paras. 58 and 133;  and Annex F – 777 Campaign Annex (HSBI), paras. 32 
and 51)   
2369Attributing the total amount of su bsidies to only competitive ca mpaigns, the European Communities 
calculated the per-LCA magnitude during the reference period at $[***] million (approximately [***]% of 
aircraft price) in the 100-200  seat LCA market, and $[***] million (approximately [***]% of aircraft price) in 
the 300-400 seat LCA market. (European Communities' fi rst written submission to the Panel, paras. 1486 and 
1590 (referring to International Trad e Resources LLC, "Calculating on a Per- Aircraft Basis the Magnitude of the 
Subsidies Provided to US Large Civil Aircraft" (20 February 2007) (Panel Exhibit EC-13));  see also ibid., 
Annex E – 737NG Campaign Annex (HSBI), paras. 60 and 134;  and Annex F – 777 Campaign Annex (HSBI), paras. 33 and 53)  
2370European Communities' first written submission to the Panel, paras. 1485 and 1583. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 484 HSBI omitted, as indicated [[HSBI]]  
 
  1163.  The European Communities argued that, whether vi ewed in terms of all campaigns or only 
competitive campaigns, the magnitude of the United St ates' subsidies shows "the extent to which the 
full use of these subsidies {has} the potential to cause significant price suppression of Airbus' A320 
family LCA".
2371  Likewise, for the Airbus A340, the European Communities made arguments based 
on the assumption that Boeing "uses all of its subsidy benefits to reduce prices for all ordered 777 
family LCA by an identical amount".2372   
1164.  The European Communities then presented its ar guments regarding the price effects of the 
various US subsidies, taken together.  In doing so, the European Communities distinguished between, 
on the one hand, the price effects of the tied tax subs idies and, on the other hand, the price effects of 
the subsidies alleged to increase Boeing's non-ope rating cash flow.  As the European Communities 
explained, the tied tax subsidies "have a price eff ect commensurate with their amount" such that each 
subsidy dollar "has the effect of reducing the price of a Boeing {} LCA by exactly $1".2373  As for the 
subsidies alleged to increase Boeing's cash fl ow, the European Commu nities introduced the 
Cabral Report, which relied on an economic model to quantify the extent to which Boeing was able to 
reduce its LCA prices in 2004-2006 as a result of these subsidies.2374   
1165.  Finally, the European Communities set out evid ence of individual sales campaigns in HSBI 
annexes to its first written submission.  The ev idence set out in these annexes was intended to 
illustrate and support the claim that Boeing's s ubsidy-enabled low prices have caused serious 
prejudice.  Annex E identifies 11 sales campaigns in the 100-200 seat LCA market—five of which 
                                                      
2371European Communities' first written submission to the Panel, para. 1503. On the basis of its 
calculations of the per-LCA subsidy magnitudes, the European Communities depicted in several graphs what it 
considered to be the counterfactual prices for the A3 20 in the absence of subsidies by adding the per-LCA 
subsidy amount to indexed prices for those LCA. ( Ibid., paras. 1501-1505)  
2372European Communities' first written submission to the Panel, para. 1597.  The European 
Communities also depicted in several graphs what it considered to be the counterfactual prices for the A340 in 
the absence of subsidies by adding the per-LCA subsidy amount to indexed prices for those LCA. ( Ibid., 
paras. 1597-1601) 
2373European Communities' first written submission to the Panel, paras. 1490 and 1588. 
2374According to the Cabral Report, of every subsidy dollar that incr eases Boeing's cash flow:  15 cents 
would be allocated to increased dividends;  12 cents towards more aggressive pricing to advance down the 
learning curve;  47 cents towards more aggressive pricing to overcome switching costs;  and 26 cents towards 
R&D. (European Communities' first written submission to the Panel, paras. 1315 and 1321)  The Cabral Report 
calculated that the price effect generated by the $19.1 b illion of subsidies, taken toge ther, both across-the-board, 
as well as when those price effects were concentrated  in competitive sales campaigns.  According to those 
calculations, during the reference period, the across- the-board price effects amounted to approximately 
$1 million per 737, and just over $2 million per 777.  The Cabral Report further estimated that, if the price 
effects were applied only in compe titive sales campaigns, they would amount  to roughly $2.5 million per 737, 
and  $5.5-6 million per 777. (European Communities' first written submission to the Panel, figures 22 and 23, referred to in Panel Report, Appendix VII.F.2 – The Cabral Model, p. 758, footnote 4139 to para. 6;  Cabral 
Report, supra , footnote 2242)
  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 485  
 
  were offered in support of the European Communities' claim of significant lost sales
2375;  and six that 
were advanced in support of its claim of significant price suppression.2376  Annex F identifies four 
sales campaigns in the 300-400 seat LCA market—thr ee of which were offered in support of the 
European Communities' claim of significant lost sales2377;  and one that was advanced in support of its 
claim of significant price suppression.2378  
3. The Panel's Analysis and Findings 
1166.  We now set out the Panel's analysis and findings with regard to whether the price effects of 
the challenged subsidies have caused serious prejudice. 
1167.  We recall aspects of the Panel's overall approach to  its adverse effects analysis.  First, we note 
that the Panel indicated that it would conduct a "unitary" approach to establishing causation, in which the effects of the subsidies are not assessed in isolati on, but rather as part of an integrated analysis of 
causation.
2379  Second, the Panel stated that it would c onduct a counterfactual analysis, and that it 
would do so in two stages by examining the effect s of the subsidies on Boeing's prices, and, as a 
consequence, on Airbus' prices and sales in the specific product markets.2380  Third, the Panel added 
that it would undertake an evaluation of possible non-attribution factors at both stages of its causation analysis.
2381  The Panel considered that proceeding with  the approach outlined above would enable it 
to determine whether "there is a genuine and substantial relationship of cause and effect between the 
subsidy in question and the displacement or impeda nce, significant lost sales, or significant price 
suppression".2382 
                                                      
2375Panel Report, para. 7.1622 and footnote 3412 thereto.  The lost sales  evidence in the 100-200 seat 
LCA market consisted of the following sales campaigns:  Ryanair (2000-2002);  Japan Airlines (2005);  Singapore Airline Leasing Enterprise (2005);  Lion Air (2005);  and DBA (2005).  The European Communities 
also explained that these campaigns were evidence of  displacement and impedance of A320 exports in the 
third-country markets of Japan, Singapore, and Indonesia. 
2376Panel Report, para. 7.1622 and footnote 3410 thereto.  The price suppression  evidence in the 
100-200 seat LCA market consisted of the following sales campaigns:  easyJet (2002);  Air Berlin (2004);  
Iberia (2005);  Aegean (2005);  Air Asia (2005);  and Hamburg International (2005).  
2377Panel Report, para. 7.1622 and footnote 3414 thereto.  The lost sales  evidence in the 300-400 seat 
LCA market consisted of the following sales campaigns:  Singapore Airlines (2004);  Air New Zealand (2004);  
and Cathay Pacific (2005).  The European Communities al so explained that these campaigns were evidence of 
displacement and impedance of A340 exports in the th ird-country markets of Singapore, New Zealand, and 
Hong Kong, China. 
2378Panel Report, para. 7.1622.  The price suppression  evidence in the 300- 400 seat LCA market 
consisted of a single sales campaign involving Lufthansa (2004).  
2379Panel Report, para. 7.1658.   
2380Panel Report, para. 7.1659;  see also paras. 7.1798-7.1800. 
2381Panel Report, para. 7.1660.   
2382Panel Report, para. 7.1662. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 486 HSBI omitted, as indicated [[HSBI]]  
 
  1168.  The Panel explained that the European Commun ities' analytical framework for evaluating the 
effects of the subsidies on Boeing' s pricing behaviour, and conseque ntly on Airbus' prices and sales, 
focused on several key factors, namely:  
(i) the nature of the subsidies, in terms of their structure, design and 
operation;  (ii) an economic m odel developed by Professor Luís 
Cabral concerning the effect of what he refers to as "development 
subsidies", which purports to quantify the degree to which Boeing 
was able to reduce its LCA prices in 2004-2006;  (iii) the subsidy amounts and "magnitudes";  (iv) th e conditions of competition in the 
LCA markets;  (v) the financial condition, or "economic viability" of Boeing's LCA division in the absence of the subsidy amounts; and  
(vi) selected individual LCA sales campaigns in each of the three 
LCA product markets, which are alleged to demonstrate the serious prejudice in terms of Airbus' prices and sales.
2383 
1169.  The Panel noted that, although the European Co mmunities had challenged all of the subsidies 
by reason of their price effects, it would analyze th e price effects of the tied tax subsidies separately 
from the price effects of the other subsidies.2384  The Panel did not accept the arguments and evidence 
of the European Communities with respect to items (ii)2385 and (v)2386 quoted above.  Thus, in its 
analysis of the tied tax subsidies, the Panel was le ft to consider the European Communities' evidence 
                                                      
2383Panel Report, para. 7.1611. 
2384Panel Report, para. 7.1800.  The Panel later concluded that, in the light of its findings as to the 
technology effects of the aeronautics R&D subsidies, it would not analyze the price effects of that group of 
subsidies because to do so would amount to "over-counting". ( Ibid., para. 7.1826) 
2385With respect to the Cabral Report, the Panel concluded as follows: 
... Professor Cabral's model does not su pport the existence of a causal link 
between the receipt by Boeing of "development subsidies", and lower 
Boeing LCA pricing.  The Panel is not convinced that the assumptions 
underlying Professor Cabral's model are an appropriate representation of Boeing's actual commercial behaviour .  As we are unable to accept the 
assumptions on which the model is based, we do not consider the model to 
provide evidentiary support for the European Communities' argument that 
Boeing's receipt of the subsidies enable s it to lower the prices of its LCA. 
(Panel Report, Appendix VII.F.2 – The Cabral Model, p. 780, para. 76)  
2386With respect to the European Communities' argument and evidence that, without the subsidies, 
Boeing would have not been economically viable unless it altered its prices or product development behaviour, 
the Panel stated that it was "not persuaded that the European Communities has demonstrated that Boeing 
inherently lacked the financial means to price and develop its LCA in the manner in which it did". (Panel Report, para. 7.1759;  see also paras. 7.1829-7.1831)  The Panel explained that the parties had each presented 
"complex financial information" on the issue of "whether the Boeing LCA division's pricing and product 
development behaviour would have be en possible had it not received an alleged $19.1 billion in subsidies 
between 1989 and 2006". ( Ibid., para. 7.1830)  The Panel considered that, in the light of its finding that the total 
amount of subsidies received by Boeing over this period was not the $19.1 billion amou nt alleged, but a much 
smaller amount, "the argument that Boeing's LCA division would not have been 'economically viable' in the absence of the subsidies unless it altered its prices or product development behaviour becomes untenable, 
whichever basis for assessing economic viability is used." ( Ibid., para. 7.1831)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 487  
 
  as it related to the nature and the amount
2387 of the tied tax subsidies, the conditions of competition in 
the LCA market, and the evidence of individual sales campaigns as set out in Annexes E and F to the 
European Communities' first written submission.   
1170.  The Panel examined the two categories of tied ta x subsidies.  The Panel noted that FSC/ETI 
exemptions and exclusions are realized on the deliv ery of every LCA that Boeing exports, as well as 
on LCA that Boeing produces and sells to domes tic carriers and leasing companies for use 
predominantly on foreign routes.2388  The FSC/ETI subsidies thus rela te directly to revenue realized 
from export LCA sales and operate to reduce the reve nues that were subject to taxation, thereby 
lowering Boeing's taxes and increasing its after-tax profits.2389  The Panel further noted that the B&O 
tax rate reductions consis t of tax incentives designed to reduce Boeing's cost structure and improve 
Boeing's competitiveness, and that they apply to the production and sale of each LCA manufactured 
in Washington State.2390 
1171.  The Panel considered that it was appropriate to aggregate the FSC/ETI subsidies and the 
B&O tax rate reductions for purposes of its analysis , and that, in doing so, "it should be possible to 
discern from their structure, design and operation that they affect Boeing's behaviour in a similar 
way."2391  The Panel noted that the parties disagreed  about the precise mechanism by which the tied 
tax subsidies could affect pricing decisions.2392  Nevertheless, both parties appeared to accept, and the 
Panel found, that the subsidies in question are "directly tied to sales of individual LCA"2393 and that 
                                                      
2387The Panel found that the total FSC/ETI subsid ies received by Boeing between 1989 and 2006 
amounted to approximately $2. 2 billion, and that the amounts allocated to  the reference period years from 2004 
to 2006 consisted of $153 million, $142 million, and $140 million, respectively.  The Panel also found that the 
B&O tax rate reductions granted through 2006 by the State of Washington and the City of Everett amounted to 
$13.8 and $2.2 million, respectively. (Panel Report, para. 7.1811)  However, with respect to the calculations of 
the per-LCA magnitudes performed by ITR, the Panel stated:  "ITR's per-LCA subsidy 'magnitude' estimates play no part in the Panel's analysis  of the effects of the subsidies." ( Ibid., para. 7.1813)  
2388Panel Report, para. 7.1802. 
2389As explained supra , footnote 1882, the European Communities did not claim that the FSC/ETI 
subsidies had adverse effects in the 200-300 seat LCA ma rket, and the Panel conducted  its analysis on the basis 
that these subsidies had no effects in that product ma rket.  The Panel thus examined the effects of these 
subsidies only with respect to Boeing's pricing of its  LCA within the 100-200 seat and 300-400 seat LCA 
markets. (Panel Report, para. 7.1802) 
2390Panel Report, para. 7.1803. The Panel noted that the Washington State B&O tax rate reduction 
applies to the production and sale of LCA manufactured in  Washington State, and th erefore potentially affects 
the 737NG, 777, and 787.  The City of Everett B&O tax rate reduction affects the production and sale of LCA 
manufactured in Everett, and therefore applies to the 777 and 787, but not to the 737NG. ( Ibid.) 
2391Panel Report, para. 7.1805.  
2392The European Communities argued that the subsidie s are realized on the production and delivery of 
individual LCA, and thereby reduce Boeing's marginal unit costs for each individual LCA.  The United States 
considered it inaccurate to describe th e subsidies as reducing Boeing's margin al unit costs, but agreed that the 
subsidies lead to an increase in revenues arising in respect  of the sale of each LCA. (Panel Report, para. 7.1806)  
2393Panel Report, para. 7.1806.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 488 HSBI omitted, as indicated [[HSBI]]  
 
  they operate to "lower taxes that Boeing pays and thereby increase Boeing's after-tax profits".
2394  The 
Panel further considered that the tied tax subsidies lower taxes that Boeing pays and thereby increase 
the profitability of LCA sales "in a way that enables Boeing to price its LCA at a level that would not 
otherwise be commercially justified".2395  In this respect, the Panel concluded that the tied tax 
subsidies "clearly have a far more direct and imme diate relationship to aircraft prices and sales than 
other subsidies at issue in this disput e, such as the aeronautics R&D subsidies".2396   
1172.  In respect of the FSC/ETI subsidies in particul ar, the Panel made a few further observations.  
First, the Panel stated that, "by virtue of their ve ry nature as export subsidies", the FSC/ETI subsidies 
are "more likely to cause adverse trade effects".2397  The Panel then proceeded to note statements in 
prior WTO disputes addressing the effects-related im plications of prohibited subsidies.  The Panel 
noted that the Appellate Body in Canada – Aircraft  referred to prohibited export subsidies as ones 
"for which the adverse effects are presumed"2398, and that the panel in Brazil – Aircraft  stated that 
prohibited subsidies "are specifically designed to affect trade".2399  The Panel concluded that, 
"precisely because the FSC/ETI subsidies are contingent on Boeing making export sales, {it was} entitled to determine, absent reliable evidence to the co ntrary, that by their very nature, they will have 
trade distortive effects".
2400  
1173.  The Panel recalled its prior calculations th at the amount received from FSC/ETI tax 
exemptions and exclusions from 1989 through 2006  was approximately $2.2 billion, and that the 
European Communities had estimated that Boeing received FSC/ETI subsidies of approximately 
$153 million, $142 million, and $140 million, respectiv ely, in the years 2004, 2005, and 2006.  The 
Panel also recalled its calculations that, throug h 2006, Boeing received $13 .8 million and $2.2 million 
in B&O tax rate reductions from the State of Washi ngton and the City of Everett, respectively.  The 
Panel further recalled its view that, "given the pa rticularities of LCA production and sale, the effects 
of the subsidies should be understood to begin at the time at which an LCA order is obtained (or an 
order is lost) and to continue up to and including th e time at which that aircraft is delivered (or not 
                                                      
2394Panel Report, para. 7.1807.   
2395Panel Report, para. 7.1807.   
2396Panel Report, para. 7.1807.  
2397Panel Report, para. 7.1808.   
2398Panel Report, para. 7.1808 (quoting Appellate Body Report, Canada – Aircraft , para. 202).  
2399Panel Report, para. 7.1809 (quoting Panel Report, Brazil – Aircraft , para. 7.26).  The Panel also 
referred to the following stat ement of the arbitrator in US – FSC (Article 22.6 – US) :  "Export subsidies do, after 
all, have 'adverse effects' on third parties.  Systemica lly speaking they are, as a category of subsidy, more 
inherently prone to do so than any other". (Decision by the Arbitrator, US – FSC (Article 22.6 – US) , para. 5.35) 
2400Panel Report, para. 7.1810.  The Panel added that, in any event, there was in this case "reliable 
evidence which confirms that determination". ( Ibid., footnote 3763 to para. 7.1810, referring to paras. 7.1806, 
7.1807, 7.1811, and 7.1817-7.1823)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 489  
 
  delivered)."
2401  The Panel affirmed that it would consider the existence of serious prejudice within the 
reference period from 2004 to 2006 as identified by th e European Communities, but would "not limit 
the temporal scope of the evidence that it considers in undertak ing that assessment".2402 
1174.  The Panel proceeded to analyze "whether the availability of FSC/ETI subsidies and B&O tax 
subsidies enabled Boeing to compete on price in individual sales, and secure sales that it would not 
otherwise have made, and where it did not win those sales, led to Airbus securing those sales at lower 
prices than it would otherwise have obtained".2403  The Panel set out evidence introduced by the 
parties concerning the magnitude of subsidization in  relation to Boeing's revenues.  The Panel noted 
the United States' contention that the FSC/ETI subsid ies received by Boeing were too small relative to 
Boeing's order revenues to have affected Boeing's pricing in a manner causing adverse effects.  The 
Panel also noted the European Communities' argumen t that, when based on the more relevant measure 
of Boeing's delivery revenues, the ad valorem  rates of subsidization are si gnificant.  The Panel did not 
consider, however, that "either measure is particul arly informative or illustrative of the capacity for 
the FSC/ETI subsidies to have affected Boeing' s prices, and by extension, Airbus' prices and 
sales."2404 
1175.  The Panel considered it "important to bear in mind that the FSC/ETI subsidies are export 
subsidies that are designed to increase Boeing's competitiveness through its pricing of LCA for 
export".2405  The Panel referred to:  (i) evidence fro m a 1996 sales campaign, in which an Airbus 
negotiator stated that a customer requested a furthe r price reduction of $4 million per aircraft due to 
Boeing's receipt of FSC subsidies;  (ii) a stat ement by the US Trade Representative describing the 
purpose of the FSC/ETI provisions as enhancing the international competitiveness of US companies;  
(iii) a 2003 report on FSC/ETI beneficiaries indica ting that, over the six-year period ending in 2002, 
Boeing was the largest FSC/ETI beneficiary;  and (i v) evidence that a Boeing official regarded the 
FSC/ETI measures as important to Boeing's ability to compete.2406  The Panel found that these 
considerations "point quite clearly to the signifi cance of the FSC/ETI subsidies to Boeing's ability to 
compete on price against Airbus".2407   
                                                      
2401Panel Report, para. 7.1812.  
2402Panel Report, para. 7.1679.  
2403Panel Report, para. 7.1814.  
2404Panel Report, para. 7.1816.  
2405Panel Report, para. 7.1817.  
2406Panel Report, para. 7.1817.  
2407Panel Report, para. 7.1818. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 490 HSBI omitted, as indicated [[HSBI]]  
 
  1176.  The Panel then explained that it had: 
… no doubt that the availability of the FSC/ETI subsidies, in 
combination with the B&O tax subsid ies, enabled Boeing to lower its 
prices beyond the level that would otherwise have been economically 
justifiable, and that in some cases, this led to it securing sales that it would not otherwise have made, while  in other cases, it led to Airbus 
being able to secure the sale only at a reduced price.
2408   
1177.  The Panel added that the subsidies have also "served to entrench Boeing as the incumbent 
supplier, thereby putting it at an important switchi ng cost advantage over Airbus in future sales of 
aircraft of the same family to that same customer".2409 
1178.  The Panel stated that, because the FSC/ETI progr amme had already been in operation prior to 
2000, it was not possible for the Panel to ascertain th e effects of the subsidies from direct observation 
of market share and pricing trend data over the 200 0-2006 period.  The Panel further considered that 
factors other than the FSC/ETI subsidies that, in  the United States' view, explained the prices and 
performance of Airbus LCA in the 2004-2006 period "do not reverse or attenuate the pervasive and 
consistent pricing advantage that Boeing had in  LCA campaigns in the 2001-2003 period due to the 
availability of the FSC/ETI subsidies".2410  The Panel acknowledged that, in such circumstances, one 
potential option would be for it to decline to make a serious prejudice finding due to the difficulty of 
precisely calculating the degree to which Boeing's pr icing of the 737NG and the 777 was affected by 
the tied tax subsidies.  The Panel was, however, of the view that such an approach would be 
inconsistent with its obligations to make an  objective assessment of the matter as required by 
Article 11 of the DSU, "as well as contrary to considerations of basic commonsense and reason".2411  
Instead, the Panel considered it "necessary and appr opriate to deduce the effects of the FSC/ETI 
subsidies and the B&O tax subsidies on Airbus' sales and prices over the 2004-2006 period based on 
commonsense reasoning and the drawing of inferences"  from its conclusions regarding the nature of 
the subsidies, the duration of the FSC/ETI subsid ies, and the nature of the competition between 
Boeing and Airbus.2412   
                                                      
2408Panel Report, para. 7.1818.  
2409Panel Report, para. 7.1818.  
2410Panel Report, para. 7.1819 (referring to the Un ited States' first written submission to the Panel, 
paras. 1064-1080 and 1138-1155). 
2411Panel Report, para. 7.1821.   
2412Panel Report, para. 7.1820.   BCI deleted, as indicated [***] WT/DS353/AB/R 
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  1179.  In applying this approach, the Panel reasoned as follows: 
The Panel considers that it is reasonable to infer, based on the fact 
that the effects of the subsidies on Airbus' prices would be most acutely felt in particular sales cam paigns of strategic importance to 
Boeing and/or Airbus, that the effects of the subsidies are therefore significant in the sense that Boeing' s success in such sales campaigns 
necessarily constitutes a significant lost  sale to Airbus, and that such 
sales secured by Airbus in the face of Boeing's reduced prices 
necessarily constitute sales secured at significantly suppressed prices.  It is thus inescapable to also arrive  at the conclusion that in law the 
effects of the subsidies on Airbus' prices and sales constitute significant lost sales and significant price suppression, within the 
meaning of Article 6.3(c) of the SCM Agreement, as well as 
displacement and impedance of e xports from third-country markets, 
within the meaning of Article 6.3(b).
2413 
1180.  On this basis, the Panel concluded that the effects of the FSC/ETI subsidies and the 
Washington State B&O tax rate reduction in the 100-200 seat LCA market2414, and the effects of the 
FSC/ETI subsidies and the Washington State and C ity of Everett B&O tax rate reductions in the 
300-400 seat LCA market, were:  (i) to significantly suppress Airbus' prices in sales in which it 
competed against Boeing;  (ii) to cause Airbus to  lose significant sales;  and (iii) to displace and 
impede EC exports in third-country markets.2415   
1181.  The Panel did not, in its analysis of the price effects of the tied tax subsidies in the 200-300 
seat LCA market, take account of the FSC/ETI subsidies.2416  For the 200-300 seat LCA market, the 
Panel therefore considered the price effects of onl y the Washington State and the City of Everett B&O 
tax rate reductions, and found that there was insuffi cient evidence to conclude that these subsidies 
were of a magnitude that would enable them, on their own, to have such an effect on Boeing's prices of the 787 so as to cause Airbus to suffer serious prejudice.
2417 
                                                      
2413Panel Report, para. 7.1822.  
2414The Panel determined that the City of Everett B&O tax rate reduction applies to the 777 and 787 
families, but not to the 737NG family. (Panel Report, para. 7.1803) 
2415Panel Report, para. 7.1823.   
2416As explained supra , footnote 1882, the European Communities did not claim that the FSC/ETI 
subsidies had adverse effects in the 200-300 seat LCA ma rket, and the Panel conducted  its analysis on the basis 
that these subsidies had no eff ects in that product market.   
2417Panel Report, para. 7.1824.  The European Union has appealed this finding, and contends that the 
Panel erred in failing to undertake an assessment of the collective effects of the aeronautics R&D subsidies and the B&O tax rate reductions in the 200-300 seat LCA mark et.  Our evaluation of this claim of error on appeal is 
set out in section X.E of this Report.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 492 HSBI omitted, as indicated [[HSBI]]  
 
  4. Assessment of the Panel's Causation An alysis under Articles 5(c) and 6.3(b) 
and (c) of the SCM Agreement  
1182.  We now turn to the United States' appeal.  Fi rst, we address general aspects of the Panel's 
causation analysis by focusing on the United St ates' allegation that the Panel relied on an 
"impermissible presumption"2418 that subsidies prohibited under Part II of the SCM Agreement  cause 
serious prejudice for purposes of Part III, as well as on the United States' arguments relating to the 
Panel's treatment of the magnitude of the tied ta x subsidies, its counterfactual analysis, and its 
consideration of the other factors advanced by the Un ited States to explain the alleged market effects.  
Second, we address the United States' contention that  the Panel committed specific errors in reaching 
its findings of significant price suppression, significa nt lost sales, and displacement and impedance.  
We note that the various elements of the United Stat es' claim relate to different aspects of the Panel's 
"unitary" analysis of the price effects of the tied ta x subsidies.  Therefore, we analyze independently 
each of these elements below and, once we have considered them all, we provide an overall 
assessment of the Panel's causation analysis. 
(a) Whether the Panel conducted a proper causation analysis 
(i) Nature of the tied tax subsidies 
1183.  As part of its causation analysis, the Panel consid ered several aspects of the nature of the tied 
tax subsidies.  As we have noted, the Panel f ound that, because both the FSC/ETI subsidies and B&O 
tax rate reductions were tied to  sales of individual LCA, they increase the profitability of LCA 
sales.2419  The Panel also examined the amount and duration of the FSC/ETI subsidies, totalling 
$2.2 billion over the period from 1989 to 2006, a nd $435 million during the reference period from 
2004 to 2006.2420  Furthermore, the Panel referred to evidence consisting of statements by Airbus and 
Boeing executives and the US Trade Representative i ndicating that FSC/ETI subsidies were essential 
to enhancing the international competitiven ess of Boeing versus its foreign competitors.2421  None of 
these aspects of the Panel's analysis is ch allenged on appeal by the United States.   
1184.  In addition, we noted the Pa nel's conclusion that, "precisely because the FSC/ETI subsidies 
are contingent on Boeing making export sales, {it was}  entitled to determine, absent reliable evidence 
to the contrary, that by their very nature , they will have trade distortive effects".2422  In respect of this 
analysis, the United States contends that the Pane l erred in relying on a presumption that subsidies 
                                                      
2418United States' other appellant's submission, heading VI.C.2, p. 134. 
2419Panel Report, paras. 7.1806 and 7.1807. 
2420Panel Report, para. 7.1811. 
2421Panel Report, para. 7.1817. 
2422Panel Report, para. 7.1810.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 493  
 
  found to be prohibited under Part II of the SCM Agreement  cause adverse effects within the meaning 
of Part III.  According to the United States, by  relying on its finding that FSC/ETI subsidies are 
prohibited export subsidies under Article 3.1(a) to r each its finding that the tied tax subsidies caused 
serious prejudice under Article 6.3, the Panel estab lished a presumption that is not permitted under the 
SCM Agreement .  The European Union does not address th e issue of whether such a presumption 
exists, but rather argues that the Panel did not rely on any such presumption.  In the European Union's 
view, the Panel referred to the FSC/ETI subs idies as export subsidies only to support its 
characterization of the nature of those subsidi es, and ultimately relied on other findings and 
conclusions to reach its finding of serious prejudice. 
1185.  In our view, the Panel's reasoning, considered in  its totality, does not show that it applied a 
presumption of the sort claimed by the United States.  The Panel referred to its findings, as well as the 
findings of previous panels, that the FSC/ETI s ubsidies are prohibited export subsidies within the 
meaning of Article 3.1(a) of the SCM Agreement.
2423  The Panel did not, however, express the view 
that the legal status of subsidies under Article 3.1(a) of the SCM Agreement  is determinative of the 
characterization of the effects of such subsidies for purposes of Article 6.3 of that Agreement.  Rather, 
the Panel stated that the FSC/ETI subsidies are, "by virtue of their very nature as export subsidies, 
more likely  to cause adverse trade effects".2424  This general proposition is  in itself unobjectionable.  
The Panel further indicated that it was the fact that  the FSC/ETI subsidies are "contingent on Boeing 
making export sales" that "entitled" the Panel to dete rmine, "absent reliable evidence to the contrary", 
that those subsidies, "by their very nature", will have trade distortive effects.2425  Notwithstanding 
certain ambiguities in this statement, we do not un derstand the Panel's reference to "trade distortive 
effects" as equating the existence of such eff ects to establishing "serious prejudice" or "adverse 
effects" within the meaning of Articles 5(c) and 6.3 of the SCM Agreement .  Rather, the Panel seems 
to have been elaborating upon its view that the nature of the FSC/ETI subsidies increases the 
likelihood that they will produce adverse effects, a nd indicating that it would, for that reason, accord 
this factor considerable weight in its analysis of such effects and of whether they demonstrated serious 
prejudice.  The Panel's statement also follows l ogically from the reasoning that immediately preceded 
it, in which the Panel referred to both "the inhere ntly trade-distorting nature of export subsidies"2426 
and to the fact that the FSC/ETI subsidies have a "d irect and immediate relationship to aircraft prices 
and sales".2427  To the extent that the arguments raised by the United States on appeal suggest that the 
                                                      
2423Panel Report, para. 7.1808, referring to paras. 7.1452-7.1455 (in turn referring to the panel and 
Appellate Body reports in US – FSC , US – FSC (Article 21.5 – EC) , and US – FSC (Article 21.5 – EC II) ). 
2424Panel Report, para. 7.1808. (emphasis added)  
2425Panel Report, para. 7.1810.  
2426Panel Report, para. 7.1809. 
2427Panel Report, para. 7.1807. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 494 HSBI omitted, as indicated [[HSBI]]  
 
  Panel was not "entitled" to attach significance to  the export-contingent nature of the FSC/ETI 
subsidies, we disagree.  We recall, in that conn ection, that the Panel found, and both parties accepted, 
that the nature of a challenged subsidy is a relevant  factor to take into c onsideration in determining 
whether it has caused adverse effects.   Indeed, we consider that an analysis of the export-contingent 
nature of a subsidy may reveal elements that are highl y pertinent to an assessment of its trade effects;  
at the same time, a finding of export-contingency would not, by itself, establish the existence of 
adverse effects phenomena such as t hose at issue in this appeal. 
1186.  In sum, we do not view the Panel as having made a legal finding that, for purposes of 
analyzing a claim of serious prejudice under Part III of the SCM Agreement , subsidies that have been 
found to be export-contingent within the meaning of Part II of that Agreement must be presumed to 
cause adverse effects.
2428  Furthermore, we note that the Panel itself, in a footnote to the Panel's 
reasoning that is challenged by the United States, refe rred to various other factors, in addition to the 
export-contingent nature of the FSC/ETI subsidies, that supported its findings regarding the effects of 
the tied tax subsidies.2429  This, too, demonstrates that the Panel did not reach its ultimate finding 
solely as a consequence of its finding, in a previous  section of its Report, that the FSC/ETI subsidies 
"are export-contingent subsidies to Boeing's LCA division prohibited under Articles 3.1(a) and 3.2 of 
the SCM Agreement." 2430 
(ii) Magnitude of the tied tax subsidies 
1187.  The United States also contends that the Panel er red in its consideration of the magnitude of 
the FSC/ETI subsidies in relation to LCA values and, in particular, that it fa iled to take proper account 
of the small magnitude of those subsidies.  The United States challenges the Panel's conclusion that, 
although both parties submitted evidence demonstrati ng that FSC/ETI benefits amounted to less than 
                                                      
2428The Panel referred to a statemen t by the Appellate Body in Canada – Aircraft  contrasting actionable 
subsidies, which "may  be illegal if  they have certain trade effects", with  "prohibited export subsidies for which 
the adverse effects are presumed ". (Appellate Body Report, Canada – Aircraft , para. 202 (quoted in Panel 
Report, para. 7.1808))  This statement, which was made in the course of an analys is of how a panel should 
adjudicate a claim under Article 3.1(a) of the SCM Agreement , refers to the fact that  a complainant bringing a 
claim under Article 3.1(a) of the SCM Agreement is entitled to a finding of inconsistency if it can establish that 
the challenged subsidy is contingent upon export performance.  Unlike a complainant seeking to establish a 
claim of adverse effects under Part III of the SCM Agreement , a complainant raising an Article 3.1(a) claim is 
not required in addition to establish the effects of that subsidy.   
2429Panel Report, footnote 3763 to para. 7.1810 (referring to its reasoning in paras. 7.1806, 7.1807, 
7.1811, and 7.1817-7.1823).  
2430Panel Report, para. 7.1464;  see also para. 8.2(a).  We recall that this finding of the Panel has not 
been appealed.  BCI deleted, as indicated [***] WT/DS353/AB/R 
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  1% of the value of Boeing's sales, that evidence wa s not "particularly informative or illustrative" of 
the capacity for the FSC/ETI subsidies to have affected LCA prices and sales.
2431   
1188.  The European Union contends that the Pane l conducted a thorough assessment of magnitude, 
taking into account important contextual factors relati ng to the nature and duration of the subsidies, as 
well as the conditions of competition.  In doing so, the Panel "explained the significance of highly-trade-distorting tax subsidies of relatively small magnitude".
2432  The European Union argues that the 
Panel's approach reflected a qualitative assessment of  the magnitude of the subsidies, which was 
within its discretion in reachi ng its findings of causation. 
1189.  As explained above, the Panel's assessment of magnitude comprised several elements.  The 
Panel quantified the absolute amounts of the tied tax subsidies, and allocated amounts to the reference 
period.2433  The Panel considered that, given the par ticularities of LCA production and sale, "the 
effects of the subsidies should be understood to begi n at the time at which an LCA order is obtained 
(or an order is lost) and to continue up to and incl uding the time at which that aircraft is delivered (or 
not delivered)."2434  The Panel rejected certain aspects of the allocation methodology proposed by the 
European Communities.2435  The Panel then noted the United States' argument that the FSC/ETI 
amounts were too small relative to LCA order revenues to have affect ed Boeing's pricing to a degree 
that would lead it to win sales that it would not otherwise have won, or to force Airbus to win sales only at lower prices than it would otherwise have  obtained.  The Panel also referred to the 
European Communities' response, notably its cont ention that the significance of the size of the 
FSC/ETI subsidies should be measured by ad valorem  rates of subsidization based, not on order 
values but, rather, on the sales revenue from LCA deliveries against which the subsidies accrued.  The Panel reproduced the tables submitted by each party in this regard, which contained the following 
data: 
                                                      
2431United States' other appellant's submission, para. 324 (quoting Panel Report, para. 7.1816). 
2432European Union's appellee's submission, para. 573. 
2433Panel Report, para. 7.1811.   
2434Panel Report, para. 7.1812. 
2435Panel Report, paras. 7.1812 and 7.1813. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 496 HSBI omitted, as indicated [[HSBI]]  
 
  Table 7.  Relative amounts of FSC/ETI subsidies 
Year Amount of 
FSC/ETI 
subsidies 
($m) United States European Communities 
Value of orders
($m) FSC/ETI 
subsidies as % 
of order value Delivery 
revenue 
($m) FSC/ETI 
subsidies as % 
of delivery 
revenue 
2000 266 32,591 0.82 24,792 1.07 
2001 197 16,588 1.19 27,251 0.72 
2002 179 12,585 1.42 22,100 0.81 
2003 107 9,771 1.10 16,637 0.64 
2004 153 16,650 0.92 15,905 0.96 
2005 142 67,193 0.21 14,777 0.96 
2006 140 61,579 0.23 21,562 0.65 
Source : Panel Report, paras. 7.1814 (re ferring to United States' first written subm ission to the Panel, para. 815) and 7.1815 
(referring to International Trade Res ources LLC, "Response to US Criticisms of ITR Subsidy Magnitude Report" 
(1 November 2007) (Panel Exhibit EC-1181), para. 16). 
 
1190.  Having referred to this data, the Panel e xpressed the view that neither data set was 
"particularly informative or illust rative of the capacity for the FSC/ETI subsidies to have affected 
Boeing's prices, and by extension, Airbus' prices and sales."2436  The Panel then went on to examine 
evidence that it considered "point{s} quite clearly to the significance of the FSC/ETI subsidies to 
Boeing's ability to compete on price against Airbus".2437  The Panel thus appears to have considered 
that the tied tax subsidies were capable of produc ing price effects notwithstanding the United States' 
contention that they were too small to have had such effects. 
1191.  On appeal, the United States does not cha llenge the Panel's fi ndings regarding the absolute  
amounts of the FSC/ETI subsidies, constituting $2.2  billion between 1989 a nd 2006, and $435 million 
during the reference period.  Rather, the United St ates asserts that the Panel failed to take proper 
account of the relative  size of the FSC/ETI subsidies in re lation to LCA values over the reference 
period.  We understand the United States' argument to be that the Panel could not, in the light of the 
relatively small magnitude of these subsidies, have made the findings that it did regarding the clear 
"significance of the FSC/ETI subsidies to Boeing's ability to compete on price against Airbus".2438 
1192.  We recall that the Appellate Body addressed i ssues relating to the amounts of the subsidies at 
issue in US – Upland Cotton.  In that dispute, the Appellate Body rejected the United States' 
contention that Article 6.3(c) requires a panel to quantify precisely the amount of the challenged 
subsidy benefiting the product at issue in every case.   The Appellate Body nevertheless stressed that, 
in analyzing a claim of significant price suppression, "a  panel will need to consider the effects of the 
subsidy on prices" and that, in doing so, "it may be di fficult to decide" whether the effect of a subsidy 
                                                      
2436Panel Report, para. 7.1816. 
2437Panel Report, para. 7.1818. 
2438Panel Report, para. 7.1818.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 497  
 
  is significant price suppression without having regard to "the magnitude of the challenged subsidy and 
its relationship to prices of the product in the relevant market."
 2439  Moreover, although "{t}he 
magnitude of the subsidy is an important factor"2440, a panel needs to take into account "all relevant 
factors"2441 in determining the effects of subsidies on prices.   
1193.  In our view, both the absolute and the relativ e magnitudes of subsidies are likely to be 
relevant to a panel's analysis of the effects of subs idies on prices.  Both considerations may shed light 
on the impact that those subsidies have on pric e, although the extent to which either or both 
considerations shed light on this relationship will depend on the particular subsidies, products, and 
markets at issue.  Through scrutinizing magnitude in  the light of and as part of an analysis of the 
particular subsidies, the particular products, and th e particular characteristics of the market within 
which those products compete, a panel can gain an un derstanding of the effects that the subsidies have 
on prices, and of the relevance of the subsidies' magn itude to such effects.  In other words, what it 
means to take account of considerations of "m agnitude" will also depend upon the circumstances of 
each case and the market phenomenon at issue.2442  Depending on the circumstances of each case, an 
assessment of whether subsidy amounts are signifi cant should not necessarily be limited to a mere 
inquiry into what those amounts are, either in absolute or pe r-unit terms.  Rather, such an analysis 
may be situated within a larger inquiry that c ould, for instance, entail viewing these amounts against 
considerations such as the size of the market as a wh ole, the size of the subsidy recipient, the per-unit 
price of the subsidized product, the price elasticity of demand, and, depending on the market structure, 
the extent to which a subsidy recipient is able to set its own prices in the market, and the extent to 
which rivals are able or prompted to react to each  other's pricing within that market structure.  
Considerations of some of these elements formed part of the Appellate Body's analysis of the 
magnitude of price-contingent subsidies in US – Upland Cotton (Article 21.5 – Brazil)2443, and of the 
submissions that each of the parties made before the Panel in this dispute regarding the amount of the 
FSC/ETI subsidies relative to Boeing's delivery and order revenues.   
                                                      
2439Appellate Body Report, US – Upland Cotton , paras. 461 and 467.   
2440Appellate Body Report, US – Upland Cotton , para. 461.  Moreover, the Appellate Body noted:  
"A large subsidy that is closely linked to prices of the relevant product is likely to have a greater impact on 
prices than a small subsidy that is less closely linked to prices." ( Ibid.) 
2441Appellate Body Report, US – Upland Cotton , para. 461.  
2442Like the Panel, we use the term "magnitude" he re in its broad sense ("{t}he 'magnitude' of 
something is generally understood as a reference to its size, extent, degree, or numerical quantity or value") and 
not in the specialized sense that it was at times used by the European Communities before the Panel, meaning a 
per-LCA aircraft amount calculated by allocating the total amounts of subsidies over time and across aircraft models. (Panel Report, footnote 3390 to para. 7.1615;  see also para. 7.1616) 
2443The Appellate Body explained that the panel in that case had found that the "magnitude of the 
marketing loan and counter-cyclical payments {was} signifi cant not only in absolute terms, but also as a share 
of United States producers' total revenues". (Appellate Body Report, US – Upland Cotton (Article 21.5 – 
Brazil) , para. 362 (referring to Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 10.111)) WT/DS353/AB/R BCI deleted, as indicated [***] 
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  1194.  Like that of the panel in US – Upland Cotton
2444, the reasoning of the Panel in this dispute 
with respect to the magnitude of the subsidies is somewhat opaque, and could have been more clearly 
elaborated.  It may well be that, in considering magnitude, the Panel relied primarily on its findings 
regarding the absolute  amounts of the tied tax subsidies.  In this case, however, the parties also 
presented arguments and evidence regarding the relative  significance of the subsidies and, in 
particular, on the issue of whether those subsidies we re of a size that, when considered in relation to 
product values or prices, could produce market effects amounting to serious prejudice.  We do not 
exclude that subsidies of a relatively small magnit ude in relation to product values or prices could 
have such effects, or that the Pa nel could have reasoned to  that conclusion in the circumstances of this 
case.  Instead, however, the Panel dismissed the eviden ce advanced by the parties as not "particularly 
informative or illustrative" of the capacity of these subsidies to affect Boeing's prices, without 
explaining why it considered this to be so.  Given that a comparison of the magnitude of the FSC/ETI 
subsidies in relation to LCA values  was a relevant matter clearly put before the Panel, we consider 
that the Panel should have offered more of an expl anation as to why it rejected the relevance of such 
data for its analysis. 
1195.  At the same time, however, we note that, after dismissing the parties' submissions regarding 
the relative magnitude of the FSC/ETI subsidies as compared to order values and revenues, the Panel 
did provide other reasons, arguably relating to the magnitude of these subsidies, for its finding in 
paragraph 7.1818 regarding the clear "significance of the FSC/ETI subsidies to Boeing's ability to 
compete on price against Airbus".  Among the other considerations that the Panel identified, at least 
one concerned the relative amount of the FSC/ETI subsidies for individual LCA.2445  Furthermore, 
earlier in its analysis, the Panel had identified elem ents other than magnitude and, notably, stressed 
the nature of the FSC/ETI subsidies as export subs idies, which are "more likely to cause adverse trade 
effects" and which have a "more direct relations hip to Boeing's LCA prices than the aeronautics R&D 
subsidies".2446   
                                                      
2444Although the Appellate Body accepted that panel' s characterization of the magnitude of the 
subsidies as "very large amounts", it nonetheless observed that the panel "could have been more explicit and specified what it meant" in that  regard. (Appellate Body Report, US – Upland Cotton , para. 468)   
2445The Panel referred to, and appears to have accepte d, evidence of comments made by an Airbus 
customer during a 1996 sales campaign suggesting that Ai rbus needed to lower its prices by as much as 
$4 million per aircraft to match the pri ces that Boeing was able to offer as a result of the FSC subsidies. (Panel 
Report, para. 7.1817 (referring to C. Scherer, Airbus SAS, "Commercial Aspects of the Aircraft Business from 
the Perspective of a Manufacturer" (March 20 07) (Panel Exhibit EC-11 (BCI)), para. 56)) 
2446Panel Report, para. 7.1808.  The Panel explained that they are, by their "very nature as export 
subsidies, more likely to cause adverse trade effects". ( Ibid.;  see also para. 7.1817)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 499  
 
  (iii) The Panel's counterfactual analysis 
1196.  The United States further argues that the Panel did not apply a proper counterfactual analysis, 
because it failed to establish that, absent the tied ta x subsidies, Boeing's LCA prices would have been 
higher.  In response to the United States' argument before the Panel that Boeing's pricing decisions 
were commercially rational and pr ofit-maximizing, the European Co mmunities contended that Boeing 
would not have had the resources to act on its co mmercial incentives without subsidies.  In the 
United States' view, the parties' argumentati on and evidence thus narrowed the counterfactual 
question "to whether, but for  the subsidies, Boeing would have had the resources to act in an 
economically rational manner".
2447  The United States considers that, because the Panel rejected the 
European Communities' argument that Boeing lacked  the financial means to price and develop its 
LCA in the manner in which it did, the Panel's findings  and the undisputed facts on the record lead to 
the conclusion that Boeing's prices would not have been different without subsidies.   
1197.  The European Union contends that the Pane l "engaged in a comprehensive counterfactual 
analysis".2448  That analysis, the European Union mainta ins, consisted of the nature, magnitude, and 
duration of the tied tax subsidies, as well as the conditions of competition in the LCA industry.  The 
European Union also points to the Panel's finding th at the United States agreed that tied tax subsidies 
have an impact on output and prices2449, and argues that the Panel's findings and the facts on the Panel 
record do not support the contention that Boeing had the ability to lower its LCA prices in the absence 
of subsidies. 
1198.  The Panel stated at the outset of its adve rse effects analysis that it would conduct a 
counterfactual analysis.2450  In its analysis of the price effects of the tied tax subsidies, however, the 
Panel did not expressly refer to a counterfactual an alysis, or provide a discussion of what market 
situation would have existed in th e absence of the challenged subsidies.2451  As we have set out above, 
the Panel explained that the nature of the tied ta x subsidies, in particular, the export-contingent 
FSC/ETI subsidies, was more likely to produce trade- distortive effects.  We also noted the Panel's 
consideration of arguments and evidence con cerning the amount and duration of the tied tax 
subsidies—including the total amount of FSC/ETI  subsidies granted to Boeing between 1989 and 
                                                      
2447United States' other appellant's submission, para. 109, p. 129. (original emphasis)  We note that the 
United States' other appellant's submission contains two paragraphs numbered 109;  our reference is to the 
second of those paragraphs. 
2448European Union's appellee's submission, para. 530. 
2449Panel Report, para. 7.1806. 
2450Panel Report, para. 7.1659. 
2451As we have noted, the European Communities had estimated, on the basis of its calculations of 
per-LCA subsidy magnitudes, counterfactual prices for the A320 and A340 in the absence of subsidies by 
adding the per-LCA subsidy amounts to indexed prices for those LCA. (See supra , footnotes 2371 and 2372) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 500 HSBI omitted, as indicated [[HSBI]]  
 
  2006, and during each year of the reference peri od from 2004 to 2006—as well as anecdotal evidence 
consisting of statements by Airbus and Boeing executives and the US Trade Representative indicating 
that FSC/ETI subsidies were essential to enha ncing the international competitiveness of Boeing 
versus its foreign competitors.   
1199.  On this basis, the Panel concluded, in paragraph 7.1818 of its Report, as follows: 
We have no doubt that the availability  of the FSC/ETI subsidies, in 
combination with the B&O tax subsid ies, enabled Boeing to lower its 
prices beyond the level that would otherwise have been economically 
justifiable, and that in some cases, this led to it securing sales that it would not otherwise have made, while  in other cases, it led to Airbus 
being able to secure the sale only at a reduced price. 
1200.  We recall that a core element of the Europ ean Communities' causation theory was that, 
although the tied tax subsidies gave Boeing the poten tial to use those benefits to lower LCA prices by 
up to the amount of the subsidy, Boeing was more likely to do so in what the European Communities 
referred to as competitive sales campaigns.  Thus, al though the tied tax subsidi es have the potential to 
produce trade-distortive effects, this does not establis h under what circumstances, or to what extent, 
they will do so in particular sales campaigns.  On that basis we understand that, when the Panel 
concluded that the tied tax subsidies "enabled Boei ng to lower its prices beyond the level that would 
otherwise have been economically justifiable", the Panel considered that these subsidies only 
established the possibility or likelihood that Boeing would do so in particular sales campaigns.  In 
addition, although the Panel concluded that this possibility would lead "in some cases" to lost sales, 
and "in other cases" to price suppression, the Panel did not explain the circumstances in which, or the 
extent to which, it considered th at such phenomena would occur.   
1201.  For these reasons, we are unable to discern the precise meaning or scope of the Panel's 
statement that the tied tax subsidies enabled Boei ng to lower its prices "beyond a level that would 
otherwise have been economically justifiable".  Th e Panel did not, in so finding, discuss LCA prices 
for Boeing or Airbus, or explain what would have constituted "economically ju stifiable" behaviour for 
Boeing in the absence of subsidies, and compare th at with Boeing's actual pricing behaviour.  The 
Panel referred to evidence attesting to the si gnificance of the FSC/ETI subsidies in increasing 
Boeing's competitiveness, but the only evidence that re lates to pricing was a statement by an Airbus 
negotiator regarding a sales campaign in 1996, eight years prior to the reference period in this dispute, 
in which Airbus was asked by a customer to reduce its price by $4 million per aircraft due to Boeing's  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 501  
 
  receipt of FSC subsidies.
2452  We therefore consider that, becau se the Panel did not provide reasoning 
or discuss under what circumstances the tied tax s ubsidies led Boeing to lower its prices beyond the 
level that would otherwise have been economically justifiable in LCA sales campaigns, it could not 
conclude on a generalized basis that these subsidi es led Boeing to lower its prices in a manner causing 
Airbus to lose sales or to secure sales only at reduced prices. 
1202.  The United States argues that the Panel was unc onvinced that Boeing lacked the financial 
means without subsidies to price the LCA in the manner in which it did.2453  Before the Panel, the 
United States had maintained that the subsidi es had no such effect, because Boeing was able to 
engage in the pricing and product development behaviour it did without the need for subsidies.  The 
European Communities argued that Boeing would have  had insufficient resources in the absence of 
subsidies to sustain its pricing levels.  The pa rties submitted extensive information concerning the 
appropriate basis on which to conduct a counterfactua l analysis of whether the Boeing LCA division's 
pricing and product development be haviour would have been possibl e had it not received an alleged 
$19.1 billion in subsidies between 1989 and 2006.2454  The Panel concluded that, because the total 
subsidies found by the Panel amounted to at least $5.3 billion, rather than the $19.1 billion amount 
claimed, the argument that Boeing could not have engaged in the pricing and product development 
behaviour it did without subsidies was "untenable".2455  On that basis, the Panel concluded that it was 
"not persuaded that the European Communities has demonstrated that Boeing inherently lacked the 
financial means to price and develop its  LCA in the manner in which it did".2456   
1203.  The European Union argues that, on appeal, the United States now posits an "alternative 
counterfactual"2457, and that the Panel's rejection of the European Communities' argument concerning 
the ability of Boeing absent the subsidies to price and develop its LCA in the manner in which it did 
"is not tantamount to a finding that Boeing had 'unfe ttered access' to capital, which would have 
allowed Boeing to make its pricing decisions  independently of US subsidy payments".2458  T h e  
European Union further contends that the Panel' s findings and the facts on the record do not support 
the United States' position that Boeing could have fina nced actual LCA price levels without subsidies.  
According to the European Union, "there is cons iderable evidence before the Panel supporting the 
                                                      
2452Panel Report, para. 7.1817 (referring to C. Sche rer, Airbus SAS, "Commercial Aspects of the 
Aircraft Business from the Perspective of a Manufact urer" (March 2007) (Panel Exhibit EC-11 (BCI)), 
para. 56). 
2453See, for example, Panel Report, pa ras. 7.1759, 7.1830, and 7.1831. 
2454Panel Report, footnote 3787 to para. 7.1830. 
2455Panel Report, para. 7.1831. 
2456Panel Report, para. 7.1759. 
2457European Union's appellee's submission, para. 543. 
2458European Union's appellee's submission, para. 547. (original emphasis) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 502 HSBI omitted, as indicated [[HSBI]]  
 
  conclusion that Boeing is unable to take pricing deci sions unconstrained by variations in its cash flow, 
thus preventing the company from pricing its LC A in a manner independent of US subsidies".
2459   
1204.  In our view, the United States is not advanci ng an alternative counterfactual scenario, but 
rather is asserting that the Panel's own counterfactua l analysis is internally inconsistent.  If the Panel 
was unpersuaded that Boeing lacked the financial m eans without subsidies to price its LCA in the 
manner in which it did, that finding would appear to be in tension with the Panel's conclusion that the 
tied tax subsidies caused serious prejudice by a ltering Boeing's pricing behaviour.  Moreover, 
although there was ample evidence before the Pa nel addressing the issue of whether Boeing could 
price LCA as it did in the absence of subsidies, we  do not see that the Panel considered or discussed 
that evidence in its reasoning.  These observations  underscore our concern that the Panel did not 
adequately reason or explain the basis for its genera lized finding that the tied tax subsidies led Boeing 
to lower its prices in a manner causing Airbus to lo se sales or to secure sales only at reduced prices.  
(iv) The effects of other factors 
1205.  Finally, the United States argues that the Panel fa iled to engage in a meaningful analysis of 
the effects of other factors on prices and sales of Boeing and Airbus LCA.  The European Union maintains that the Panel considered other factors re levant to its unitary causation analysis and that it 
explicitly rejected the United States' arguments that  these factors reverse or attenuate Boeing's pricing 
advantage due to its receipt of FSC/ETI subsidies. 
1206.  We have set out in section X.A our understanding of how a panel should proceed in the 
consideration of the effects of other factors.  Ther e we explained that, when confronted with multiple 
factors that may have contributed to the alleged adverse effects, a panel must seek to understand the 
interactions between the subsidies at issue and the va rious other factors, and ma ke some assessment of 
their connection to, as well as the relative contribu tion of the subsidies and the other factors in 
bringing about, the relevant effect.  Although a pane l need not determine that a subsidy is the sole or 
the only substantial cause of that effect, it must ensu re that the other factors do not dilute the causal 
link between those subsidies and the alleged adverse e ffects such that it is not possible to characterize 
that link as a genuine and substantia l relationship of cause and effect. 
1207.  In setting out certain preliminary considera tions relevant to its evaluation of the 
European Communities' claim of serious prejudice, th e Panel in this case explained that it would take 
"potential non-attribution factors into account simultan eously with the effect of the subsidies and in 
                                                      
2459European Union's appellee's submission, para. 550. (footnote omitted)   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 503  
 
  the context of conditions of competition affecting the market".
2460  In its subsequent analysis of the 
price effects of the tied tax subsidies, the Panel refe rred only briefly to the fact that the United States 
had identified other factors: 
The FSC/ETI programme was in operation prior to 2000, and it is 
therefore not possible for the Pane l to ascertain the effects of the 
subsidies from direct observation of  market share and pricing trend 
data over the 2000-2006 period.  The United States' explanations of 
factors that it considers explain the prices and performance of Airbus LCA relative to Boeing LCA in the 100-200 seat single aisle, and 300-400 seat wide-body product ma rkets in the 2004-2006 period 
similarly do not reverse or attenua te the pervasive and consistent 
pricing advantage that Boeing had in LCA campaigns in the 
2001-2003 period due to the availability of the FSC/ETI subsidies.{*}
2461  
{*original footnote 3777} E.g. United States' first written submission, 
paras. 1064-1080, 1138-1155. 
1208.  The Panel thus reasoned that, because the FSC /ETI programme was in effect before the 
reference period, this made it impossible for it to de termine the effects of the subsidies through direct 
observation of market share and price trend data.  This reasoning would suggest that any observations 
that could be made about LCA prices before and during the reference period would not have assisted 
the Panel in ascertaining the price effects of the su bsidies since any such effects would have always 
been present during this period of sustained subsidiza tion.  For this reason, the Panel considered that 
the United States' evidence of other causal factor s does not "reverse or attenuate the pervasive and 
consistent pricing advantage that Boeing had in  LCA campaigns", a conclu sion that would seem to 
apply not only to the period from 2001-2003, but al so, under the Panel's logic, to the subsequent 
reference period from 2004-2006, as well as to periods prior to 2000. 
1209.  We do not agree with the suggestion of the Pane l that considerations of market share and 
price trends during a period of sustained subsidizati on, and of "other factors" potentially contributing 
to such shares or trends, were of no assistance or rele vance in analyzing the eff ects of the subsidies.  
As the Appellate Body has explained in the c ontext of price suppression, although mere correlation 
between the payment of subsidies and significantl y suppressed prices would be insufficient, without 
                                                      
2460Panel Report, para. 7.1660. (footnote omitted)  There, the Panel explained that: 
{i}n other words, in conducting our analysis of whether the subsidies 
affected Boeing's pricing and product offerings, we will also analyze the 
effects of other factors that are allege d to have affected that behaviour.  
Similarly, in analyzing the effects of the subsidies on Airbus' prices and 
sales, we will consider the effect of factors other than Boeing's pricing and 
product offerings on Airbus' prices and sales in each of the three product markets. 
2461Panel Report, para. 7.1819. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 504 HSBI omitted, as indicated [[HSBI]]  
 
  more, to prove the effects of the subsidies, " one would normally expect a discernible correlation 
between significantly suppressed prices and the challenged subsidies."
2462  In this dispute, the 
United States asserts that there is no correlation betw een subsidy levels and LCA price trends before 
and during the reference period, and that this is ev idence of the lack of a causal relationship between 
the tied tax subsidies and Boeing's prices.2463  We consider that, even if the FSC/ETI subsidies were 
provided over a long period, the question as to whether there was a discernible correlation between 
subsidy levels and price trends was still a relevant one.  Moreover, the lack of such a correlation 
would seem to have called for some explanation as to why this did not detract from or preclude the 
Panel from reaching a finding of a genuine and substa ntial causal relationship in this dispute.  The 
Panel, however, did not discuss these considerations in its analysis.  
1210.  We further note that the Panel did not, in its reasoning, mention any specific other factors 
raised by the United States, or engage in any discussi on of whether or to what extent such factors may 
have had an effect on Boeing's pric ing of its LCA or on Airbus' prices and sales.  In a footnote to its 
Report, the Panel cited to certa in paragraphs of the United States' first written submission.2464  In those 
paragraphs, the United States had advanced other factor s that, in its view, explained the pricing levels 
of Airbus and Boeing LCA.  The United States points to those same factors on appeal.  First, the 
United States claims that, in the years prior to and during the reference period, Airbus undercut 
Boeing prices in both the 100-200 seat and 300-400 seat LCA markets, which increased Airbus' market share and set customer expectations for low prices in subsequent campaigns.  Second, the 
United States asserts that Boeing changed its LCA pricing policy in 2004 and 2005 to respond to low 
Airbus prices.  Third, the United States argues that, with respect to the 300-400 seat LCA market, 
prices for Airbus' "four-engine A340 [    ***       * * *    ] " .
2465 
1211.  The European Union argues that each of the ot her factors identified by the United States is 
unavailing.  The European Union maintains that it was Boeing, not Airbus, that undercut prices in the 
100-200 seat LCA market, and that, even if Boeing ma y have changed its prici ng strategy, the tied tax 
                                                      
2462Appellate Body Report, US – Upland Cotton , para. 451. 
2463The United States argues that LCA prices were [  ***  ] during a period of relatively higher 
subsidization from 2001-2003 than they were during a period of relatively lower subsidization from 2004-2006. 
(United States' other appellant's submission, para. 330) 
2464Panel Report, footnote 3777 to para. 7.1819 (referr ing to, for example, United States' first written 
submission to the Panel, paras. 1064-1080 and 1138-1155). 
2465United States' other appellant's submission (BCI), para. 332 (referring to United States' second 
written submission to the Panel, HSBI Appendix, Annex A – Additional Comments on Arguments Raised in the 
EC Confidential Oral Statement, para. 64).  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 505  
 
  subsidies nevertheless " always allowed Boeing to have an additional  pricing advantage".
2466  
Regarding Boeing's fuel efficiency advantage in  the 300-400 seat LCA market, the European Union 
argues that the tied tax subsidies still enabled Boei ng to suppress 777 prices, even if the absolute 
prices for the 777 were higher than those for the A340.  Again, the European Union argues, the 
provision of the tied tax subsidies meant that Boeing "would always have a pricing advantage because 
of the guaranteed FSC/ETI and B&O tax subsidies".2467 
1212.  Because the Panel did not discuss any of th e specific other factors advanced by the 
United States, it did not consider whether any of the other factors were capable of attenuating a 
genuine and substantial rela tionship between the tied tax subsidies a nd the market effects.  We recall 
that the theory of causation advanced by the Eu ropean Communities and accepted by the Panel was 
that the tied tax subsidies led Boeing to lower its LC A prices, and that such price effects led to lost 
LCA sales and suppressed LCA prices for Airbus.2468  In evaluating such a claim in the context of a 
duopolistic market, it seems to us that the question is not why Boeing lowered its LCA prices in the 
context of particular sales campaigns but, rather, whether  Boeing lowered its prices by using the tied 
tax subsidies.   
1213.  In our view, two of the general factors men tioned by the United States—that is, that it was 
Airbus that initiated the downwar d pricing trend, and that Boeing simply responded by becoming 
more competitive on price—merely reflect the competitive conditions in a duopolistic market 
whereby price changes by one firm affect the pricing behaviour of its competitor.2469  I n  s a l e s  
campaigns that are waged and won principally on the basis of price, Boeing and Airbus typically set 
LCA prices through a series of successively lower offe rs until a final price is accepted by a customer.  
In this respect, whether it was Airbus or Boeing th at first engaged in the lowering of prices would 
seem to have little bearing on the proper inquiry in respect of the end result of a competitive 
campaign, namely, whether the subsidies were used  to effect additional price reductions of Boeing 
LCA, resulting in lost sales and price suppression for Airbus.  In answering this latter question against 
the backdrop of the Panel's account of the nature, duration, and magnitude of the tied tax subsidies, 
and the duopolistic conditions in the LCA industry, we do not consider that, in sales campaigns that 
are more sensitive to price competition, an inquiry as to which LCA manufacturer initiated the first 
                                                      
2466European Union's appellee's submission, para. 606. (original emphasis)  The European Union adds, 
"even assuming, arguendo , that Boeing decided to offer more competitive pricing, the FSC/ETI and B&O tax 
subsidies, independently, gave it an additional and persistent advantage and capability of lowering its prices 
further than would otherwise have been possible, in pa rticular in strategic sales campaigns against Airbus." 
(Ibid., para. 607 (original emphasis)) 
2467European Union's appellee's submission, para. 608. (original emphasis) 
2468Panel Report, para. 7.1818.  
2469Panel Report, para. 7.1688.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 506 HSBI omitted, as indicated [[HSBI]]  
 
  move in lowering prices, and which responded, w ould be determinative.  We therefore are not 
persuaded that such observations constitute "other f actors" that need to be assessed in relation to the 
causal work of the tied tax subsidies. 
1214.  Conversely, we consider that pertinent other f actors for consideration could include those that 
explain the effects of lost sales or s uppressed prices on Airbus through a mechanism other than  the 
lowering of LCA prices by Boeing.  Factors that  suggest the existence of  competitive dynamics that 
advantaged Boeing or disadvantaged Airbus in LCA sales campaigns, apart from a downward 
pressure on Boeing's LCA prices, would be important cons iderations to factor into the causal analysis.  
For example, the fact that Boeing's 777 benefits from a fuel burn efficiency would be an important 
factor to have taken into account in assessing whethe r Boeing used the subsidies to lower its prices 
and thereby to cause serious prejudice in the 300-400 seat LCA market.  This operating cost 
advantage might suggest that Boeing was not subject to the same sort of pricing pressure in this 
product market as it was in other product markets where there was a less ma rked disparity between 
the performance characteristics of the competing LC A.  Likewise, if Boeing were the incumbent 
supplier in a particular sales campaign, this might also constitute an advantage for Boeing indicating 
that it would not have been under the same pressure to lower prices as it would have been in a more 
competitive campaign.  Since these factors suggest th at the effects on Airbus' sales and prices did not 
result from the lowering of Boeing's prices, they each  represent an "other factor" that potentially 
contributes to those effects.  The Panel should ha ve examined the role these other factors had in 
causing Airbus to lose sales or to reduce prices. 
1215.  In the light of the above, we consider that  the Panel should have addressed these specific 
other factors raised by the United States and assessed whether they were capable of contributing to 
effects on Airbus' sales and prices and, if so, what  their relative causal significance was in relation to 
that of the tied tax subsidies.  As we have expl ained above, even when subsidies are provided over a 
long period, this does not excuse a panel from provi ding an examination and reasoned explanation as 
to what contribution, if any, other relevant factors may be making to the same effects.  
1216.  The Panel's failure to address th e relative significance of the other causal factors to Boeing's 
price effects contrasts sharply with the Panel's consider ation of such factors in respect of the effects of 
the aeronautics R&D subsidies in the 200-300 seat LCA market.  There, the Panel considered the 
sales campaign evidence presented by the European Communities as set out in Annex D to its first 
written submission to the Panel.  Having reviewed th at evidence, the Panel concluded that, in several 
of the sales campaigns, factors other than the subs idy-enabled performance characteristics and the 
timing of launch and delivery of the 787 played a significant part in Boeing obtaining the sale.  The  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 507  
 
  Panel expressly referred to such other causal factor s, including:  Boeing's relationship with the 
purchasing airline;  the particular routes to be service d and range of the aircraft;  and the effect of the 
competition between the A340 and the 777 and the pr eference of the airline for a mixed fleet.
2470  The 
Panel went on to find, however, that the performan ce characteristics of the 787 and/or its scheduled 
entry into service in 2008 were the decisive factor s in the outcomes in four  sales campaigns for which 
it concluded that the aeronautics R&D subsidies caused significant lost sales.2471  We consider that, as 
the Panel did in respect of the 200-300 seat LCA market, the Panel should also have conducted an 
analysis of the other causal factors advanced by th e United States in examining the effects of the tied 
tax subsidies in the 100-200 seat and 300-400 seat LCA markets. 
(b) Whether the Panel conducted a proper analysis of significant price 
suppression, significant lost sales, and displacement and impedance 
1217.  We now address the United States' appeal as it relates to the Panel's specific findings of 
significant price suppression, significant lost sales,  and displacement and impedance within the 
meaning of Article 6.3(b) and (c) of the SCM Agreement .   
1218.  As we have noted, having concluded that the tied tax subsidies enabled Boeing to lower its 
prices below what would otherwise have been " economically justifiable", the Panel nevertheless 
found that it was impossible to ascertain the effect s of the FSC/ETI subsidies from direct observation 
of market share and pricing trend data during th e 2000-2006 period because the FSC/ETI programme 
was in operation prior to 2000.2472   
1219.  The Panel then considered that it had to proceed  in one of two ways.  It could "decline to 
make a serious prejudice finding because of the diffi culty of calculating with mathematical certitude 
the precise degree to which Boeing's pricing of th e 737NG and 777 families of aircraft was affected" 
by the tied tax subsidies.2473  Alternatively, the Panel explained, it could "deduce" the effects of those 
subsidies on Airbus' sales and prices during the reference period "based on commonsense reasoning 
and the drawing of inferences" from its conclusions re garding the nature of the subsidies, the duration 
of the FSC/ETI subsidies, and the nature  of competition between Airbus and Boeing.2474   
1220.  We are puzzled by the Panel's apparent view that  the particular circumstances of this dispute 
somehow forced upon it a choice between two diamet rically opposed alternatives.  Although such 
circumstances may have rendered the Panel's task  of assessing the European Communities' claim of 
                                                      
2470Panel Report, para. 7.1786 and footnote 3725 thereto. 
2471Panel Report, paras. 7.1786 and 7.1787.  
2472Panel Report, para. 7.1819.  
2473Panel Report, para. 7.1821. 
2474Panel Report, paras. 7.1820 and 7.1822. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 508 HSBI omitted, as indicated [[HSBI]]  
 
  serious prejudice difficult, the Panel still could ha ve assessed whether it had arguments and evidence 
before it that would have allowed it to estimate th e effects of the subsidies on Boeing's prices with 
something less than "mathematical certitude".
2475  Even if it considered that further efforts to assess 
the effects of the subsidies in quantitative terms w ould not be fruitful, this would not have excused the 
Panel from evaluating whether the remainder of th e extensive argumentation and evidence adduced by 
the European Communities could, to the extent th at it was not rebutted by the competing arguments 
and evidence of the United States, have sufficed  to support a finding of serious prejudice.2476   
1221.  Nor do we see that the use of common sense and inferences in the course of adjudicating a 
claim can be characterized as somehow exceptional.  The adjudication of a claim of serious prejudice must, like a panel's adjudication of any other matter,  be grounded in the application of the relevant 
provisions of the covered agreements, properly interp reted, to the relevant facts, properly identified 
                                                      
2475We recall, in this regard, the approach of the panel in US – Upland Cotton (Article 21.5 – Brazil).  
That panel did not quantify the precise price effects of the subsidies, but it did refer to, and rely upon, a range of 
estimates of those price effects resulting from simulations submitted by both parties to that dispute. (See 
Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 365)  According to the 
European Communities, a somewhat similar approach, rely ing on a range of estimated price effects, was taken 
by the arbitrator in the DSU Article 22.6 arbitration in US – FSC :  "The arbitrator found that, in light of the 
close competition in the market, the pass-through effect of the US subsidies, and, therefore, the trade effects of 
the FSC/ETI scheme on the European Communities, lay at the upper end of  a range between 75 percent and 
100 percent." (European Communities' response to Panel Question 289, footnote 720 to para. 619 (referring to 
Decision by th e Arbitrator, US – FSC (Article 22.6 – US) , paras. 6.53 and 6.54))  In this dispute, the 
European Communities consistently argued that the tied tax subsidies had "dollar-for-do llar" price effects.  The 
European Communities further argued that, "even if—against all the available evidence—the Panel were to 
consider that the{se} subsidies … did not have exactly a one-for-one price effect on  Boeing's (and Airbus') 
prices, the evidence demonstrates that they have, at the very least, a very  close to one-for-one price effect." 
(Ibid., para. 624)  The United States did not submit its own estimates of the price effects of the FSC/ETI 
subsidies.  Rather, it acknowledged that, "{a}s a matter of  economics, … subsidies that are tied to sales have an 
impact on those sales … and, therefore, {on} pricing" while, at the same time, contesting the 
European Communities' "dollar-for-dollar" pass-through argument. (United States' comments on the 
European Communities' response to Panel Question 289, para. 540;  see also paras. 538 and 539)  The 
United States argued that, because the European  Communities' own evidence showed that only " a portion  of tax 
rebates are passed on to the consumer", this evidence did not "support the EC assertion that all tax benefits are 
100 percent  passed through". ( Ibid., para. 539 (original emphasis))  We do not see that the Panel engaged with 
these arguments or with the evidence submitted by th e European Communities, or that it sought itself to 
estimate the extent to which the tied tax subsidies affected prices. 
2476The Panel itself seems to have recognized its obligations in this regard with its statement that 
"{declining to make a serious prejudice finding because of  the difficulty of calculating the price effects with 
mathematical certitude} would be inconsistent with our obligations under Article 11  of the DSU, as well as 
contrary to considerations of basic commonsense and re ason". (Panel Report, para. 7.1821)  Furthermore, the 
Panel had specifically asked the European Communities, on two occasions, whether its claim of serious 
prejudice depended upon its magnitude calculations, and the European Communities had responded that it did not.  In its responses, the European Communities observed that "the Panel is free to adopt some other 
methodology for assessing the amount an d magnitude of the US subsidies" an d that "the degree of the resulting 
price effect will vary with the amount and magnitude of the US subsidies". (European Communities' response to 
Panel Question 376, paras. 329, 335, and 338)  The European Communities further submitted that "a number of 
non-magnitude-related factors support a finding of causation in this dispute", and that "a level of price 
suppression as low as one percent ad valorem " would nevertheless constitute serious prejudice. 
(European Communities' response to Panel Question 279, paras. 545 and 551;  see also European Communities' 
response to Panel Question 376, para. 330 and footnote 81 thereto)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 509  
 
  and objectively assessed.  To the extent that the Panel's ultimate findings of displacement and 
impedance, significant price suppression, and signif icant lost sales were based on inferences drawn 
from conclusions it had reached on the nature of the subsidies, the duration of the FSC/ETI subsidies, 
and the nature of competition between Airbus a nd Boeing, it was incumbent on the Panel not only to 
state that it was drawing inferences and using co mmonsense reasoning, but to identify clearly the 
relevant conclusions upon which it was relying, what factual or legal inferences it drew on the basis of 
those conclusions, why it considered such inferenc es to be reasonable or necessary, and how those 
inferences supported its ultimate findings.  Thus, al though it is not uncommon for a panel to draw 
inferences and conclusions from the evidence, it has to provide reasoning engaging with the evidence 
to support those inferences and conc lusions.  The various claims of e rror raised by the United States 
call into question the extent to which th e Panel did so, as discussed further below. 
1222.  The Panel inferred from the fact that the subsid ies' effects "would be most acutely felt in 
particular sales campaigns of strategic importance", that the results of such sales campaigns necessarily resulted in either significant lost sales (when Boeing obtained the order) or significant price suppression (when Airbus obtained the order).
2477  This finding indicates that the tied tax 
subsidies caused serious prejudice only "in particular sales campaigns of strategic importance".  As 
we have noted, before the Panel, the European Communities drew a distinction between competitive 
and non-competitive sales campaigns, and set out in Annexes E and F to its first written submission 
evidence of individual sales campaigns in whic h the challenged subsidies produced effects of 
significant price suppression, significant lost  sales, or displacement and impedance.2478  T he  Pa ne l ,  
however, did not make findings as to whether thes e sales campaigns were "strategic", and did not 
refer in its analysis to the evidence in Annexes E and F in which the European Communities identified 
particular sales campaigns where such price competiti on is alleged to have occurred.  It is therefore 
not clear whether the Panel, in referring to "partic ular sales campaigns of strategic importance", was 
referring to some or all of the individua l sales campaigns evidence offered by the 
European Communities in Annexes E and F, more broadly to all competitive sales campaigns to 
which the European Communities referred, or perhap s to some other conception of what constituted 
"strategic" sales campaigns.  We are also uncertain  whether the Panel was referring to orders, or to 
deliveries, or whether it was referring to such orde rs or deliveries occurring inside or outside the 
                                                      
2477Panel Report, para. 7.1822. 
2478European Communities' first written submission to the Panel, paras. 1507-1533 and 1603-1622. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 510 HSBI omitted, as indicated [[HSBI]]  
 
  reference period.
2479  Whatever campaigns the Panel had in mind, the Panel did not indicate when they 
occurred, whether its findings were limited to tho se campaigns, or whether, based on the effects in 
those campaigns, the Panel was extrapolating from them  to reach global findings in respect of the 
worldwide market for 100-200 seat and 300-400 seat LCA.  These ambiguities make it difficult to discern the scope of, and the evidentiary basis for, the Panel's ultimate findings of serious prejudice. 
(i) Significant price suppression  
1223.  The United States claims that the Panel erred in its analysis of significant price suppression 
because it undertook no analysis of prices in the 100-200 seat and 300-400 seat LCA markets.  In 
failing to conduct such an analysis, the United States  asserts, the Panel disregarded the effects of other 
relevant factors on LCA prices, and did not assess the degree of price suppression to determine whether it constituted significant  price suppression.   
1224.  The European Union argues that a panel need not examine price trend data, particularly since 
such information is not probative as to whether there has been actual price suppression.  In the 
European Union's view, the Panel focused its  analysis on "various qualitative factors"
2480 that allowed 
the Panel properly to reach a finding of significan t price suppression.  The European Union maintains 
that, in any event, the Panel did in fact take pric ing and price trend data into consideration when it 
referred to such information in its summary of the European Communities' arguments, and in its 
analysis of pricing information in its examination of the technology effects of the aeronautics R&D 
subsidies in the 200-300 seat LCA market.2481 
1225.  In our evaluation of the United States' appeal relating to the Panel's analysis of the technology 
effects of the aeronautics R&D subsidies, we iden tified certain considerations relevant to the 
evaluation of a price suppression claim, including the utility of a counterfactual analysis.  We also 
consider that it will ordinarily be useful for a pa nel to take into account evidence relating to price 
trends in a price suppression analysis.  At the same  time, there may be circumstances in which such 
evidence is unavailable, unreliable, or unpersuasive.  We do not exclude that, in such circumstances, it 
may nevertheless be possible to conduct an analys is and to reach a finding of significant price 
                                                      
2479We note that, in the section of its Report dealing with financial contribution, the Panel suggested 
that, in its serious prejudice analysis, it would consider th e effects of the tied tax subsidies only with respect to 
LCA deliveries during the reference period from 2004-2006. (Panel Report, para. 7.157)  Yet the Panel did not 
subsequently indicate what impact this had for its analysis of the effects of the tied tax subsidies.  If anything, 
the comments made by the Panel in paragraphs 7.1685 and 7.1812 suggest that the Panel considered that both 
orders and deliveries were relevant for an analysis of lost sales and of price suppression, and that deliveries were 
critical to any finding of displacement or impedance.  
2480European Union's appellee's submission, para. 644.  
2481European Union's appellee's submission, para. 635 and footnote 1247 thereto (referring to Panel 
Report, paras. 7.1618 and 7.1782).   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 511  
 
  suppression, provided that such a finding is properly supported by other evidence on the record.  The 
United States' appeal calls for us to consider whet her such circumstances prevailed in the context of 
the tied tax subsidies, where it is clear that the Panel did not rely on evidence of price trends in 
reaching its finding of significant price suppression. 
1226.  We have already expressed our disagreement w ith the Panel's view that, because Boeing had 
received benefits under the FSC/ETI programme over  a long period of time, direct observation of 
market share and price trend data during the re levant period was of no assistance or relevance.
2482 
While we recognize that the fact that Boeing r eceived FSC/ETI benefits over a long period might 
have made the Panel's task more difficult because  there was no prior, subsidy-free period against 
which to compare market share and price trend da ta occurring during the reference period, this does 
not mean that there is nothing to be gained from ex amining such data in a price suppression analysis.  
As we have noted, for example, the fact that pri ces of a subsidized product were lower during a period 
of lower subsidization might require further consid eration or explanation in order to demonstrate a 
genuine and substantial relationshi p between the subsidies and any a lleged price effects.  In this 
dispute, the Panel made no reference to, and its  reasoning contains no analysis of, any pricing 
information or market share data in the 100-200 seat and 300-400 seat LCA markets.   
1227.  We also do not consider that the fact that th e Panel referred to such evidence in its summary 
of one party's arguments makes up for the lack of  discussion of the pricing data in the Panel's 
reasoning on price effects.2483  Moreover, we do not see how the fact that the Panel took pricing 
information into account in its analysis of the t echnology effects of the aeronautics R&D subsidies 
demonstrates that it also did so in respect of the price effects of the tied tax subsidies.2484  To the 
contrary, we consider that the difference in the appr oach used by the Panel in these two sections of its 
Report only underscores the absence of any assessment of  market share and price trend data in the 
Panel's analysis of the price effects of the tied tax subsidies.2485  We would have expected that, as the 
Panel did in respect of the technology effects of  the aeronautics R&D subsidies in the 200-300 seat 
                                                      
2482Panel Report, para. 7.1819.  
2483Panel Report, para. 7.1618.  
2484Panel Report, para. 7.1782. 
2485We further observe that, where the Panel noted that certain evidence wa s lacking—for example, 
with respect to global market share in the 200-300 seat LCA market over the 2000-2006 period—the Panel 
calculated those data on the basis of other data supplied by the European Communities. (Panel Report, para. 7.1783 (referring to Panel Exhibits EC-3 and EC-1287, consisting of data from the Airclaims CASE 
Database)) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 512 HSBI omitted, as indicated [[HSBI]]  
 
  LCA market, the Panel would also have examined av ailable market share and price trend data for the 
100-200 seat and 300-400 seat LCA markets.
2486 
(ii) Significant lost sales  
1228.  The United States also submits that lost sales w ithin the meaning of Article 6.3(c) of the 
SCM Agreement  requires the identification of individual transactions in which sales were purportedly 
lost.  The United States argues that, as oppo sed to the approach of the panel in EC and certain 
member States – Large Civil Aircraft , and the Panel in this case when it considered the 200-300 seat 
LCA market, the Panel did not identify the sales in the 100-200 seat and 300-400 seat LCA markets 
that it found to constitute significant lost sales.  Accordingly, the United States considers that the 
Panel failed to meet the requirements of Article 6.3(c) for a finding of significant lost sales.   
1229.  The European Union responds that there is no le gal requirement that panels specify and assess 
individual sales campaigns.  The European Communities considers that the Panel examined lost sales 
on a "global basis"2487, and that this was consistent w ith the Appellate Body report in EC and certain 
member States – Large Civil Aircraft .  The European Communities moreover contends that the 
Panel's approach was consistent with the manner in which the European Communities structured its 
claim, and that the Panel therefore properly establishe d a global finding of significant lost sales taking 
into account all of the evidence before it.   
1230.  In considering this ground of appeal, we are called upon to address the question of what level 
of specification is required of a panel in identifying and analyzing evidence supporting a finding of significant lost sales under Article 6.3(c).  We have outlined in section X.B prior jurisprudence 
regarding the analysis of lost sales.  We further note that, in EC and certain member States – Large 
Civil Aircraft , the Appellate Body stated that "an examination of specific sales campaigns may be 
appropriate given the particular characteristics of a market".
2488  At the same time, the Appellate Body 
considered that the reference in Article 6.3(c) to lost sales "in the same market" means that it may be 
necessary to look beyond individual sales campaigns to understand the competitive dynamics at play in a particular market.  The Appellate Body thus  concluded that "an appr oach in which sales are 
aggregated by supplier or by customer, or on a country-wide or global basis … is also 
                                                      
2486Although we consider that the Panel should have undertaken some examination of available price 
trend data in its price effects analysis, we do not agre e with the United States' assertion that such data was 
"plainly inconsistent with a price suppression phenomenon". (United States' other appellant's submission (BCI), 
para. 369, pointing to the fact, for in stance, that "[    ***       
     ***     ]" during the reference period.)  Observations about the direction in which prices moved do not by 
themselves establish that, in the absence of the subsidie s, the prices of Boeing and Airbus aircraft would not 
have been higher than they were.   
2487European Union's appellee's submission, para. 649.  
2488Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1217.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 513  
 
  permissible".
2489  Thus, a lost sales claim may be supported with evidence of lost sales taking place 
throughout a geographical and product market, or with evidence of particular sales campaigns 
occurring within that market.  A panel's approach to the analysis of lost sales must therefore be keyed 
to the nature of the claim and evidence presented by  a complainant, and the particular conditions of 
the market under scrutiny. 
1231.  In this dispute, the participants have dive rgent views regarding the scope of the Panel's 
finding, and whether the Panel ought to have identif ied and examined individual lost sales in the 
circumstances of this case.  The Un ited States asserts on appeal that  it simply does not know to which 
lost sales the Panel's finding pertains.2490  The European Union contends that the Panel was acting 
within its discretion in making an overall assessme nt of significant lost sales without reference to 
particular sales campaigns.  According to the Euro pean Union, "much as panels are not required to 
quantify price suppression, they may, but are not required to, precisely identify lost sales".2491 
1232.  As we have explained, we find the scope of th e Panel's lost sales finding to be unclear.  In 
particular, we do not know whether the Panel, in referring to "particular sal es campaigns of strategic 
importance", was referring to the individua l sales campaigns evidence offered by the 
European Communities in Annexes E and F to its first written submission, more broadly to the 
"competitive sales campaigns" to which the European  Communities referred in its submissions, or 
perhaps to some other conception of what the Panel considered to be "strategic" sales campaigns.  We 
therefore do not see that the Panel's finding clearly  evinces, as the European Communities claims, that 
it made a "global" finding of significant lost sales.   
1233.  Moreover, we are concerned by the fact that, irrespective of whether the Panel made a finding 
of significant lost sales on a global basis, or on the basis of individual sales campaigns, it did so without referring to, or discussing in its reasoning, any of the evidence relating to lost sales advanced 
by the European Communities in support of its lost sales claim.   
1234.  On appeal, the European Union explains that , because it brought a single claim of serious 
prejudice that was merely "illustrated" by evidence of lost sales in particular sales campaigns, the 
Panel acted within its discretion in making an ove rall assessment of significant lost sales without 
reference to particular sales campaigns.
2492  However, we do not consider the fact that a claim of 
serious prejudice may seek to rely on  specific evidence to support a glob al finding of lost sales means 
that a panel is free to conduct its reasoning without an y reference to, or analysis of, that evidence.  
                                                      
2489Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1217.   
2490United States' other appellant's submission, para. 362.  
2491European Union's appellee's submission, para. 657.  
2492European Union's appellee's submission, para. 655.   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 514 HSBI omitted, as indicated [[HSBI]]  
 
  Indeed, where certain evidence forms the foundation fo r a claim, we would consider it all the more 
necessary for a panel to contend with  that evidence and to explain wh y such evidence of a subset of 
sales supports a broader finding of lost sales.  We note, moreover, that the European Communities 
argued before the Panel that the price effects of  the subsidies depended on the extent of price 
competition in particular sales campaigns.  Given th e structure of the Europ ean Communities' claim, 
we consider that the manner in which th e sales campaign evidence advanced by the 
European Communities "illustrated" under what circum stances, and to what ex tent, lost sales occurred 
is a matter that should have been addressed by the Panel. 
1235.  The European Union also argues that, althoug h the sales campaign evid ence was not referred 
to in the Panel's analysis, the Panel did rely on it.  The European Union maintains that the Panel 
recognized that it was required by Article 11 of the DSU to evaluate the European Communities' 
serious prejudice claim on the basis of all of the evid ence presented to it, and that the Panel referenced 
the lost sales evidence in its summa ry of the European Communities' submissions regarding the sales 
campaigns described in Annexes E and F.
2493  We do not consider the fact that the Panel identified 
that it had a duty to consider all of the evidence before it2494, or that it acknowledged the existence of 
the European Communities' sales campaign evidence in its summary of the parties' arguments2495, is 
sufficient to demonstrate that it properly engaged with the evidence in its reasoning regarding lost 
sales.  At no point in its analysis of the price effect s of the tied tax subsidies did the Panel refer to the 
evidence of the European Communiti es, or the rebuttal of the United States, regarding lost sales 
allegations in respect of specific sales campaigns. 
1236.  The Panel's failure to engage in its reasoning w ith the lost sales evidence is particularly 
surprising given the different approach it took in analyzing the technology effects of aeronautics R&D 
subsidies in the 200-300 seat LCA market.  In that analysis, the Panel's scrutiny of the relevant sales 
campaigns identified in Annex D to the European  Communities' first written submission yielded a 
finding that evidence relating to six of those campai gns did not constitute evidence of significant lost 
sales caused by the relevant subsidies.2496  In contrast, the Panel concluded that there was sufficient 
evidence relating to the remaining four sales campai gns to support a conclusion of significant lost 
                                                      
2493European Union's appellee's submission, para. 658.  
2494Panel Report, para. 7.1679.   
2495Panel Report, para. 7.1622.  
2496For six of the ten lost sales campaigns identified by the European Communities in Annex D to its 
first written submission to the Panel, the Panel concluded that "factors other than the performance characteristics 
of the 787 over the A330 or Original A350, and the 2008 delivery date for the 787, played a significant part in 
the Boeing sale". (Panel Report, para. 7.1786)    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 515  
 
  sales within the meaning of Article 6.3(c) of the SCM Agreement .
2497  E v e n  i f  w e  w e r e  t o  a c c e p t ,  
which we do not, that the Panel's lack of any explic it reference to the lost sales evidence in Annexes E 
and F in its price effects analysis could be taken to mean that it considered all of that information to 
support a finding of significant lost sales, the absence of any reference to, or analysis of, lost sales in its reasoning stands in striking contrast to the Pa nel's explicit discussion of the reasons why particular 
sales campaigns amounted to significant lost sales arising from the technology effects of the 
aeronautics R&D subsidies in the 200-300 seat LCA market, whereas others did not.   
(iii) Displacement and impedance 
1237.  The United States further submits that the Panel' s findings of displacement and impedance of 
Airbus' LCA exports in third-country markets in the 100-200 seat and 300-400 seat LCA markets 
failed to meet the requirements of Article 6.3(b) of the SCM Agreement .  The United States contends 
that the Panel failed to determine whether any of  the countries in which the European Communities 
alleged displacement or impedance occurred cons tituted a "market".  The United States also argues 
that, unlike the Panel's approach in consideri ng the 200-300 seat LCA market, the Panel failed to 
identify the third countries in which displacement or impedance occurred. 
1238.  The European Union considers that the Panel co rrectly concluded that it was not required to 
determine whether the European Communities had estab lished the existence of third-country markets, 
nor was it required to identify or address individual third-country markets in order to reach a finding 
of displacement or impedance. 
1239.  We recall the Panel's conclusion at the outset of  its adverse effects analysis that, given the 
global nature of competition in each of the three LC A product markets, it was not required to consider 
whether the European Communities had established the existence of particular third-country 
markets.
2498  The Panel also recognized, however, that it was nevertheless required to determine, 
"based on evidence of sales occurring in those countr ies", whether there has been displacement and 
impedance "in the particular country market".2499   
1240.  The Panel's entire assessment of the European  Communities' displacement and impedance 
claim is limited to paragraph 7.1822 of its Report.  Having found it reasonable to infer that the effects 
of the subsidies are significant in terms of lost sales and price suppression, the Panel concluded that 
                                                      
2497Panel Report, para. 7.1788.  The Panel expressed the view that "the Qantas, Ethiopian Airlines and 
Icelandair campaigns in 2005 and the Kenya Airways campaign in 2006, are ev idence of sales that Airbus did 
not secure due to the advanced technological features of the 787, the availability of which at that time was 
accelerated by the aeronautics R&D subsidies". ( Ibid., para. 7.1787) 
2498Panel Report, para. 7.1674.  
2499Panel Report, para. 7.1674.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 516 HSBI omitted, as indicated [[HSBI]]  
 
  such effects constitute significant lost sales and si gnificant price suppression within the meaning of 
Article 6.3(c) of the SCM Agreement , "as well as displacement and impedance of exports from 
third-country markets, within the meaning of Article 6.3(b)".
2500  We recall that, before the Panel, the 
European Communities had argued that, given the nature of the competition in the 100-200 seat and 
300-400 seat LCA markets, every lost sale to Airbus  in a particular country "necessarily resulted in 
the displacement or impedance of Airbus' mark et share in that third-country LCA market".2501  
Although the Panel did not address how the Europ ean Communities' claim of displacement and 
impedance relates to its claim of lost sales, its  finding also appears premised on the dependent 
relationship between the two phenomena as ass erted by the European Communities.   
1241.  We do not agree with the implication of the Panel's reasoning that the phenomena of 
displacement and impedance necessarily follow  from a finding of significant lost sales.  In EC and 
certain member States – Large Civil Aircraft, the Appellate Body acknowledged the potential overlap 
of lost sales, and displacement and impedance,  in that both phenomena relate to a firm's sales.  The 
Appellate Body, however, also identified distinc tions between these concepts.  For example, the 
Appellate Body observed that the assessment of displacement or impedance "has a well-defined 
geographic focus"2502, whereas the relevant geographic market for assessing lost sales is not similarly 
confined, and may even extend to the world market.  The Appellate Body also noted that the fact that 
lost sales must be "significant" implies that th e assessment must have both quantitative and qualitative 
dimensions, whereas the assessment of displaceme nt and impedance is primarily quantitative in 
nature.2503  We are similarly troubled by the Panel's fail ure to distinguish in its analysis between the 
phenomena of displacement and impedance.  As we have explained in section X.B, these market phenomena may overlap, but they are not interchangeable concepts.   
1242.  In addition, we are concerned by the absence of any analysis by the Panel regarding the 
existence of displacement and impedance in partic ular third-country markets.  Although we have 
already rejected the United States ' argument that the Panel erred in  failing to determine whether any 
of the countries in which the European Communities alleged displacement or  impedance constituted a 
"market", we consider that the Panel erred in not identifying or discussing the third countries in which 
displacement or impedance occurred.  We reca ll that the European Communities identified six 
specific sales campaigns that it alleged resulted in displacement and impedance in Singapore, 
Indonesia, and Japan with respect to the 100-200 seat  LCA market;  and in Singapore, New Zealand, 
                                                      
2500Panel Report, para. 7.1822.  
2501European Union's appellee's submission, para. 684.  
2502Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1218.  
2503Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1218.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 517  
 
  and Hong Kong, China with respect to the 300-400 seat LCA market.
2504  In its analysis of the price 
effects of the tied tax subsidies in the 100-2 00 seat and 300-400 seat LCA markets, however, the 
Panel neither referred to nor addressed any of the evidence regarding the specific sales campaigns set 
out in Annexes E and F to the European Commun ities' first written submission, or the relevant 
third-country markets in which those sales occurred.  Thus, although the Panel properly recognized at 
the outset of its serious prejudice analysis that it was required to determine, "based on evidence of 
sales occurring in those countries", whether there had been displacement and impedance "in the 
particular country market"2505, it subsequently referred only genera lly to "displacement and impedance 
of exports from third country markets" without specifying to which sales occurring in which markets its findings apply.
2506  Given the "well-defined geographic focus"2507 of Article 6.3(b), a panel's 
analysis of displacement and impedance must engage  with the evidence of the particular third-country 
market or markets in which such market phenomena are alleged.  Accordingly, we do not consider 
that it was appropriate for the Panel to conduct an  analysis of displacement and impedance without 
any reference to or discussion of the specific c ountries or sales campaign evidence advanced by the 
European Communities in support of its claim.   
1243.  We further note that, although the Panel stated that its findings of displacement and 
impedance during the reference period "can only be  definitely established by relevant delivery 
data"2508, the Panel did not refer to, or assess, any such data in its price effects analysis.  Indeed, 
because the sales campaign evidence of  the European Communities related to orders that were made 
during  the reference period from 2004 to 2006, deliveries of certain LCA at issue would not have 
taken place until after  the reference period.  This may have b een pertinent information in respect of a 
finding of threat  of displacement and impedance, a finding the Panel did not make in connection with 
the effects of the tied tax subsidies in the 100-200 seat and 300-400 seat LCA markets. 
1244.  The Panel's failure to engage in its reasoning with evidence of individual sales campaigns in 
which the European Communities alleged displaceme nt and impedance is particularly surprising 
given the different approach that it took in its an alysis of the technology effects of the aeronautics 
R&D subsidies in the 200-300 seat LCA market.  We recall that, having concluded that four of the 
sales campaigns constituted lost sales, the Panel proceeded to an alyze order and delivery data 
regarding A330, Original A350, and 787 sales ove r a period from 2001 to 2013 in the third-country 
                                                      
2504Panel Report, para. 7.1622.  
2505Panel Report, para. 7.1674.  
2506Panel Report, paras. 7.1822, 7.1823, and 7.1833.  
2507Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1218.  
2508Panel Report, para. 7.1686. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 518 HSBI omitted, as indicated [[HSBI]]  
 
  markets of Australia, Ethiopia, Iceland, and Kenya.
2509  Even if we were to accept, which we do not, 
that the Panel's lack of any explicit reference to campaign-specific evidence in Annexes E and F 
meant that it considered all of that information to  support its findings of displacement and impedance, 
the absence of any reference to, or  analysis of, specific countries or sales campaign evidence stands in 
striking contrast to the Panel's explicit discussion of  the third country markets to which its findings 
pertain in its analysis of the technology effects of aeronautics R&D subsidies in the 200-300 seat LCA 
market.   
(c) Overall assessment of the Panel's analysis of the price effects of the 
tied tax subsidies 
1245.  In the foregoing analysis, we examined various aspects of the Panel's assessment of the price 
effects of the tied tax subsidies.   
1246.  We reviewed features of the Panel's assessment of the effects of the tied tax subsidies on 
Boeing's and Airbus' LCA prices.  In respect of the nature of the subsidies, we noted that it was accepted by the parties that the subsidies were tied to sales of LCA, and that the FSC/ETI subsidies 
amounted to $2.2 billion over the period from 1989 to 2006, and $435 milli on during the reference 
period from 2004 to 2006.  We further noted that th e Panel, in observing that subsidies contingent on 
export sales have trade-distortive effects, was indicati ng only that the nature of the FSC/ETI subsidies 
increased the likelihood that such effects will occur.  Accordingly, we did not consider that the Panel 
was relying on a presumption that export subsidie s cause adverse effects within the meaning of 
Part III of the SCM Agreement .  We also considered that, alt hough the Panel should have explained 
why it rejected the relevance of data showing the relative magnitude  of the FSC/ETI subsidies in 
relation to LCA values, it nevertheless took into  account other considerations concerning the 
magnitude of these subsidies in relation to the market effects. 
1247.  We further found that, although the Panel conc luded that the tied tax subsidies established 
only the possibility or likelihood that Boeing would "lower its prices beyond the level that would 
otherwise have been economically justifiable", th e Panel did not establish under what circumstances, 
or to what extent, this would occur in particular  sales campaigns.  Accordingly, the Panel did not 
provide a reasoned basis for its generalized finding th at the tied tax subsidies led Boeing to lower its 
                                                      
2509Panel Report, para. 7.1790.  The Panel set out delivery data for the years up to and including 2006, 
and projected future deliveries on the basis of order data for the years from 2007 onwards. ( Ibid.)  The Panel 
then assessed the implications of this evidence for the European Communities' claims of displacement and 
impedance, and threat of di splacement and impedance. ( Ibid., para. 7.1791)  The Panel concluded that, but for 
the aeronautics R&D subsidies, Airbus would have obtained additional LCA orders from customers in these sales campaigns, and thus would not have suffered the threat of displacement or impedance of its exports in 
third-country markets within th e meaning of Article 6.3(b). ( Ibid., paras. 7.1791 and 7.1794)    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 519  
 
  prices in a manner causing Airbus to lose sales or to  secure sales only at reduced prices.  Moreover, 
we found that the Panel did not properly identify or discuss in its analysis any of the specific 
considerations and factors identified by the Unite d States as other factors that explain the market 
effects on Airbus' sales and prices. 
1248.  We also addressed issues regarding the Panel' s basis for establishing the existence of the 
discrete market effects under Article 6.3(b) and (c).  We explained that the Panel reached its serious 
prejudice findings with respect to the 100-200 seat and 300-400 seat LCA markets without identifying 
or assessing:  (i) any pricing or market share info rmation supporting the existence of significant price 
suppression;  (ii) any LCA sales or sales campaigns constituting significant lost sales;  or (iii) any of the third-country markets in which the displacement  or impedance of Airbus' LCA exports occurred.  
In our view, the Panel's failure to address these el ements in its causation analysis undermined the 
basis for its conclusions that the tied tax subsidi es caused significant price suppression, significant lost 
sales, and displacement and impedance within the meaning of Article 6.3(b) and (c).
2510   
1249.  Taken together, the deficiencies we have iden tified in the Panel's reasoning amount to legal 
error in the Panel's analysis of serious prejudi ce in the 100-200 seat and 300-400 seat LCA markets.  
In our view, the Panel did not provide a proper legal basis for its generalized findings that significant 
price suppression, significant lost sales, and disp lacement and impedance, within the meaning of 
Article 6.3(b) and (c) of the SCM Agreement , were the effects of:  (i) the FSC/ETI subsidies and the 
Washington State B&O tax rate reduction in the 1 00-200 seat LCA market;  and (ii) the FSC/ETI 
subsidies and the Washington State and the City of  Everett B&O tax rate reductions in the 300-400 
seat LCA market.  We therefore reverse  the Panel's findings, under Articles 5(c) and 6.3(b) and (c) of 
the SCM Agreement , in paragraphs 7.1823, 7.1833, 7.1854(b) and (c), and 8.3(a)(ii) and (iii) of the 
Panel Report. 
(d) Completion of the analysis 
1250.  We now turn to consider whether we can  complete the analysis and rule on the 
European Union's claim that the tied tax subsidi es caused serious prejudice within the meaning of 
Articles 5(c) and 6.3(b) and (c) of the SCM Agreement .  In previous disputes, the Appellate Body has 
                                                      
2510We note the United States' contentio n that the Panel, by failing to specify the third-country markets 
and lost sales in support of its findings under Article 6.3(b) and (c), respectively, did not comply with the 
requirements set out in Article 12.7 of the DSU. (United States' other appellant's submission, para. 363)  
Because we consider that the Panel's failure to specify  lost sales and third-countr y markets in its reasoning 
undermined the basis for its findings of significant lost sales and displacement and impedance, we find it 
unnecessary to rule on this claim of the United States on appeal.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 520 HSBI omitted, as indicated [[HSBI]]  
 
  emphasized that it can complete the analysis "onl y if the factual findings of the panel, or the 
undisputed facts in the panel record" provide a su fficient basis for the Appellate Body to do so.
2511   
1251.  We recall below findings and uncontested facts on th e Panel record as they relate to the nature 
of the tied tax subsidies, their magnitude, the cond itions of competition in the LCA industry, and the 
particular sales campaign evidence supp lied by the European Communities. 
1252.  Regarding the nature of the tied tax subsidi es, because the FSC/ETI subsidies and the B&O 
tax rate reductions lowered the taxes that Boeing pa id in respect of revenue obtained on each LCA 
sale, they are directly tied to those sales.2512  The United States agreed that subsidies that are tied to 
sales have an impact on those sales.2513  The Panel also pointed out that the United States had supplied 
an exhibit endorsing the view that subsidies tied to  production can have a significant impact on prices 
and output.2514  Because these subsidies lower the taxes incurred in connection with sales of LCA, 
they increase Boeing's after-tax revenue and profita bility, and therefore have a more direct and 
immediate relationship to aircraft prices and sales than other subsidies at issue in this dispute, such as the aeronautics R&D subsidies.
2515   
1253.  We have, moreover, agreed with the Panel's ass essment that the FSC/ETI subsidies are more 
likely to produce adverse trade effects in the market.2516  Generally speaking, subsidies contingent on 
export modify the incentives faced by a domestic producer, reward discrimination in favour of 
production for export markets over the domestic market , and thereby reduce export prices.  We also 
note the duration of the FSC/ETI subsidies, which the Panel believed to be a relevant 
                                                      
2511Appellate Body Report, US – Hot-Rolled Steel , para. 235.  See also Appellate Body Reports in  
EC – Hormones , paras. 222 ff;  EC – Poultry , paras. 156 ff;  Australia – Salmon , paras. 117 ff and 193 ff;   
US – Shrimp , paras. 123 ff;  Japan – Agricultural Products II , paras. 112 ff;  and EC – Asbestos , paras. 133 ff.  
Where this has not been the case, the Appellate Body ha s declined to complete the analysis.  See Appellate 
Body Reports in Australia – Salmon , paras. 209 ff, 241 ff, and 255;  Korea – Dairy , paras. 91 ff and 102 ff;  
Canada – Autos , paras. 133 ff and 144 ff;  Korea – Various Measures on Beef , paras. 128 ff;  EC – Asbestos , 
paras. 78 ff;  and Canada – Dairy (Article 21.5 – New Zealand and US) , paras. 98 ff. 
2512Panel Report, paras. 7.1806 and 7.1807.  
2513Panel Report, para. 7.1806 (referring to Unite d States' comments on the European Communities' 
response to Panel Question 289, para. 540). 
2514Panel Report, para. 7.1806 (referring to United States' response to Panel Question 298, para. 522;  
and J.E. Stiglitz and B.C. Greenwald, "On the Question of  the Impact of Subsidies on Supply and Prices in the 
LCA Market" (Panel Exhibit US-1309), p. 4).  The Un ited States also stated that "subsidies tied to the 
development, production and/or sale of particular aircraft  are supply-creating in nature and, thus, have a direct, 
significant and lasting impact on competition". (United States' response to Panel Question 286, para. 501) 
2515Panel Report, para. 7.1807.  
2516See supra , para. 1185.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 521  
 
  consideration.
2517  The initial FSC regime was enacted prior to the creation of the WTO, and the 
Panel's reasoning shows that Boeing had been a beneficiary of these subsidies for many years.2518 
1254.  With respect to the magnitude of the tied tax subsidies, we recall that they amounted to 
$2.2 billion over the period from 1989 to 2006.2519  By far the majority of this amount was accounted 
for by the FSC/ETI subsidies, not ably because Boeing began to receive the B&O tax rate reductions 
only during the reference period.2520  Boeing was the largest beneficiary of FSC/ETI subsidies for a 
six-year period through 2002.2521  During the reference period, Boeing received $435 million in 
FSC/ETI subsidies, $13.8 million from the B&O tax ra te reduction in the State of Washington, and 
$2.2 million from the B&O tax rate reduction in the City of Everett.2522  Particularly when taken 
together, these subsidy amounts appear substantial in absolute terms.  At th e same time, as we have 
already observed, the relative magnitude of subsidies ma y also be relevant to an analysis of the effects 
of subsidies on prices.2523  In this dispute, however, there is little on the Panel record that can assist us 
in determining, on a generalized basis, the rela tive significance of the magnitude of these subsidies 
when compared to, for example, prices in the relevant markets2524, Boeing's production costs, or the 
overall size of the relevant markets or of  Boeing's sales in each such market.2525  While it is possible 
to observe, at a high level of generalization, that th e annual value of Boeing's sales is many orders of 
magnitude greater than the annual value of the subs idies, this alone does not tell us much about the 
significance of these amounts, as the Panel also observed.2526  This is because even relatively small 
subsidies may have significant effects, depe nding on the nature of the subsidies, and the 
circumstances in which those subsidies are receive d, including the relevant market structure and 
conditions of competition in that market.  In the circumstances of this dispute, for example, considerations that would appear to bear on the issue of the significance of these amounts include the 
nature of the subsidies as tied tax subsidies, th e dynamics of price competition between Boeing and 
Airbus in a duopolistic market, and whether the bene fits of the tied tax subsidies received by Boeing 
                                                      
2517Panel Report, paras. 7.1811 and 7.1820.  
2518Panel Report, paras. 7.1811 and 7.1817. 
2519Panel Report, para. 7.1811.  
2520The Washington State B&O tax rate reduction came in to effect in 2003 (Panel Report, para. 7.43) 
and the City of Everett B&O tax rate reduction was passed in 2004 ( ibid., para. 7.308). 
2521Panel Report, para. 7.1817.  
2522Panel Report, para. 7.1811.  
2523See supra , para. 1193.  
2524Generally speaking, the price information that is contained in the Panel record is not evidence of 
actual prices to specific customers in particular campai gns.  While there is eviden ce of each manufacturer's list 
prices for its basic airframes, such catalogue prices are acknowledged to be higher than the prices actually 
negotiated with customers at the time that orders ar e placed, especially in competitive sales campaigns.  
2525Various comparators were put before the Panel by the parties in order to demonstrate the relative 
significance (European Communities) or insignificance (U nited States) of the tied tax subsidies.  The Panel, 
however, did not accept the European Communities' cal culation of per-aircraft su bsidy magnitudes (Panel 
Report, para. 7.1813), or attempt to make such a calculation itself.   
2526Panel Report, para. 7.1816.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 522 HSBI omitted, as indicated [[HSBI]]  
 
  were applied to its prices across the board in all sal es, or whether they were disproportionately applied 
to lower prices only in respect of certain sales.   
1255.  Although it might have been relevant for th e Panel to compare the per-unit subsidy 
magnitudes to per-unit prices or production costs, th e Panel does not appear to have pursued such an 
analysis.  It did, however, cite to certain anecdotal  evidence that it found to "point quite clearly to the 
significance of the FSC/ETI subsidies to Boeing' s ability to compete on price against Airbus".
2527  
Certain elements of this evidence bear on the issue of the magnitude of those subsidies.  The Panel 
pointed to evidence showing that, "over the six-year  period end{ing} in 2002, Boeing was the largest 
FSC/ETI beneficiary".2528  In addition, the Panel referred to  statements by Airbus and Boeing 
executives and the US Trade Representative suggesting that the purpose of the scheme was to enhance 
Boeing's competitiveness and that, without the FSC/ETI subsidies, Boeing would lose market 
share.2529  In other words, the Panel explained, this  was evidence that Boeing itself "regarded the 
FSC/ETI measures {as} an important aspect of its ability to compete."2530  Taken together, these 
considerations persuaded the Panel that the tied tax subsidies "enabl ed Boeing to lower its prices 
beyond the level that would otherwise have been economically justifiable".2531  On this basis, we 
consider that the record supports the view that the absolute amount of the tied tax subsidies was 
significant, and provides some support for the proposition that these amounts also had relative significance in that, when deployed strategically, the benefits were of a sufficient magnitude to 
contribute to Boeing's ability to win sales from, or suppress prices of, Airbus in particular campaigns. 
1256.  As the Panel recognized in its evaluation of the technology effects of the aeronautics R&D 
subsidies, "the particular conditions of competition in  the LCA industry" are also a relevant factor in 
evaluating whether subsidies have caused serious prejudice in a particular market.
2532  Before the 
Panel, the European Communities contended that th e conditions of competition in the relevant LCA 
industry provided Boeing with the incentive to "use th e subsidies to lower its LCA prices in the three 
LCA product markets, most particularly in  so-called 'competitive' sales campaigns."2533   
                                                      
2527Panel Report, para. 7.1818.  
2528Panel Report, para. 7.1817.  
2529Panel Report, para. 7.1817.  
2530Panel Report, para. 7.1817.  
2531Panel Report, para. 7.1818.  
2532Panel Report, para. 7.1765. 
2533Panel Report, para. 7.1619.  The European Communities identified the following key characteristics 
of the LCA market which it argued give rise to this pr icing incentive:  "duopoly stru cture character ized by heavy 
price and quality competition, increasing returns to scal e, a steep learning curve, switching costs for customers, 
heterogeneous products, customer specific configurations, high order volumes and small batch outputs and the need for a continuous delivery stream." ( Ibid. (referring to European Communities' comments on the 
United States' response to Panel Question 391, para. 334))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 523  
 
  1257.  Many characteristics of the LCA industry were th e subject of findings by the Panel or are 
uncontested.  We recall that each of the relevant LCA product markets operates as a duopoly, and that 
Airbus and Boeing each possess market power.
2534  In addition, the Panel observed that each 
manufacturer may, through its supply and pricing decisions, influence the pricing of the other.2535  We 
understand this to mean that, although an LCA manufacturer will enjoy greater autonomy in its 
pricing decisions in sales campaigns that are less sens itive with respect to price,  such flexibility will 
be constrained and influenced in more price-sens itive campaigns by the pricing behaviour of the rival 
LCA manufacturer.  In this duopolistic market, th e effects of one firm's commercial behaviour 
—including any price effects resulting from subsid ies—will necessarily impact the rival firm.2536   
1258.  Differences in the price, capacity, and direct operating cost of competing LCA are the most 
significant factors that determine the outcome of LCA sales campaigns.2537  The relative importance 
of each of these factors, and the extent to which it may be determinative in a specific campaign, varies 
considerably.2538  Certain LCA sales campaigns are accordingly more competitive and more price-
sensitive than others.2539  Both parties agreed that, because th e performance characteristics of the 
competing LCA are fixed at the time of a sales campai gn, the principal variables that can be modified 
during such a campaign are the price and price-related concessions.2540  Price concessions can offset 
disadvantages associated with non-price factors, a lthough in some sales campaigns the amount of the 
price concession required to do so may be significant.2541 
1259.  With regard to the level of price competition in  particular sales campaigns, the Panel appears 
to have acknowledged that price competition is more  intense in some campaigns than in others.2542  
The Panel, moreover, identified cer tain circumstances in which price considerations are more likely to 
                                                      
2534Panel Report, para. 7.1688.   
2535Panel Report, para. 7.1688.   
2536As opposed to a market structure in which the lo sses associated with the strategic behaviour of a 
particular firm can be spread among many suppliers, the effects of commercial action by a duopolist to, inter 
alia, lower price, expand production, or increase exports, will be borne solely by that firm's rival. 
2537Panel Report, para. 7.1694. Customers calculate the net present value of LCA offers by comparing 
the present value of costs associated with aircraft acquisition against the present value of the revenue stream 
expected to be generated by the proposed fleet. (Panel Report, para. 7.1694 (referring to C. Scherer, Airbus 
SAS, "Commercial Aspects of the Aircraft Business from the Perspective of a Manufacturer" (March 2007) (Panel Exhibit EC-11 (BCI)), paras. 76-78)) 
2538Panel Report, para. 7.1694 and footnote 3568 thereto (referring to R.P. Muddle, Airline Capital 
Associates, Inc., "The Dynamics of the Large Civil Ai rcraft Industry" (March 2007) (Panel Exhibit EC-10), 
para. 49).   
2539Panel Report, paras. 7.1694 and 7.1820.   
2540European Communities' response to Panel Question 81, para. 321;  United States' comments on the 
European Communities' response to Panel Question 81, para. 275. 
2541Panel Report, para. 7.1694 (referring to R.P. Muddle, Airline Capital Associates, Inc., "The 
Dynamics of the Large Civil Aircraft Industry" (Mar ch 2007) (Panel Exhibit EC-10), paras. 98-102).  
2542Thus, for example, the Panel referred to "the pri ce-sensitive nature of certain significant LCA sales 
campaigns". (Panel Report, para. 7.1820)   WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 524 HSBI omitted, as indicated [[HSBI]]  
 
  influence a customer's purchase decision, including when the buyer is a leasing company rather than 
an airline.
2543  Moreover, we note that Boeing altered its  overall pricing strategy in late 2004/2005 and 
became more "aggressive" on price.2544  Furthermore, price appears to have been a particularly 
important consideration in the 100-200 seat LCA market due to the relatively high degree of 
substitutability between the A320 and the 737NG2545, and the fact that many customers within this 
product market are low-cost carriers, which are particularly price-sensitive.2546  We also note that, in 
at least some instances, competition between rival LCA manufacturers is affected by "switching 
costs"—that is, the costs that buyers who operate one family of aircraft must incur to switch to a new 
supplier.2547  The existence of switching costs in a partic ular sales campaign implies that an incumbent 
supplier has a pricing advantage that the rival s upplier will need to overcome in its overall offer. 
1260.  Generally speaking, a profit-maximizing firm will price its product at a level that ensures that 
it can cover its average cost of production plus a ma rgin of profit, the magn itude of which will depend 
on the conditions of market competition.2548  All other things being e qual, a firm provided with a 
subsidy that is tied to production or sale enjoys the ability to lower its price while nevertheless 
achieving the same profit margin.  In effect, the subs idy enhances the firm's ability to lower its prices 
in order to obtain a sale, notwithstanding that the outcome of any given sale, and the importance of 
price to that outcome, will still be dictated by  the prevailing competitive conditions, including the 
market power and the pricing strategies of the participan ts, in a particular market.  In this dispute, we 
consider that, given the nature of  the tied tax subsidies, their operation over time, their magnitude, and 
the competitive conditions in the LCA market, Bo eing had both the ability and incentive to use the 
tied tax subsidies to lower prices, and that there was a substantial likelihood that  this occurred in sales 
campaigns that were particularly competitive and sens itive in terms of price.  On that basis, where it 
can be established that Boeing was under particular  pressure to reduce its prices in order to secure 
LCA sales in particular sales campaigns, and there ar e no other non-price factors that explain Boeing's 
                                                      
2543Panel Report, footnote 3567 to para. 7.1694 (referring to C. Scherer, Airbus SAS, "Commercial 
Aspects of the Aircraft Business from the Perspective of a Manufacturer" (March 2 007) (Panel Exhibit EC-11 
(BCI)), para. 36), and footnote 3557 to para. 7.1689 (referring to R.P. Muddle, Airline Capital Associates, Inc., 
"The Dynamics of the Large Civil Aircraft Industry " (March 2007) (Panel Exhibit EC-10), para. 26). 
2544Panel Report, Appendix VII.F.2 – The Cabral Model, p. 777, para. 68 and footnote 4250 thereto.  
2545See supra , footnote 2344.  Although airframe prices negotiated at the time LCA are ordered are 
typically lower than list prices, we note that there is a similar range of list prices for the 737NG and A320. (See 
supra , para. 1154) 
2546European Communities' second written submission to  the Panel, para. 889;  United States' first 
written submission to the Panel, para. 1027. 
2547Panel Report, footnote 3776 to para. 7.1818 (referring to R.P. Muddle, "The Dynamics of the Large 
Civil Aircraft Industry" (March 2007) (Panel Exhibit EC -10), para. 97;  C. Scherer, Airbus SAS, "Commercial 
Aspects of the Aircraft Business From the Perspective of a Manufacturer" (March 2007) (Panel Exhibit EC-11 
(BCI)), para. 53;  and Dr. J. Jordan and Dr. G. Dorman, "Reply to the Report of Professor Cabral" (NERA Economic Consulting, 2007) (Panel Exhibit US-3), p. 15). 
2548In principle, a profit margin is expected in conditions of imperfect competition, such as a duopoly.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 525  
 
  success in obtaining the sale or suppressing Airbus' pricing, we can conclude that the subsidies 
contributed in a genuine and substantial way to the lowering of Boeing's prices.  We are moreover 
satisfied that the effect of such price reductions in  the markets at issue was that Boeing either won the 
sale from Airbus, or that Airbus was forced to su ppress its own price in order to secure the sale.  
Notwithstanding that we consider that this dynami c clearly manifested itself in LCA sales campaigns 
where price competition between LCA manufacturers w as particularly intense, we are not persuaded 
that it can be assumed that this was so in each and every sales campaign in the relevant LCA markets.   
1261.  It follows from the above that we do not consid er that the factual findings and uncontested 
facts drawn from the Panel record that relate to the nature and magnitude of the subsidies, and the 
conditions of competition in the relevant markets,  themselves suffice to estab lish the requisite causal 
connection between the tied tax subsidies and the effects on Airbus' LCA sales and prices on a 
generalized basis.  Instead, we can only reach a finding of serious prejudice based on the above if we 
can also identify uncontested facts on the Panel r ecord that satisfy us that the pricing dynamic 
described above occurred in particular LCA sales campaigns.
2549  Accordingly, we continue our 
examination of the relevant factual findings and unc ontested facts and scrutinize, in particular, the 
Panel record as it relates to particular LCA sal es campaigns during the reference period in the 
100-200 seat and 300-400 seat LCA markets.2550 
1262.  We have examined the sales campaign evidence set out in HSBI Annexes E and F to the 
European Communities' first written submission to th e Panel.  These annexes set out individual sales 
campaigns which, the European Communities asserted,  illustrate and support the claim that Boeing's 
subsidy-enabled low prices caused serious prejudice.  Annex E identifies 11 sales campaigns in the 100-200 seat LCA market—five of which were offe red in support of the European Communities' 
allegation of significant lost sales
2551;  and six that were advanced in support of its allegation of 
significant price suppression.2552  Annex F identifies four sales campaigns in the 300-400 seat LCA 
                                                      
2549See section VI.B.2 of this Report.  This approach is analogous to the approach adopted by the 
Appellate Body in EC and certain member States – Large Civil Aircraft . (See Appellate Body Report, EC and 
certain member States – Large Civil Aircraft , paras. 924-929, 1175, 1178, and 1180-1202) 
2550We do not exclude the possibility that serious prejudice could have been established in these LCA 
product markets on some other basis, perhaps without relying on the circumstances of particular sales 
campaigns.  However, based on the Panel record before us, we do not consider that we can complete the 
analysis and reach any finding of serious prejud ice in the absence of such an examination.  
2551Panel Report, para. 7.1622.  The lost sales  evidence in the 100-200 seat  LCA market consisted of 
the following sales campaigns:  Ryanair (2000-2002);  JAL (2005);  Singapore Airline Leasing Enterprise 
(2005);  Lion Air (2005);  and DBA (2005).  The European Communities also explained that these campaigns were evidence of displacement and impedance of Airbus A320 exports in the third- country markets of Japan, 
Singapore, and Indonesia. 
2552Panel Report, para. 7.1622.  The price suppression  evidence in the 100- 200 seat LCA market 
consisted of the following sales campaigns:  easyJet (2002);  Air Berlin (2004);  Iberia (2005);  Aegean (2005);  
Air Asia (2005);  and Hamburg International (2005).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 526 HSBI omitted, as indicated [[HSBI]]  
 
  market—three of which were offered in suppor t of the European Communities' allegation of 
significant lost sales
2553;  and one that was advanced in suppor t of its allegation of significant price 
suppression.2554  We have also examined the subsequent submissions of the United States and the 
European Communities containing arguments and evidence relating to these various sales 
campaigns.2555  In its submissions, the European Co mmunities recounted a competitive pricing 
dynamic for each of these campaigns in which Boeing and Airbus presented a series of progressively 
lower offers and counteroffers  to customers.  The United States did not contest the 
European Communities' factual description of the negotiation for each of these campaigns, in 
particular, the identity of the customer, when th e campaign took place, the number of LCA orders 
obtained, or which manufacturer was successful in obt aining the orders.  Nor did the United States 
dispute that, in each sales campaign, Boeing and Ai rbus both responded to the request for proposals 
from an airline or leasing company, and that they each presented more than one offer over the course 
of the negotiation. 
1263.  The parties, however, disagreed over the extent to which the tied tax subsidies contributed to 
the market effects experienced by Airbus in the 100-200 seat and 300-400 seat LCA markets.  The 
European Communities maintained that price was a key element in the negotiations with customers, 
and that, in all of the sales campaigns, [     ***      * * *     ] .
2556  In respect of the sales 
campaigns submitted as evidence of lost sales and displacement and impedance, the European 
Communities argued that Boeing offered its LCA at a net price that was lower than what Airbus was 
reasonably able to offer for its product, and that th e magnitude of the subsidies at issue was enough to 
cover the margin of victory between th e final net prices of Boeing and Airbus.2557  With regard to the 
sales campaigns submitted as evidence of price supp ression, the European Communities argued that 
                                                      
2553Panel Report, para. 7.1622.  The lost sales  evidence in the 300-400 seat  LCA market consisted of 
the following sales campaigns:  Singapore Airlines (2004);  Air New Zealand (2004);  and Cathay Pacific (2005).  The European Communities also explained that these campaigns were evidence of displacement and 
impedance of Airbus A340 exports in the third-country markets of Singapore, New Zealand, and Hong Kong, 
China. 
2554Panel Report, para. 7.1622.  The price suppression  evidence in the 300- 400 seat LCA market 
consisted of a single sales campaign involving Lufthansa (2004).  
2555See European Communities' first written submission to the Panel, Annex E – 737NG Campaign 
Annex (HSBI) and Annex F – 777 Campaign Annex) (HSBI);  United States' first written submission to the 
Panel, US Campaign Annex (HSBI);  European Comm unities' second written submission to the Panel, Full 
HSBI Appendix;  United States' second written submission to the Panel, Full HSBI Appendix.  
2556European Communities' first written submission to the Panel, Annex E – 737NG Campaign Annex 
(HSBI), paras. 3-7 and 64-67;  and Annex F – 777 Campaign Annex (HSBI), paras. 2-5 and 39-40.  
2557See European Communities' first written submission to the Panel, Annex E – 737NG Campaign 
Annex (HSBI), paras. 14, 27, 36, 44, 56, and 57.  See also, ibid., Annex F – 777 Campaign Annex (HSBI), 
paras. 11, 21, 29, and 31.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 527  
 
  Boeing was able to use its subsidy-enhanced financ ial strength in order to sustain downward pricing 
pressure on Airbus.
2558 
1264.  In its rebuttal of the European Communities'  sales campaign evidence, the United States 
identified a number of "other factors" that, in its view, undermined a causal link between the tied tax subsidies and the market effects on Airbus' LCA sales  and prices.  We explained that the Panel should 
have discussed whether the considerations and factor s identified by the United States constitute "other 
factors" and, if so, how they, in relation to the tie d tax subsidies, contributed to the effects on Airbus' 
LCA sales and prices.  The Panel, however, did not do so.  Where the United States advanced other factors in respect of particular sales campaigns that were capable of explaining the effects on Airbus' LCA sales and prices, we must treat as disputed whether or not the other factor or factors sufficed to attenuate a genuine and substantia l relationship between the tied tax subsidies and those effects.  
Accordingly, in such circumstances, we will not be able to complete the analysis in respect of these 
sales campaigns.   
1265.  Other factors alleged by the United States include d that:  (i) customers with existing Boeing 
fleets factored switching costs into their decisions su ch that Airbus was required to lower its prices in 
order to offset the costs associated with converting to the operation of Airbus fleets
2559;  (ii) the 
technological inferiority of Airbus LCA played out in Airbus' need to reduce prices in order to remain competitive, particularly in the 300-400 seat LCA market
2560;  (iii) Airbus itself was responsible for 
customers' low price expectations due to the low prices that Airbus had offered to other customers in 
previous sales campaigns2561;  and (iv) some customers intended to acquire aircraft for various LCA 
markets, including the 200-300 seat LCA market, as part of the same order, and such customers 
ultimately chose Boeing's overall offer b ecause of their preference for the 787.2562 
                                                      
2558See European Communities' first written submission to the Panel, Annex E – 737NG Campaign 
Annex (HSBI), paras. 80, 92, 101, 113, 123, 131, and 132.  See also, ibid., Annex F – 777 Campaign Annex 
(HSBI), para. 55.  
2559See, for example, United States' first written subm ission to the Panel, US Campaign Annex (HSBI), 
paras. 82, 92, 105, 110, 127, 131, 135, and 139. 
2560See, for example, United States' first written subm ission to the Panel, US Campaign Annex (HSBI), 
paras. 115, 129, 148, 156, 159, and 167. 
2561See, for example, United States' first written subm ission to the Panel, US Campaign Annex (HSBI), 
paras. 112 and 116. 
2562See, for example, United States' first written subm ission to the Panel, US Campaign Annex (HSBI), 
para. 148.  This relates to the Air New Zealand cam paign for which the United States also identified a 
potentially valid "other factor" relating to the fuel burn efficiency of the 777  versus the A340.  See infra , 
para. 1268 . WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 528 HSBI omitted, as indicated [[HSBI]]  
 
  1266.  In our view, certain other factors identified by the United States were clearly capable of 
attenuating a genuine and substantia l relationship between the tied tax subsidies and effects on Airbus' 
LCA sales and prices, especially where they al lowed Boeing to avoid ma king additional price 
concessions in particular sales campaigns.
2563  For instance, the United States argued that, where 
Boeing was the incumbent supplier in certain sal es campaigns, it benefited from a switching cost 
advantage.  Similarly, the United States maintain ed that, for certain sales campaigns, Boeing benefited 
from other non-price advantages due to superior featur es of its aircraft, such as the higher fuel burn 
efficiency of the 777 versus the A340.  As we have explained above, in cases where these conditions 
are present, it suggests that Boeing could have ha d an advantage that did not place it under the same 
pressure to lower LCA prices.2564  In those circumstances, we could not conclude that there was a 
genuine and substantial re lationship between the tied tax subsidi es and the market effects through the 
lowering of Boeing's prices, given that Airbus may have lost the sale or suppressed its prices for 
reasons other than Boeing's low prices.   
1267.  We have also explained that certain "other factors" may not be capable of attenuating a 
genuine and substantial re lationship between the tied tax subsidies and the market effects if they 
reflect part of the competitive pr icing dynamic in a duopolistic market.2565  In these circumstances, the 
sequence in which prices were reduced by Boeing and Airbus in particular sales campaigns or over time has little bearing on whether the subsidies were used to effect price reductions of Boeing LCA 
and lost sales and price suppression for Airbus.  Ra ther, based on the Panel's account of the nature, 
duration, and magnitude of the tie d tax subsidies, and the competitiv e conditions in the LCA industry, 
the fact that Boeing reduced prices under intense pr ice competition in a duopoly market is paramount.  
Accordingly, we do not consider that such ob servations about the sequence of price reductions 
constitute "other factors" to be assessed in relati on to the causal work of the tied tax subsidies. 
                                                      
2563See Panel Report, footnote 3569 to para. 7.1694 (referring to C. Scherer, Airbus SAS, "Commercial 
Aspects of the Aircraft Business from the Perspective of a Manufacturer" (March 2 007) (Panel Exhibit EC-11 
(BCI)), paras. 76-78).  There, the Panel stated: 
According to Scherer, most disadvantages compared with the proposal of 
the competing LCA manufacturer can be compensated for by providing additional concessions, subject to profitability constraints.  Conversely, 
every advantage over the competitor's proposal can be used to avoid making 
additional concessions{.}  
2564See supra , para. 1214.  
2565See supra , para. 1213.    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 529  
 
  1268.  For the four sales campaigns in the 300-400 seat  LCA market, the United States maintained 
that Boeing benefited from a technological advantage sought by customers, consisting of the fuel burn 
efficiency enjoyed by the two-engi ne 777 versus the four-engine A340.
2566  We consider this a 
potentially valid "other factor" contributing to th e effects on Airbus' LCA sales and prices, but note 
that the causal significance of this factor is disput ed between the parties, and that the Panel made no 
findings as to the relevance of this factor in par ticular sales campaigns.  We therefore cannot complete 
the analysis with respect to these sales campaigns. 
1269.  For nine of 11 sales campaigns in the 100-200 seat LCA market, the United States maintained 
that Boeing benefited from a technological advantage sought by customers2567, or from a switching 
cost advantage.2568  These two contentions are also valid "oth er factors" potentially contributing to the 
effects on Airbus' LCA sales and prices.  Because th e causal significance of these factors is disputed 
between the parties, and given that the Panel made no findings as to their relevance in particular sales 
campaigns, we also cannot complete the an alysis with respect to these campaigns. 
1270.  For two remaining sales campaigns in the 100-2 00 seat LCA market, both relating to alleged 
lost sales in the 100-200 seat LCA market, the Un ited States did not specifically identify the above 
non-price advantages as "other factors" contributing to the effects on Airbus' sales and prices.  
1271.  With respect to the remaining two sales campaigns, we note that, in February 2005, Japan 
Airlines ("JAL") concluded an agreement with Bo eing resulting in 30 firm orders, and 10 options, 
for 737NGs2569;  and that Singapore Aircraft Leasing En terprise ("SALE") concluded an agreement 
with Boeing in May 2005, resulting in 20 fi rm orders, and 20 purchase rights, for 737NGs.2570  With 
respect to both campaigns, the parties agreed that  Boeing and Airbus were engaged in a negotiating 
                                                      
2566This relates to the following sales campaigns:  Singapore Airlines (2004);  Air New Zealand (2004);  
Lufthansa (2004);  and Ca thay Pacific (2005).  
2567This relates to the following sales campaigns:  Iberia (2005);  and Lion Air (2005).  
2568This relates to the following sales campaigns:  easyJet (2002);  Ryanair (2002);  Air Berlin (2004);  
DBA (2005);  Aegean (2005);  Air Asia (2005);  Lion Air (2005);  and Hamburg International (2005).  
2569European Communities' first written submission to  the Panel, Annex E – 737NG Campaign Annex 
(HSBI), para. 37;  United States' first written submission to the Panel, US Campaign Annex (HSBI), para. 120 
(referring to JAL Press Release, Japan Airlines Decided on Boeing 737 Next Generation Series  (4 February 
2005) (Panel Exhibit US-1064 (HSBI))).   
2570European Communities' first written submission to  the Panel, Annex E – 737NG Campaign Annex 
(HSBI), para. 8;  United States' first written submissi on to the Panel, US Campaign Annex (HSBI), para. 122 
(referring to SALE Press Release, SALE to order up to 40 Boeing Next-Generation 737 Aircraft  (26 May 2005) 
(Panel Exhibit US-1068 (HSBI))).  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 530 HSBI omitted, as indicated [[HSBI]]  
 
  process that involved multiple offers.
2571  We further note BCI and HSBI statements on the Panel 
record, uncontested by the parties, that demonstrat e the particularly price-sensitive nature of these 
campaigns, and the fact that both Boeing and Airbus  had similar strategic incentives leading them to 
engage in intense competition in terms of price in order to win the sale.2572  Moreover, the 
United States did not specifically identify other f actors, such as switching costs, that could have 
demonstrated that Boeing had an advantage in these campaigns that would have led it to win the sale 
                                                      
2571With regard to the JAL campaign, JAL accepte d offers from both Boeing and Airbus. 
(United States' first written submission to the Panel,  US Campaign Annex (HSBI), paras. 120-121;  and 
European Communities' first written submission to th e Panel, Annex E – 737NG Campaign Annex (HSBI), 
p a r a s .  3 7 - 4 4 )   [          [ [ H S B I ] ]        * * *  
          [[HSBI]]    [[HSBI]]]. 
(European Communities' first written submission to th e Panel, Annex E – 737NG Campaign Annex (HSBI), 
p a r a s .  3 8 ,  4 0 ,  a n d  4 2 )   [            [ [ H S B I ] ]  
      * * *    [ [ H S B I ] ]  
               [[HSBI]]]. ( Ibid., paras. 38-42)  With regard 
to the SALE campaign, [  
      * * *            ] .  
(United States' first written submission to the Panel,  US Campaign Annex (HSBI), paras. 122-125;  
European Communities' first written submission to th e Panel, Annex E – 737NG Campaign Annex (HSBI), 
paras. 8-14)  [     ***          [[HSBI]]]. 
(European Communities' first written submission to th e Panel, Annex E – 737NG Campaign Annex (HSBI), 
para. 9)  [  ***   [[HSBI]]]. (United States' first written submission to the 
Panel, US Campaign Annex (HSBI), para. 124)  [            [[HSBI]] 
      ***          [[HSBI]]]. (European Communities' first written submission to th e Panel, Annex E – 737NG Campaign Annex (HSBI), 
para. 12) 
2572With regard to the JAL campaign, the United States maintained that JAL sought to order 
replacement aircraft for its aging 73 7s, MD-80s, and MD-90s.   [    
 [ [ H S B I ] ]     * * *            ] .   (United States' first written submission to the Panel,  US Campaign Annex (HSBI), para. 121)  Given the 
implications of an Airbus win in this campaign, th e United States argued, Bo eing had every incentive to 
compete vigorously to retain JAL's business. ( Ibid.)  [   
      * * *  
      ]. (European Communities' second written submission to the Panel, HSBI 
Annex, para. 125)  [    ***     [[HSBI]]      ]. (European Communities' first written submission to the Panel, Annex E – 737NG 
Campaign Annex (HSBI), para. 41)  With regard to the SALE campaign, [     
        ***    [[HSBI]]].  (United States' first written submission to the Panel, US Campaign Annex (HSBI), para. 124)  [  
          [ [ H S B I ] ]  
      * * *                    ]. ( Ibid., para. 125)  [  
   ***      [[HSBI]]                               ]. (European Communities' first 
written submission to the Panel, Annex E – 737NG Campaign Annex (HSBI), para. 9)  [      ***      [[HSBI]]]. (European Communities' second written submission to the 
Panel, HSBI Annex, para. 129)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 531  
 
  by reason other than price.
2573  We have explained that, due to th e nature of the tied tax subsidies, 
their operation over time, their magnitude, and the competitive conditions in the LCA market, Boeing 
had both the ability and incentive to use the tied tax subsidies to lower prices, and that there was a 
substantial likelihood that this occurred in sales ca mpaigns that were particularly competitive and 
sensitive in terms of price.  We have also explai ned that, where it can be established that Boeing was 
under particular pressure to reduce its prices in or der to win an LCA sale in a particular sales 
campaign, and there were no other non-price factors that explain Boeing's success in obtaining the 
sale, we can conclude that the subsidies contributed  in a genuine and substantial way to the lowering 
of Boeing's prices.  The uncontroverted facts on th e Panel record substantiate that Boeing was under 
particular pressure to reduce its prices in order to secure the sales in these two campaigns.  Accordingly, we conclude that, through their co ntribution to the lowering of Boeing's prices, the 
FSC/ETI subsidies and the Washington State B&O ta x rate reduction were a genuine and substantial 
cause of Airbus' loss of these sales to Boeing. 
1272.  In addition, we must assess whether the sales th at Airbus lost in those two campaigns can be 
considered "significant".
2574  The term "significant" has been understood by the Appellate Body as 
"something that can be characterized as  important, notable or consequential".2575  The Appellate Body 
has also expressed the view that an assessment of whether a lost sale is significant can have both 
quantitative and qualitative dimensions.2576  We note that the SALE campaign involved 20 firm orders 
                                                      
2573With regard to the JAL campaign, we have noted supra , footnote 2572, the United States' 
contention that JAL sought to order replacement aircraft for its aging Boeing fleet, and that [   
      * * *            ] .  ( U n i t e d  
States' first written submission to the Panel, US Campaign Annex (HSBI), para. 121)  We do not believe this 
reflects a factor capable of attenuating the causal contribution of the tied tax subsidies in the circumstances of 
this campaign.  The United States' recognition that both Boeing and Airbus were operating under similar strategic incentives to capture the sale reinforces the importance of price competition in this campaign.  In 
addition, even accepting the argument that LCA manufacturers generally have a switching cost advantage in 
respect of incumbent customers, the Un ited States argued that switching cost s do not factor into sales of newer 
generation aircraft. (Panel Report, Appendix VII.F.2 – The Cabral Model, p. 772, para. 49 (referring to 
United States' first written submission to the Panel, para. 855))  With regard to the SALE campaign, the 
United States argued that [    ***      ]. (United States' first written submission to the Panel, US Campaign Annex (HSBI), para. 122)  We 
also do not consider that this reflects a factor capable of attenuating the causal contribution of the tied tax 
subsidies in the circumstances of this campaign.  Th e Panel recognized that leasing companies, like SALE, 
typically purchase aircraft from both manufacturers. (See Panel Report, para. 7.1688)  Moreover, we note that 
the United States asserted that leasi ng companies are not affected by switchi ng costs, presumably because it is 
airlines, not leasing companies, that bear the operating cost s of leased aircraft. (Unite d States' response to Panel 
Question 95, para. 244 and footnote 286 thereto)   
2574Appellate Body Report, EC and certain Member States – Large Civil Aircraft , para. 1215.  
2575Appellate Body Report, US – Upland Cotton , para. 426  (referring to Panel Report, US – Upland 
Cotton , para. 7.1326).   
2576Appellate Body Report, EC and certain Member States – Large Civil Aircraft , para. 1218. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 532 HSBI omitted, as indicated [[HSBI]]  
 
  and 20 purchase rights
2577, whereas the JAL campaign involved 30 firm orders and 10 options.2578   
[  
      * * *  
    .2579    
      * * *   .
2580]  In addition, as we have noted above, th ese campaigns were highly price-competitive, 
not only because of the direct consequence for LCA manufacturers in terms of revenue and 
production effects associated with the sale of mu ltiple LCA, but also because of the strategic 
importance of securing a sale from a particular customer.2581  For these reasons, we consider that these 
lost sales campaigns are significant within the meaning of Article 6.3(c) of the SCM Agreement .  
1273.  In these circumstances, we consider that there is a sufficient basis for us to complete the 
analysis and conclude that there is a genuine an d substantial causal relati onship between the FSC/ETI 
subsidies and the Washington State B&O tax rate re duction, through their effects on Boeing's prices, 
and the significant lost sales experienced by Airbus in these two sales campaigns.   
                                                      
2577European Communities' first written submission to  the Panel, Annex E – 737NG Campaign Annex 
(HSBI), para. 8;  United States' first written submissi on to the Panel, US Campaign Annex (HSBI), para. 122 
(referring to SALE Press Release, SALE to order up to 40 Boeing Next-Generation 737 Aircraft  (26 May 2005) 
(Panel Exhibit US-1068 (HSBI))).   
2578European Communities' first written submission to  the Panel, Annex E – 737NG Campaign Annex 
(HSBI), para. 37;  United States' first written submission to the Panel, US Campaign Annex (HSBI), para. 120 
(referring to JAL Press Release, Japan Airlines Decided on Boeing 737 Next Generation Series  (4 February 
2005) (Panel Exhibit US-1064 (HSBI))).   
2579European Communities' first written submission to  the Panel, Annex E – 737NG Campaign Annex 
(HSBI), para. 62.  [    *** 
         ] .  
2580[  
      * * *  
       ]. (European Communities' first written submission to the 
Panel, Annex E – 737NG Campaign Annex (HSBI), para. 62) 
2581In EC and certain Member States – Large Civil Aircraft , the Appellate Body took note of the panel's 
view that, apart from losing direct  revenue effects, lost sales are si gnificant because th ey can deprive a 
manufacturer of the "ability to benefit from the importa nt learning effects and economies of scale in this 
industry", and "the advantages {of} being the incumbent supplier with a given customer with respect to subsequent purchases". (Appellate Body Report, EC and certain Member States – Large Civil Aircraft , 
para. 1219 (quoting Panel Report, EC and certain Member States – Large Civil Aircraft , para. 7.1845))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 533  
 
  5. Conclusion 
1274.  We have reversed the Panel's findings that the FSC/ETI subsidies and the B&O tax rate 
reductions caused significant price suppression, significant lost sales, and displacement and 
impedance in the 100-200 seat and 300-400 seat LCA markets, and therefore serious prejudice to the 
interests of the European Communiti es, within the meaning of Articles 5(c) and 6.3(b) and (c) of the 
SCM Agreement .  In completing the analysis, we have found that, in two sales campaigns, the 
FSC/ETI subsidies and the Washington State B&O ta x rate reduction caused, through their effects on 
Boeing's prices for the 737NG, signifi cant lost sales to Airbus within the meaning of Article 6.3(c) of 
the SCM Agreement .  We therefore find that the FSC/ETI subsidies and the Washington State B&O 
tax rate reduction caused serious prejudice in the 100-200 seat LCA market within the meaning of 
Articles 5(c) and 6.3(c) of the SCM Agreement . 
E. Collective Assessment of the Subsidies and Their Effects 
1. Introduction 
1275.  The European Union challenges two decisions taken by the Panel to assess separately the 
alleged effects of different groups of subsidies.  W ith respect to each, the European Union asserts that, 
in refusing to conduct an integrated assessment of th e effects of the relevant subsidies, the Panel erred 
in its interpretation and application of Articles 5(c) and 6.3 of the SCM Agreement .  The specific 
errors alleged consist of:  (i) the Panel's refusal to  assess collectively the effects of the B&O tax rate 
reductions and the effects of the aeronautics R&D subsidies2582;  and (ii) the Panel's failure to assess 
collectively the effects of the tied tax subsidies (the FSC/ETI subsidies and the B&O tax rate 
reductions) and the effects of eight other subs idy measures (the "remaining subsidies").   
1276.  With respect to the first  alleged error, which relates only to the Panel's analysis of the 200-300 
seat LCA market, the European Union requests us on ly to reverse the Panel's finding that it was not 
"appropriate to aggregate the effects of the B&O ta x {rate reductions} on Boeing's pricing of the 787 
with the effects of the aeronautics R&D subsidi es on Boeing's development of technologies applied to 
the 787".2583  With respect to the second alleged error, which relates to the 100-200 seat and the 
                                                      
2582Panel Report, para. 7.1824. 
2583Panel Report, para. 7.1824. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 534 HSBI omitted, as indicated [[HSBI]]  
 
  300-400 seat LCA markets
2584, the European Union requests us to reverse the reasoning2585 that led 
the Panel to assess the effects of the remaining subs idies in isolation from the tied tax subsidies, as 
well as the Panel's ultimate conclusion that the re maining subsidies did not "give rise to serious 
prejudice to the European Communities' interests."2586  In addition, and as a consequence of this 
second alleged error, the European Union requests us to find that the Panel should have assessed the 
collective effects of these two groups of subsidies, and to complete the analysis and find that the tied 
tax subsidies and the remaining subsidies collectiv ely cause adverse effects in  the product markets at 
issue.2587 
1277.  Before turning to these grounds of appeal, we c onsider it useful to identify the Panel's overall 
approach to analyzing the large number of subsidy measures that were relevant to its analysis of 
serious prejudice.  Specifically, the Panel analyzed the collective effects of several subsidy measures 
within each of the following three groups of subsidies.   
1278.  First, the Panel analyzed collectively th e technology effects of the aeronautics R&D 
subsidies, which the Panel found to amount to at l east $2.6 billion and to consist of:  (i) the payments 
made to Boeing and the access to NASA facilities,  equipment, and employees provided to Boeing by 
NASA pursuant to procurement contracts and Spac e Act Agreements entered into under the eight 
aeronautics R&D programmes at issue;  and (ii) the payments made to Boeing and the access to 
                                                      
2584Although the European Union did not, in its appellant's submission, expressly indicate whether this 
ground of appeal relates to all three LCA product markets, or only to those two LCA product markets in which 
the Panel found that the tied tax subsidies caused adverse effects, we consider that this ground of appeal 
ultimately relates only to the latter two LCA product markets and not to the 200-300 seat LCA market.  Our understanding is based on:  (i) the fact that, as discussed infra paras. 1313 and 1327, the European Union has not 
appealed the Panel's decision not to ex amine the effects of the aeronautics R&D subsidies on Boeing's prices;  
and (ii) the European Union's clarification, at the oral hearing, that it does not seek completion of the analysis 
with respect to the issue of the causal relationship betw een the B&O tax rate reductions and Boeing's prices and 
the related issue of whether the effects of those subsidie s could be cumulated with the effects of the aeronautics 
R&D subsidies within the 200-300 seat LCA market.  It follows that, because there is no finding that the tied tax subsidies that applied in the 200-300 seat LCA market (the B&O tax rate reductions) had a genuine and 
substantial causal relationship with the adverse effects in  that product market, and because the European Union 
has not argued that the eff ects of the remaining subsidies should be cumulated with the effects of the aeronautics 
R&D subsidies within the 200-300 seat LCA market, this ground of appeal does not pertain to the 200-300 seat 
LCA market. 
2585Panel Report, paras. 7.1827 and 7.1828. 
2586Panel Report, para. 7.1828. 
2587European Union's appellant's submission, para. 192.    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 535  
 
  USDOD facilities provided to Boeing by the USDOD pur suant to assistance in struments entered into 
under the 23 RDT&E programmes at issue.
2588   
1279.  Second, the Panel analyzed collectively the price effects of the tied tax subsidies, which the 
Panel found to amount to approximately $2.2 billion a nd to consist of:  (i) the tax exemptions and tax 
exclusions provided to Boeing under FSC/ETI legislation2589;  (ii) the Washington State B&O tax rate 
reduction2590;  and (iii) the City of Everett B&O tax rate reduction.2591   
1280.  Third, to the extent that it analyzed the pri ce effects of the remaining subsidies, the Panel 
appears to have conducted a single analysis of their collective effects.  Tho se eight subsidies, which 
the Panel found to amount to $55 0 million in total, consist of2592:  (i) the property and sales tax 
abatements provided to Boeing pursuant to IRBs issu ed by the City of Wichita, Kansas;  (ii) the 
Washington State B&O tax credits for preproduction development, computer software and hardware, 
and property taxes;  (iii) the Washington State sales and use tax exemptions for computer hardware, 
peripherals, and software;  (iv) the Washingt on State workforce development programme and 
Employment Resource Center;  (v) the reimbursement of a portion of Boeing's relocation expenses by the State of Illinois;  (vi) the 15-year EDGE tax credits provided by the State of Illinois;  (vii) the 
abatement or refund of a portion of Boeing's property taxes provided by the State of Illinois;  and 
(viii) the payment to retire the lease of the previous  tenant of Boeing's new headquarters building in 
Chicago. 
1281.  In contrast, the Panel decided not  to conduct a collective assessment  of the effects of certain 
groups of the subsidies at issue .  In its analysis of the "price effect s" of subsidies within the 200-300 
seat LCA market, the Panel did not collectively assess the effects of the relevant tied tax subsidies 
                                                      
2588See Panel Report, paras. 7.1110, 7.1210, 7.1431, and 7.1433.  The Panel identified these as four 
types of measures, namely:  (i) payments made to Boeing pursuant to procurement contracts entered into under 
the eight NASA aeronautics R&D programmes at issue;   (ii)  access to NASA facilities, equipment, and 
employees provided to Boeing pursua nt to procurement contracts and Space Act Agreements entered into under 
the eight aeronautics R&D programmes at issue;  (iii) payments made to Boeing pursuant to assistance 
instruments entered into under th e 23 USDOD RDT&E programmes at issue;  and (iv) access to USDOD 
facilities provided to Boeing pursuant to assistance instruments entered into under the 23 RDT&E programmes 
at issue.  However, we recall that , for the reasons explained in sectio n VI.A, we view the aeronautics R&D 
subsidies as joint venture-type trans actions that are composite in nature. 
2589Panel Report, para. 7.1429.  As explained supra , footnote 1882, the European Communities did not 
claim that the FSC/ETI subsidies had adverse effects in  the 200-300 seat LCA mark et, and the Panel conducted 
its analysis on the basis that these subsid ies had no effects in that product market. 
2590Panel Report, para. 7.302. 
2591Panel Report, para. 7.354.  As explained supra , footnote 1879, the City of Everett B&O tax rate 
reduction applies only in respect of two of the three relevant product markets, and not in respect of the 100-200 seat LCA market. 
2592Panel Report, paras. 7.1431-7.1433 and 7.1825-7.1827. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 536 HSBI omitted, as indicated [[HSBI]]  
 
  (the two B&O tax rate reductions
2593) on Boeing's pricing of the 787 together with the effects of the 
aeronautics R&D subsidies on Boeing's develo pment of technologies applied to the 787.2594  I n  i t s  
analyses of the "price effects" of subsidies within the 100-200 seat and 300-400 seat LCA markets, 
the Panel did not collectively assess the effects of the remaining subsidies together with the effects of 
the tied tax subsidies.  The European Union a ppeals both of these decisions by the Panel. 
2. Assessment of the European Union's Claims of Error on Appeal 
(a) Introduction 
1282.  Over the course of these appellate proceedings, th e submissions made by the participants and 
third participants with respect to the collective ass essment of the effects of multiple subsidy measures 
have focused heavily on the approaches employed in the US – Upland Cotton  and EC and certain 
member States – Large Civil Aircraft disputes.  Moreover, following circulation of the Appellate 
Body report in the latter dispute, the core disagre ement between the particip ants shifted from their 
different understandings of what was done by the panel in US – Upland Cotton  to their different 
understandings of the Appellate Body's findings in EC and certain member States – Large Civil 
Aircraft .  For these reasons, we consider it useful to outline key elements of the approaches taken by 
the panels in these two disputes.  As explained belo w, and accepted by the participants, two distinct 
means of undertaking a collective assessment of th e effects of multiple subsidies have been used, 
namely:  (i) an ex ante  decision taken by a panel to undertake a single analysis of the effects of 
multiple subsidies whose structure, design, and operation are similar and thereby to assess in an 
integrated causation analysis the coll ective effects of such subsidy measures2595;  and (ii) an 
examination undertaken by a panel after it has found that at least one subsidy has caused adverse 
effects as to whether the effects of other subsidies complement and supplement those adverse effects.  
The former type of approach was employed by the panel in US – Upland Cotton , and the latter 
approach was employed by the panel in EC and certain member States – Large Civil Aircraft .  For the 
sake of convenience, we will refer to the first ty pe of approach as a decision to "aggregate" the 
subsidies, or "aggregation", and to the second type of  approach as a decision to  "cumulate" the effects 
of the subsidies, or "cumulation".   
                                                      
2593As explained supra , footnote 1882, the European Communities did not claim that the FSC/ETI 
subsidies had adverse effects in the 200-300 seat LCA ma rket, and the Panel conducted  its analysis on the basis 
that these subsidies had no eff ects in that product market.   
2594Panel Report, para. 7.1826. 
2595Such a combined analysis may al so encompass a summing up of the amounts  of different subsidies 
or groups of subsidies (or of the amounts of the benefits of such subsidies) for purposes of the assessment of the 
effects of all the subsidies whose e ffects are assessed in this manner.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 537  
 
  1283.  Before turning to the European Union's two gr ounds of appeal, we outline, in subsection (b), 
the different approaches that have been and that may be taken to a collective assessment of the effects 
of multiple subsidies.  In subsection (c), we identify the approach taken by the Panel in this dispute.  
In subsection (d), we consider whether the Panel e rred in declining to assess co llectively the effects of 
the aeronautics R&D subsidies and the effects of  the B&O tax rate reductions.  Finally, in 
subsection (e), we evaluate whether the Panel erre d in declining to assess collectively the effects of 
the tied tax subsidies and the effects of the remainin g subsidies and, if so, whether we can complete 
the analysis and ourselves undertake a collective assessment of the effects of these subsidies. 
(b) Different approaches to collective assessment  
1284.  Articles 5(c) and 6.3 of the SCM Agreement do not require that a serious prejudice analysis 
"clinically isolate each individual subsidy and its effects".
2596  Rather, the way in which a panel 
structures its evaluation of a claim that multiple subsidies have caused serious prejudice will 
necessarily vary from case to case.  Relevant circum stances that will bear upon the appropriateness of 
a panel's approach include the design, structure, a nd operation of the subsidies at issue, the alleged 
market phenomena, and the extent to which the su bsidies are provided in relation to a particular 
product or products.2597  A panel must also take account of the manner in which the claimant presents 
its case, and the extent to which it claims that mu ltiple subsidies have similar effects on the same 
product, or that the effects of multiple subsidies manifest themselves collec tively in the relevant 
market.  A panel enjoys a degree of methodological la titude in selecting its approach to analyzing the 
collective effects of multiple subsidies for purposes of  assessing causation.  However, a panel is never 
absolved from having to establish a "genuine a nd substantial relationship of cause and effect"2598 
between the impugned subsidies a nd the alleged market phenomena under Article 6.3, or from 
assessing whether such causal link is diluted by the effects of other factors.2599  Moreover, a panel 
must take care not to segment unduly its analysis su ch that, when confronted with multiple subsidy 
measures, it considers the effects of each on an individual basis only and, as a result of such an 
atomized approach, finds that no subsidy is a substa ntial cause of the relevant adverse effects.  At 
least two ways of conducting a collective causati on analysis may be pursued by panels.   
                                                      
2596Panel Report, US – Upland Cotton , para. 7.1192.  See also  Panel Report, Indonesia – Autos , 
para. 14.206;  and Panel Report, Korea – Commercial Vessels , para. 7.616. 
2597Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1376 (referring 
to Panel Report, US – Upland Cotton , para. 7.1194;  and Panel Report, Korea – Commercial Vessels , 
para. 7.560). 
2598Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 368 (quoting Appellate 
Body Report, US – Upland Cotton , para. 438). 
2599See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 375.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 538 HSBI omitted, as indicated [[HSBI]]  
 
  1285.  First, a panel may group together subsidy me asures that are sufficiently similar in their 
design, structure, and operation in order to ascertain their aggregated effects in  an integrated causation 
analysis and determine whether there is a genuine  and substantial causal re lationship between these 
multiple subsidies, taken together, and the relevant  market phenomena identified in Article 6.3 of the 
SCM Agreement  (such as significant price suppression, lost sales, displacement or impedance).  In 
such circumstances, the panel is not required to find that each subsidy meas ure is, individually, a 
genuine and substantial cause of the relevant phenomenon.  Nor is  it required to assess the relative 
contribution of each subsidy within the group to the resulting effects.  When such an analysis is 
appropriate in the light of the design, structure, and operation of multiple subsidies, a panel may also 
add together the amounts of the subsidies as part of its analysis  of the collective effects of that group 
of subsidies.  Whether such an analysis is appr opriate will depend upon the particular features of the 
subsidies at issue and the case pr esented by the complainant.  Th e causal mechanism through which a 
subsidy produces effects is one criterion that will be  relevant to the issue of whether aggregation is 
appropriate in any given instance. 
1286.  The approach of the panel in US  – Upland Cotton illustrates this first method of collectively 
assessing the effects of multiple subsidies (aggrega tion).  That panel noted that the question of 
whether the effects of the various subsidies should be  considered on an aggregated basis was linked to 
the issue of possible interrelationships among them
2600, and explained that, in analyzing Brazil's claim 
of significant price suppression, it would conduct its analysis as follows: 
To the extent a sufficient nexus w ith these exists among the subsidies 
at issue so that their effects ma nifest themselves collectively, we 
believe that we may legitimately treat them as a "subsidy" and group them and their effects together.
2601 
In applying this test to the US subsidies challenged by Brazil2602, the panel divided the subsidies at 
issue into two general groups:  "those that are di rectly price-contingent, and those that are not".2603  
                                                      
2600Panel Report, US – Upland Cotton , footnote 1308 to para. 7.1192. 
2601Panel Report, US – Upland Cotton , para. 7.1192.  The panel also made clear that it did not accept 
the broad proposition that "the effects of all challenged subsidies in existen ce more or less contemporaneously 
and to any connection whatsoever  with a subsidized product must  be aggregated in a serious prejudice analysis." 
(Ibid., footnote 1308 thereto (original emphasis)) 
2602See Panel Report, US – Upland Cotton , paras. 7.204-7.244. 
2603Panel Report, US – Upland Cotton , para. 7.1289.  The panel considered the distinction between 
price-contingent and non-price-contingent subsidies to be  "critical for the purposes of {its} price suppression 
analysis in terms of the nexus which the subsidies {had} to any price suppression and to the subsidized product 
at issue." ( Ibid.)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 539  
 
  The panel identified certain characteristics shared by the price-contingent subsidies
2604 and found that 
they had "a nexus with the subsidized product and th e single effects-related variable—world price", so 
as to warrant consideration of their effects in the ag gregate, given that such effects are "manifest in 
the movements in upland cotton prices in the same world market during the reference period."2605  In 
contrast, the panel identified certain characterist ics of the non-price-contingent subsidies that 
suggested a much more attenuated nexus between those subsidies and the world price for cotton2606 
and, therefore, declined to aggregate the non-pri ce-contingent subsidies with the price-contingent 
subsidies in its price suppression analysis.2607 
1287.  Second, a panel may begin by analyzing the effects of a single  subsidy, or an aggregated  
group of subsidies, in order to determine whether it constitutes a genuine a nd substantial cause of 
adverse effects.  Having reached that conclusion, a panel may then assess whether other  subsidies 
—either individually or in aggregated groups—have a genuine  causal connection to the same effects, 
and complement and supplement the effects of the first subsidy (or group of subsidies) that was found, 
alone, to be a genuine and substantial  cause of the alleged market phenomena.  The other subsidies 
have to be a "genuine" cause, but they need not, in themselves, amount to a "substantial" cause in 
order for their effects to be combined with those of  the first subsidy or group of subsidies that, alone, 
has been found to be a genuine and subs tantial cause of the adverse effects.   
1288.  This second way of collectively assessing the eff ects of multiple subsidies (cumulation) was 
adopted by the panel in EC and certain member States – Large Civil Aircraft , a dispute that involved 
challenges to a large number of subsidy measures.  Tho se that were relevant to the panel's analysis of 
adverse effects fell into four main categories:  (i) "launch aid" or "member State financing" 
                                                      
2604The panel explained that the price-contingent subsidy programmes were all similarly linked to the 
behaviour of world market prices, were countercyclical in nature, and operated similarly to "stimulate 
production and exports and result in lower world market prices than would prevail in their absence." (Panel 
Report, US – Upland Cotton , paras. 7.1291 and 7.1299) 
2605Panel Report, US – Upland Cotton , para. 7.1303.  
2606The panel explained that the non-price-contingent subsidies did not "expressly depend upon current 
production of upland cotton and {were} not directly tied to market prices".  This suggested that such subsidies were more directed at income support than at price support and,  therefore, that their pr ice effects were "not as 
easily discernible as those of certain ot her subsidy programmes". (Panel Report, US – Upland Cotton , 
para. 7.1305) 
2607Panel Report, US – Upland Cotton , para. 7.1307.  In its subsequent causation analysis, the panel 
found that the price-contingent subsidies, as a group, had caused price suppression.  Having found that it was 
not appropriate to aggregate the non- price-contingent subsidies and their effects with those of the price-
contingent subsidies, the panel found that no causal link had been established between the non-price-contingent 
subsidies and the significant price suppression. ( Ibid., para. 7.1350)  Neither the panel's approach to the 
aggregation of the effects of the two groups of subsidies, nor its finding that causation had not been established in respect of the non-price-contingent subsidies, was appealed.  The Appellate Body ultimately upheld the 
panel's causation finding with respect to the price-contingent subsidies, which had been appealed on other 
grounds and, in so doing so, expressly stated that it did not "exclude the possibility that challenged subsidies that are not 'price-contingent' … could have some effect on production and exports and contribute to price 
suppression." (Appellate Body Report, US – Upland Cotton , footnote 589 to para. 450) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 540 HSBI omitted, as indicated [[HSBI]]  
 
  ("LA/MSF") for the development of various Airbus LCA models;  (ii) research and technological 
development ("R&TD") funding granted to Air bus companies by the European Communities and 
member State governments at central and regional leve ls;  (iii) infrastructure and infrastructure-related 
grants by the member State governments;  and (iv) equity infusions and corporate restructuring measures undertaken by the French and German Gove rnments.  In its adverse effects analysis, the 
panel first assessed the effects of one of the categories of subsidies—namely, LA/MSF subsidies—
that the United States had contended were the primary subsidies affecting Airbus' commercial 
behaviour.  The panel determined that through th eir "product effect"—namely, enabling Airbus to 
launch each of its LCA models at the time that it did
2608—the LA/MSF caused displacement of 
imports within the meaning of Article 6.3(a), di splacement of exports within the meaning of 
Article 6.3(b), and significant lost sales within the meaning of Article 6.3(c) of the SCM Agreement .  
The panel then turned to assess the effects of non-LA/MSF subsidies, and considered whether the 
"product" effect of LA/MSF was "complemented and supplemented" by the remaining three types of 
subsidies.2609  The panel also referred to the test for aggr egation of the effects of subsidies set out by 
the panel in US – Upland Cotton  in expressing its view that it was "appropriate to undertake {its} 
analysis of the effects of the subsidies on an aggregated basis".2610  
1289.  In reviewing the panel's approach on app eal, the Appellate Body first observed that, 
notwithstanding that the panel had stated that, like the US – Upland Cotton panel, it would undertake 
an aggregated analysis of the effects of all of the re levant subsidies, that was not in fact what the panel 
had done.2611  The Appellate Body nevertheless considered  that the approach that the panel had taken 
was in principle permissible provided that, in its analysis, the panel had established a genuine  causal 
link between each group of non-LA/MSF subsidies and th e relevant adverse effects.  Accordingly, the 
Appellate Body reviewed the panel's individual assessment of each group of  non-LA/MSF subsidies 
in order to determine whether the panel's analysis re vealed that it had determined that each such group 
had a genuine causal connection with the relevant  market effects and had thereby identified a 
                                                      
2608Panel Report, EC and certain member States – Large Civil Aircraft , para. 7.1956.  
2609Panel Report, EC and certain member States – Large Civil Aircraft , para. 7.1956.  For each group 
of subsidies, the panel stated that those subsidies supported the development and production of Airbus LCA or 
enabled Airbus to develop features and aspects of its LCA on a schedule that it would otherwise not have been able to accomplish. ( Ibid., paras. 7.1957-7.1959) 
2610Panel Report, EC and certain member States – Large Civil Aircraft , para. 7.1961.   
2611Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1372.  Rather, 
the Appellate Body explained, the panel had separately analyzed the product effects of the LA/MSF subsidies, 
and then sought to determine whether each group of non-LA/MSF subsidies had a sufficient nexus with the 
product at issue, in particular, similar effects on Airb us' ability to launch and bring to the market particular 
models of LCA, by means of "a separate—and more  abbreviated—assessment of the collective effect of 
measures comprised under each group of non-LA/MSF subsidies". ( Ibid., para. 1373)  Having done so, the panel 
had reached the conclusion that the "'product' effect of LA/MSF {was} ... complemented and supplemented by 
the other specific subsidies {it had} found to exist in {that} dispute". ( Ibid. (quoting Panel Report, EC and 
certain member States – Large Civil Aircraft , para. 7.1956))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 541  
 
  sufficient basis for its finding that the effects of  each such group "complemented and supplemented" 
the product effects of the LA/MSF "in that they similarly contributed to Airbus' ability to bring to the 
market its models of LCA, thereby causing displacement ... and significant lost sales".
2612  T h e  
Appellate Body found the panel's a pproach to have been satisfactory with respect to two of the three 
groups of non-LA/MSF subsidies2613, but that the panel had erred in cumulating the effects of the third 
group of non-LA/MSF subsidies (the  R&TD subsidies) with the e ffects of the LA/MSF subsidies, 
because it had not established a genuine causal link between those subsidies and Airbus' ability to 
launch and bring to the market its models of LCA.2614  
1290.  Thus, at least two approaches to a collective a ssessment of the effects of multiple subsidy 
measures may be used, namely, aggregation and cumula tion.  Whether either, or both, or neither of 
these approaches is appropriate in a particular case will be a function of the specific subsidy measures 
at issue and their effects on prices and sales in the relevant market, as well as upon the manner in 
which a complainant presents its claim and the panel decides to structure its causation analysis.  In 
deciding how to undertake its analysis of serious prejudice, however, a panel is subject to the constraint that it must employ an approach that will enable it to take due account of all of the 
subsidies that provide a relevant and identifiabl e competitive advantage to the recipient and its 
products in the market and that relate to alleged adverse effects phenomena.  Only by doing so can a 
panel ensure a full appreciation of all of the ch allenged subsidies that may be contributing, or 
conducing, to the serious prejudice.  At the same  time, a panel must be careful not to combine 
multiple measures in such a way as to absolve a co mplainant of its burden of proving that each 
challenged measure is a genuine cause of, or genuinely contributes to producing, the market 
phenomena identified in Article 6.3 and that the ch allenged subsidies, taken together, are a genuine 
and substantial cause of such adverse effects.   
                                                      
2612Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1380. 
2613Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1391 (equity 
infusions) and 1400 (infra structure measures).   
2614Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1408.  The 
Appellate Body reasoned that such subsidies "will not have any impact on Airbus' (and consequently on Boeing's) sales unless they provide Airbus LCA with a competitive advantage in relation to Boeing LCA", and 
that such a competitive advantage "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."  Because the panel had made no findings that the deve lopment of specific technolog y or production processes 
funded by R&TD subsidies contributed to Airbus' ability  to launch and bring to market specific LCA models, 
the Appellate Body found that the panel "did not have a sufficient basis to conclude that those subsidies 'complemented and supplemented' the 'product effect' of LA/MSF" and thus had not established a genuine 
causal link.
 (Ibid., para. 1407) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 542 HSBI omitted, as indicated [[HSBI]]  
 
  1291.  A decision to aggregate subsidies that share a sim ilar design, structure, and operation is both a 
useful tool that a panel can use to avoid having to repeat the same analysis for each and every measure 
and a substantive recognition that the measures in qu estion are of such kind that they are likely to 
conduce to the same result.  Indeed , an aggregate analysis of such a group of subsidies may establish a 
genuine and substantial causal link in circumstan ces where no such link could have been established 
for each subsidy measure, analyzed in isolation.  A decision by a panel to aggregate multiple subsidy 
measures represents an exercise of judgement by th e panel to the effect that, given the degree of 
similarity among the subsidy measures, there is a reasonable likelihood that the examination of the 
causal relationship between each such subsidy and the a lleged effects will be largely similar, and that 
it can be anticipated that the effects of the s ubsidy measures and their causal relationship to the 
serious prejudice alleged will be largely the same.
2615  In adopting such an approach, a panel must 
explain why it considers such similarity to exist.   Such explanation should be grounded in the 
characteristics of the particular subsidies at issue, particularly the nature and design of those subsidy 
measures, the implications of that nature and design for the operation of the subsidies, their 
relationship to the subsidized product, and the structur e of the market in which that product competes.   
1292.  In contrast, a decision as to whether the effects of different subsidies can be cumulated can be 
taken only after there has been a determination, for at l east one subsidy or group of aggregated 
subsidies, that it has a genuine and substantial li nk to the alleged market phenomena.  Once such a 
causal link has been established, then a panel w ill have to address the question of whether other 
subsidies have a genuine connection to such phenomena.  Consid erations that may bear upon a panel's 
assessment of whether a genuine causal connection ex ists include the design, structure, magnitude, 
and operation of the subsidy, as well as the nexus betw een the subsidy and the subsidized product.  In 
our view, a genuine causal connection may be esta blished in different ways.  One way is to 
demonstrate that the subsidy or subsidies cause effects that follow the same causal pathway as a 
subsidy that has already been found to be a genui ne and substantial cause of the alleged market 
phenomena under Article 6.3 of the SCM Agreement .  We do not, however, consider that this is the 
only way in which the requisite genuine causal c onnection can be established.  A genuine causal 
connection may also be found when a complainant succeeds in demonstrating that, even though other 
subsidies do not operate along the same causal pathway,  those subsidies nevertheless, either singly or 
in combination, meaningfully contribute to, a nd thereby complement and supplement, the adverse 
effects, within the meaning of Article 6.3, caused by the first subsidy.  In other words, the effects of 
                                                      
2615We understand this to have been the approach adopted by the panel in US – Upland Cotton , which it 
explained as, "{t}o the extent a sufficient nexus with these exists among the subsidies at issue so that their effects manifest themselves collectively, we believe that we may legitimately treat them as a 'subsidy' and group 
them and their effects together." (Panel Report, US – Upland Cotton , para. 7.1192)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 543  
 
  such other subsidy or group of subsidies must be  shown to be non-trivial in order to be found to 
supplement or complement effects for which a genui ne and substantial conne ction has already been 
established.   
1293.  We further observe that the characteristics of th e market within which the subsidized products 
compete may affect the analysis of whether the effects of different subsidies complement and 
supplement each other, and that pa nels should give consideration to whether the specific market at 
issue enhances the scope for complementarity among subsidies—even those subsidies that differ in 
nature.  For example, when a subsidy recipient ex ercises market power, it may be more likely to be 
able to take advantage of potential interaction betw een different subsidies, and to exploit these effects 
to the disadvantage of its competitors, than woul d be the case in a perfectly competitive market.   
(c) The approach taken by the Panel to a collective assessment of the 
effects of the subsidies at issue  
1294.  We recall that, in advancing its claim that th e United States' subsidies at issue had caused 
serious prejudice to its commercial interest s, the European Communities alleged that all of the 
subsidies at issue had "price effect s" in all three relevant product markets, and that certain of these 
measures—the aeronautics R&D subsidies—also ha d "technology effects" within the 200-300 seat 
LCA market.  In considering how to conduct its an alysis of the effects of the various subsidy 
measures, the Panel quoted the test set out by the panel in US – Upland Cotton
2616 and explained that 
it would use such an approach, which it explained as follows: 
{I}n order to conduct an aggregat ed analysis of the effects of 
subsidies in the context of this dispute, it should be possible to 
discern from their structure, design and operation that they affect 
Boeing's behaviour in a similar way.2617   
1295.  As explained above, this approach  led the Panel to undertake an aggregated analysis within 
each of the following three groups of subsidies:  (i) the tied tax subsidies2618;  (ii) the aeronautics 
R&D subsidies;  and (iii) the remaini ng subsidies.  It also led the Panel not to undertake an aggregated 
analysis of the tied tax subsidies and the aeronautics R&D subsidies, or of the tied tax subsidies and 
the remaining subsidies. 
                                                      
2616Panel Report, para. 7.1804 (referring to Panel Report, US – Upland Cotton , para. 7.1192). 
2617Panel Report, para. 7.1805. 
2618Panel Report, para. 7.1805.  Pursuant to this approach, the Panel conducted an integrated analysis of 
the effects of the FSC/ETI subsidies and the B&O tax rate reductions within the 100-200 seat and 300-400 seat LCA markets, and an integrated analysis of the price e ffects of the B&O tax rate reductions in the 200-300 seat 
market. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 544 HSBI omitted, as indicated [[HSBI]]  
 
  1296.  The Panel appears to have decided that it was a ppropriate to conduct an aggregated analysis 
within each of these groups of subsidies by virtue of their design, structure, and operation.  With 
respect to the tied tax subsidies, for example, th e Panel observed that both the European Communities 
and the United States accepted that these subsidie s were sufficiently similar as to warrant an 
aggregated analysis of their effects.
2619  The Panel itself explained that the "FSC/ETI subsidies reduce 
the revenues from certain sales of aircraft on which Boeing is taxed" and that "the B&O tax {rate 
reductions} directly reduce the rate at which Boei ng's gross revenues from the manufacture of aircraft 
are taxed."2620  Thus, the Panel explained, all of these subsidies increase "the profitability of LCA 
sales in a way that enables Boeing to price its LCA at a level that would not otherwise be 
commercially justified."2621  The Panel concluded that, "by lowe ring the taxes incu rred in connection 
with sales of LCA", the FSC/ETI subsidies and the B&O tax rate reductions ha ve a much more "direct 
and immediate relationship to aircraft prices and sales " than other subsidies at issue in this dispute.2622  
The Panel also undertook an aggregated analysis of the effects of all of th e aeronautics R&D subsidies 
based on their nature and the fact that they were designed to have effects on Boeing's product 
offering.2623 
1297.  The Panel also appears to have undertaken an aggr egated analysis of the remaining subsidies.  
Although the Panel did not expressly indicate that it was proceeding in this manner2624, the Panel did, 
in its reasoning, identify several characteristics that  these measures had in common.  For instance, the 
Panel noted that all of these measures fell with in the category of subsidies identified by the 
European Communities as operating to increase Boeing's non-operating cash flow2625, and that none 
of these subsidies was directly related to Boeing's production or sale of LCA.2626  The Panel reasoned 
that, even if the conditions of competition are such  that subsidies of this nature allow Boeing to 
market its LCA at lower prices than would otherw ise be the case, the remaining subsidies are not 
                                                      
2619Panel Report, para. 7.1805 (referring to United States' first written submission to the Panel, 
paras. 767 and 768).  Although the parties did not agree on the precise nature of the FSC/ETI subsidies and B&O tax rate reductions—the European Communities alleged that they operate to reduce Boeing's marginal unit 
costs, whereas the United States cont ested this characterization of the nature of these measures—both accepted 
that the measures share sufficient similarities in struct ure and operation such that it was appropriate for the Panel 
to conduct an aggregated analysis of their effects.  
2620Panel Report, para. 7.1807. 
2621Panel Report, para. 7.1807. 
2622Panel Report, para. 7.1807.   
2623In these appellate proceedings, bo th participants accepted, in respon se to questioning at the oral 
hearing, that it was appropriate for the Panel to have condu cted an aggregated analysis  of the tied tax subsidies, 
and an aggregated analysis of the aeronautics R&D subsidies.   
2624Similarly, the Panel did not explicitly identify th e reasons why it consider ed that an aggregate 
assessment of the effects of the aer onautics R&D subsidies was warranted. 
2625Panel Report, para. 7.1825. 
2626Panel Report, para. 7.1827.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 545  
 
  "explicitly targeted to lowering Boeing's co sts of production of specific LCA models".
2627  The Panel 
also noted that both parties appeared to accept "t he proposition that where a subsidy is not tied to 
production of a particular product, the subsidy may still affect the behaviour of the recipient of the 
subsidy in a manner that causes serious prejudice, depending upon the context in which it is used."2628   
1298.  In contrast, the Panel gave the following reas ons for deciding not to conduct a collective 
assessment of the price effects of the B&O tax rate reductions and the technology effects of the 
aeronautics R&D subsidies within the 200-300 seat LCA market: 
{W}e have previously found that  the aeronautics R&D subsidies, 
through their effects on Boeing's development of technologies for 
the 787, gave rise to serious prejudice in that product market.  
However, owing to the very different way in which the aeronautics R&D subsidies operate, we do not cons ider that it is appropriate to 
aggregate the effects of the B&O tax subsidies on Boeing's pricing of the 787 with the effects of th e aeronautics R&D subsidies on 
Boeing's development of technologies applied to the 787, as it is 
clear that the two groups of subsidies operate through entirely 
distinct causal mechanisms .
2629 (emphasis added;  footnote omitted)  
1299.  The Panel did not address explicitly the question of  whether it would have been appropriate to 
undertake a collective assessment of the effects of the remaining subsid ies together with the effects of 
the tied tax subsidies.  In any event, the Panel did not do so.   
1300.  In accordance with the above approach, the Pane l examined the effects of the B&O tax rate 
reductions, alone, within the 200-300 seat LCA market.  The Panel found that: 
… there is insufficient evidence befo re us that would enable us to 
conclude that these subsidies are of a magnitude that would enable them, on their own, to have such an effect on Boeing's prices of the 787 as would lead to a finding that their effects in the 200-300 
seat wide-body market were significant price suppression, significant 
                                                      
2627Panel Report, para. 7.1827 (quoting European Communities' first written submission to the Panel, 
para. 1303). 
2628Panel Report, para. 7.1828.  As explained further below, although the Panel recognized that the 
aeronautics R&D subsidies also shared su ch characteristics, the Panel did not cumulate the price effects of those 
subsidies with those of the remaining subsidies.   
2629Panel Report, para. 7.1824.  Furthermore, in the section of its Report dealing with the "{e}ffects on 
Boeing's pricing of subsidies alleged to increase Boeing's non-operating cash flow" ( ibid., p. 707, subheading 
VII.F.2(c)(ii)), the Panel took the vi ew that it would not be appropriate to analyze the price effects of the 
aeronautics R&D subsidies, and explained: 
Having analyzed the effects of the ae ronautics R&D subsidies on the basis 
of their contribution to Boeing's development of technologies for the 787, 
we consider that it would be over-counting to additionally analyze their 
effects based on a different understanding of their operation, namely, as freeing up additional cash for Boeing to use to lower the prices of its LCA. 
(Ibid., para. 7.1826) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 546 HSBI omitted, as indicated [[HSBI]]  
 
  lost sales or displacement or im pedance of European Communities 
imports into the United States or exports to third countries.
2630   
1301.  The Panel also examined the effects of the remaining subsidies alone, as follows:  
As we have explained, the Panel is assessing the effects on Boeing's 
LCA pricing of approximately $550 million in subsidies, the receipt 
of which is not directly tied to the production or sale of particular LCA.  We are not persuaded that subs idies of this nature and of this 
amount have affected Boeing's prices  in a manner that could be said 
to give rise to serious prejudice to the European Communities' interests.
2631 
(d) Whether the Panel erred in declini ng to assess collectively the effects 
of the aeronautics R&D subsidies and the effects of the B&O tax rate 
reductions 
1302.  We recall that, in examining the price effect s of the subsidies within the 200-300 seat LCA 
market, the Panel declined to cons ider the effects of the R&D subsid ies together with the effects of 
the B&O tax rate reductions on the grounds that "the  two groups of subsidies operate through entirely 
distinct causal mechanisms".2632  We set out below the arguments of the parties as to whether or not 
this finding by the Panel amounted to legal erro r, before turning to assess the issue ourselves. 
(i) Arguments of the parties 
1303.  The European Union contends that the Panel erre d in so finding and challenges, in particular, 
the "distinct causal mechanism" test relied upon by th e Panel in deciding that it was not appropriate to 
undertake a collective assessment of the effects of  these two groups of subsidies within the 200-300 
seat LCA market.  The arguments made by the Eur opean Union in support of this claim of error 
shifted somewhat following circulation of the Appellate Body report in EC and certain member States 
– Large Civil Aircraft.  In its appellant's submission in this appeal, the European Union sought to 
demonstrate, through its interpretation of the text of Articles 5(c) and 6.3 of the SCM Agreement , read 
in the light of their context and the object and purpo se of that Agreement, that the Panel's test of 
whether groups of subsidies operate through the same  or "distinct causal mechanisms" has no basis in 
that Agreement, is overly restrictive, and woul d enable Members to escape subsidy disciplines by 
providing a series of small subsidies that each a ffects the recipient slightly differently.  The 
European Union argued that a panel may not clinically  isolate or compartmentalize its analysis so as 
to mask the contribution of any subsidy or group of subsidies to adverse effects.  Rather, a panel must 
                                                      
2630Panel Report, para. 7.1824.   
2631Panel Report, para. 7.1828.   
2632Panel Report, para. 7.1824.    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 547  
 
  always  assess—quantitatively or qualitatively—whethe r the collective competitive impact of the 
different subsidies causes one or more of the form s of adverse effects listed in Article 6.3.   
1304.  In its appellee's submission, submitted following circulation of the Appellate Body report in 
EC and certain member States – Large Civil Aircraft , the European Union contended that, having 
found that the aeronautics R&D subsidies allowed Boeing to suppress Airbus' pricing in the 200-300 
seat LCA market, and having also found that the B&O tax rate reductions had the capacity to suppress 
Airbus' pricing (in the 100-200 seat and 300-400 seat LC A markets), the Panel failed to take the next 
step and combine the effects of the B&O tax ra te reductions with those of the aeronautics R&D 
subsidies within the 200-300 seat LCA market.  In response to questioning at the oral hearing, the 
European Union further clarified its position with resp ect to this claim of error, and, in so doing, 
stressed the similarity between this dispute and the approach endorsed by the Appellate Body in  
EC and certain member States – Large Civil Aircraft .  The European Union explained that, in this 
dispute, the Panel found that the aeronautics R&D su bsidies were a genuine and substantial cause of 
significant price suppression in the 200-300 seat LCA ma rket.  The Panel in effect also found that the 
tied tax subsidies that apply in the 200-300 seat LCA market—the B&O tax rate reductions—have a 
genuine, albeit non-substantial, causal relati onship with the same kind of adverse effect.
2633  In such 
circumstances, the European Union submitted, the Panel was required to consider the possibility that 
the effects of the B&O tax rate reductions comple mented and supplemented those of the aeronautics 
R&D subsidies.   
1305.  Also at the oral hearing, the European Union rejected assertions by the United States that in 
EC and certain member States – Large Civil Aircraft the Appellate Body found that the effects of 
different groups of subsidies can be cumulated only when they affect the behaviour of the subsidy 
recipient in the same way.  While it is true that the facts in EC and certain member States – Large 
Civil Aircraft were such that  each group of subsidies was alleged to have "product" effects on Airbus, 
nothing in the Appellate Body's reasoning suggests that the same approach should not have been 
followed if some of the subsidies had been alleged to  have "price" effects on Airbus.  In this dispute, 
the Panel considered the possibility of cumulation only at  the first stage of its analysis (the effects of 
the subsidies on Boeing), and failed to consider whether cumulation would be appropriate at the 
second stage of its analysis (the effects of the s ubsidies on Airbus), even though both the aeronautics 
R&D subsidies and the B&O ta x rate reductions had been alleged to have effects on Airbus ' pricing 
and sales.  Instead, the Panel considered that it  was precluded from cumulating these effects solely 
                                                      
2633Such a finding is, according to the European Union, implicit in the Panel's findings, with respect to 
the 100-200 seat and 300-400 seat LCA markets, that the tied tax subsidies (the B&O tax rate reductions 
together with the FSC/ETI subsidies) were a genuine and substantial cause of si gnificant price suppression. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 548 HSBI omitted, as indicated [[HSBI]]  
 
  because they were produced pursuant to different causal mechanisms.  The European Union claims 
that such reasoning constitutes legal error and mu st be reversed.  The European Union further 
clarified at the oral hearing that it is not seeking to have us complete the analysis and determine, 
ourselves, whether the effects of the B&O tax ra te reductions complement ed and supplemented the 
adverse effects that the Panel found were cause d by the aeronautics R&D subsidies within the 
200-300 seat LCA market. 
1306.  The United States submits that the Panel's decisi on to consider the effects of the aeronautics 
R&D subsidies separately from tho se of the B&O tax rate reductions  was permissible under Articles 5 
and 6.3 of the SCM Agreement , based on the  European Communities' own arguments about the 
differing nature of these two groups  of subsidies and their differe nt effects on Boeing's commercial 
behaviour, and consistent with the Appellate Body's affirmation that panels enjoy "a certain degree of 
discretion in selecting an appropriate methodology" for determining adverse effects, and that the 
"appropriateness of a particular method may have  to be determined on a case-specific basis".
2634  
1307.  The United States adds that the Panel's appro ach accords with the views of the Appellate 
Body in EC and certain member States – Large Civil Aircraft.  According to the United States, the 
Appellate Body's analysis in that dispute show s that, even when using a cumulation methodology, 
panels should focus on discerning whether the vari ous subsidies operate through the same causal 
mechanism to cause adverse effects.  This ensures that subsidies with little or no causal relationship 
are not found to cause adverse effect s simply because they are grouped together with subsidies that do 
have a genuine and substantial causal  connection with the alleged effects.  In response to questioning 
at the oral hearing, the United States emphasized that, in EC and certain member States – Large Civil 
Aircraft , the Appellate Body found that the panel was entitle d to cumulate the effects of subsidies that 
had a genuine causal link with the product effect s of the LA/MSF subsidies, but had erred in 
cumulating the effects of the R&TD subsidies with  the effects of the LA/MSF subsidies, because the 
R&TD subsidies had no genuine causal link to Air bus' ability to launch the relevant models as and 
when it did.  Similarly, in the case at hand, the Panel aggregated all subs idies alleged to operate 
through the causal mechanism of enhancing Bo eing's ability to launch the 787, namely, the 
aeronautics R&D subsidies.  In contrast, the B&O ta x rate reductions did not, and were not alleged to, 
affect Boeing's launch of the 787.  Rather, the B&O ta x rate reductions were a lleged to affect Boeing's 
prices.  Since the Panel did not find that the aeronautics R&D subsidies had the effect of causing Boeing to reduce the sales price of the 787, it foll ows, according to the United States, that the Panel 
                                                      
2634United States' appellee's submission, para. 194 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1376, in turn referring to Appellate Body Report, US – Upland 
Cotton , para. 436).  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 549  
 
  was not required to include the effects of the B&O tax rate reductions in its analysis of the effects of 
the aeronautics R&D subsidies.   
1308.  The United States adds that the European Un ion's "extremely broad interpretation of 
Articles 5 and 6.3" of the SCM Agreement finds no support in these provisions and amounts to an 
argument "that these provisions require a cumulative assessment in all cases ".
2635  The United States 
submits that the Appellate Body should reject th e European Union's "one-size-fits-all analytical 
approach in which aggregation or cumulation is required in all cases"2636 and, instead, confirm that a 
"genuine and substantial relationship of cause and effect" or a "genuine causal connection" must be 
established between any particular subsidy found to  exist and any adverse effect found to exist.2637  
(ii) Analysis 
1309.  We begin with two preliminary observations.  First, we note that the Panel declined to 
"aggregate" the effects of these two groups of  subsidies owing to their "distinct causal 
mechanisms".2638  Although the Panel's reasoning suggests that it was declining to combine the two 
groups of subsidies for the purpose of carrying out an aggregated analysis of their collective effects, 
we also consider below whether the reason given by the Panel would have justified a refusal to 
cumulate the effects of the B&O tax rate reductions w ith the effects of the aeronautics R&D subsidies.   
1310.  Second, we recall that, before the Panel,  the European Communities presented separate 
arguments as to how the aeronautics R&D subsidi es cause technology effects, and how all of the 
subsidies (including the aeronautics R&D subsidies) cause price effects.  The European Communities 
argued that the aeronautics R&D subsidies have "t wo simultaneous effects" on prices, namely:  
(1) direct  price effects by allowing Boeing to price more aggressively 
than would otherwise be possible;  and (2) indirect  price effects 
through the earlier availability of  technologically innovative products 
like the 787 that require Airbus to  lower, for example, its A330 
prices to be able to compete.  The second, indirect price effect results 
from the "technology" or "product" effects of the US R&D 
subsidies.2639 (original emphasis) 
                                                      
2635United States' appellee's submission, para. 203 (referring to European Union's appellant's 
submission, paras. 205 and 206). (original emphasis) 
2636United States' appellee's submission, para. 211. 
2637United States' appellee's submission, para. 204 (referring to Appellate Body Report, US – Upland 
Cotton , para. 438;  and Appellate Body Report, EC and certain member States – Large Civil Aircraft , 
paras. 1376 and 1378). 
2638Panel Report, para. 7.1824. 
2639European Communities' response to Panel Question 285, para. 570. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 550 HSBI omitted, as indicated [[HSBI]]  
 
  Thus, the European Communities' arguments with respect to direct price effects related to alleged 
effects on Boeing's pricing, whereas its arguments with respect to indirect price effects focused on the 
alleged effects on Airbus' pricing resulting from the technology effects of the subsidies on Boeing's 
product offering.   
1311.  Ultimately, the Panel found that the R&D subsidies cause, inter alia, significant price 
suppression of the A330 and the Original A350 in  the 200-300 seat LCA market.  The Panel's 
reasoning suggests that it accepted the European Comm unities' theory regarding "indirect" effects on 
Airbus' prices caused through the technology effects of the aeronautics R&D subsidies on Boeing's product offering.
2640  Although the Panel did make one observation relating to Boeing's prices2641, the 
Panel does not appear to have found that the aeronautics R&D subsidies led directly  to a reduction of 
Boeing's 787 prices, for example through lowered manufacturing costs.2642  Rather, the Panel's 
principal finding was that Airbus was obliged to lo wer its prices due to the 2004 entry into the market 
of Boeing's technologically superior 787.2643   
1312.  The section of the Panel Report dealing with the a lleged price effects of all of the subsidies is 
separate from and subsequent to the section of its Report dealing with the technology effects of the 
aeronautics R&D subsidies.  In its analysis of the alle ged price effects of all of the subsidies at issue, 
the Panel posed the question of whether it shou ld "analyze the effects of the aeronautics R&D 
subsidies again, this time on the basis that they freed up additional cash which Boeing was able to use 
to engage in aggressive pricing of its three families of LCA".2644  The Panel decided not to do so.  The 
Panel recalled that, in its analysis of the technolog y effects of this group of subsidies, it had expressed 
                                                      
2640The Panel explained why the A330 prices could be expected to, and did, fall upon the introduction 
of the 787, namely, that "the combination of the superior technology and lower operating costs of the 787 
clearly affected the comparative valu e of Airbus' A330 …, leaving Airbus no other option but to reduce the 
prices of its aircraft in order to compete". (Panel Report, para. 7.1792) 
2641The Panel considered that the ev idence of the results of specifi c sales campaigns showed that 
Boeing won the sales with its 787 e ither because the customer perceive d competing Airbus products to be 
technologically inferior, or because, ev en if the Airbus offering could m eet its requirements, it was "swayed by 
the extremely low pricing offered by Boeing". (Panel Report, para. 7.1786) 
2642Although the Panel acknowledged, and stated, that it had "no reason to doubt" the United States' 
argument that "Boeing's 787 manufacturing costs have been lowered significantly by using commercially 
available product life cycle management and design so ftware, sourcing common materials across suppliers, and 
standardizing customer-selected options", the Panel emphasized that "one of the major focuses of the aeronautics R&D subsidies was the development of innovative technologies that result in lower direct operating 
costs to airlines." (Panel Report, footnote 3732 to para. 7.1792) 
2643At the oral hearing, both participants accepted that  the Panel had not made any findings with respect 
to the effects of the aeronautics R&D subsidies on Boeing's prices.   
2644Panel Report, para. 7.1826.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 551  
 
  the view that it was not "appropriate to reduce the ef fects of the aeronautics R&D subsidies at issue in 
this dispute to their cash value."
2645  The Panel considered that:  
{h}aving analyzed the effects of the aeronautics R&D subsidies on 
the basis of their contribution to Boeing's development of 
technologies for the 787, ... it would be over-counting to additionally 
analyze their effects based on a different understanding of their operation, namely, as freeing up additional cash for Boeing to use to lower the prices of its LCA.
2646 
1313.  The European Union has not appealed this finding.   In other words, the European Union is not 
contending on appeal, as it did before the Panel, that the aeronautics R&D subsidies directly  affected 
Boeing's prices , in addition to the effects that they had on Boeing's development of technologies used 
on the 787.  Rather, the European Union's contention is  that, in reaching its finding that the subsidies 
at issue caused a threat of displacement and impeda nce of EC exports in third-country markets, and 
significant lost sales and significant price suppression in the 200-300 seat LCA market, the Panel 
should have added together the price effects of the B&O tax rate reductions and the technology effects 
that the Panel found had been caused by the aeronautics R&D subsidies.  
1314.  Turning to the substance of this ground of th e European Union's appeal, we first recall that, 
although the Panel found that there were three tied ta x subsidies, only two of these—the B&O tax rate 
reductions—were available to Boeing in connection with its manufacturing and sale of the 787 in the 
200-300 seat LCA market.2647 
1315.  Like the European Union, we consider that the Panel's reasoning, in its analysis of the effects 
of the tied tax subsidies within the 100-200 seat and 300-400 seat LCA markets, suggests that the 
Panel considered that the B&O ta x rate reductions have a genuine  causal connection with Boeing's 
prices and, therefore, with Airbus' prices.  The Panel underlined the direct connection between the three subsidy measures in this group and Boeing's prices
2648, which stems from the fact that each of 
these subsidies is directly tied to Boeing's sales of individual LCA.2649  In deciding to aggregate these 
                                                      
2645Panel Report, para. 7.1826, referring to para. 7.1760. 
2646Panel Report, para. 7.1826. 
2647As explained supra , footnote 1882, the European Communities did not claim that the FSC/ETI 
subsidies had adverse effects in the 200-300 seat LCA ma rket, and the Panel conducted  its analysis on the basis 
that these subsidies had no ef fects in that product market 
2648Panel Report, para. 7.1807. 
2649Panel Report, para. 7.1806. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 552 HSBI omitted, as indicated [[HSBI]]  
 
  subsidies, the Panel expressed the view that "their structure, design and operation {is such} that they 
affect Boeing's behaviour in a similar way."
2650  The Panel explained that: 
… the FSC/ETI subsidies and the B&O tax subsidies, by lowering 
the taxes incurred in connection with sales of LCA, clearly have a far 
more direct and immediate relationship to aircraft prices and sales 
than other subsidies at issue in th is dispute, such as the aeronautics 
R&D subsidies.2651 
1316.  The Panel went on to find that the FSC/ETI subs idies, in combination with the B&O tax rate 
reductions, "enabled Boeing to lower its prices be yond the level that would otherwise have been 
economically justifiable, and that in some case s, this led to it securing sales that it would not 
otherwise have made, while in other cases, it led to  Airbus being able to secure the sale only at a 
reduced price."2652  This in turn provided key support for th e Panel's ultimate finding that "the effects 
of {the tied tax subsidies, including FSC/ETI} on Ai rbus' prices and sales constitute significant lost 
sales and significant price suppression, … as well as  displacement and impedance of exports from 
third country markets" in the 100-200 seat and 300-400 seat LCA markets.2653  It is true that the Panel 
provided somewhat more reasoning with respect to the contribution of the FSC/ETI subsidies, as 
opposed to the B&O tax reductions, to the effects on Boeing's prices, for example singling out the export-contingent nature of those subsidies
2654 and their strategic importance to Boeing's 
competitiveness in export markets.2655  In our view, however, this reasoning simply reveals that the 
Panel considered that the FSC/ETI subsidies made re latively more of a contribution to the effects and 
market phenomena that it found to exist.  We see no indication that the Panel's evaluation of the 
directness of the link between the tied tax subsid ies and Boeing's pricing would have been any 
different if it had analyzed only the B&O tax rate reductions.  
1317.  The Panel held that the aeronautics R&D subsid ies were a genuine and substantial cause of a 
threat of displacement and impedance, significan t lost sales, and significant price suppression in the 
200-300 seat LCA market, and we have uphe ld much of that finding on appeal.2656  As explained, we 
understand the Panel to have also  found, albeit implicitly, that th e B&O tax rate reductions had a 
genuine causal connection with Boeing's prices and, ther efore, with Airbus' prices.  At first blush, it 
                                                      
2650Panel Report, para. 7.1805, setting out the relevant standard, which the Panel went on to apply in its 
consideration, in paras. 7.1806 and 7.1807, of the stru cture, design, and operation of the FSC/ETI subsidies and 
the B&O tax rate reductions. 
2651Panel Report, para. 7.1807. 
2652Panel Report, para. 7.1818. 
2653Panel Report, para. 7.1822. 
2654Panel Report, paras. 7.1808-7.1810. 
2655Panel Report, para. 7.1817. 
2656We recall that we have reversed the Panel's finding of a threat of displacement and impedance with 
respect to three of the four third-country markets concerned. ( Supra , para. 1090)   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 553  
 
  seems to us that the next step for the Panel to ha ve taken would have been to consider whether the 
effects of the B&O tax rate reductions complemented  or supplemented the effects of the aeronautics 
R&D subsidies within the 200-300 seat LCA market. 
1318.  At the oral hearing, the participants and the third participants engaged in a lengthy discussion 
of the approach to cumulation endorsed by the Appellate Body in EC and certain member States – 
Large Civil Aircraft .  The United States suggested that the a pproach of the Appellate Body in that 
dispute made clear that the effects of subsidies ma y be cumulated only when they manifest themselves 
in the same way.  Thus, in that dispute, cumu lation was possible for those two groups of non-LA/MSF 
subsidies that, like the LA/MSF subsidies, had "product " effects, in that they contributed to the launch 
of specific models of Airbus LCA.  According to  the United States and Japan, the same approach is 
not possible when, as in this dispute, some subsidi es affect the recipient's products and other subsidies 
affect its prices.  The European Union, supported by Brazil, c ontended that the Appellate Body did 
not suggest any such  limitations in EC and certain member States  – Large Civil Aircraft  but, rather, 
that cumulation should be undertaken whenever one group of challenged subsid ies have been found to 
constitute a genuine and substantia l cause of adverse effects, and other subsidies have been found to 
have a direct nexus with the same subsidized product, irrespective of how the effects of those 
subsidies have been found to manifest themselves.  Canada suggested that this issue was not fully 
resolved by the Appellate Bo dy in that dispute.   
1319.  In our view, the issue of whether cumulation of the effects of different types of subsidies is 
possible or appropriate is a question that must be answered in the light of the particular facts and 
circumstances of a given case, including the subsidi es at issue and their nexus with the subsidized 
products, the effects produced, and their relationshi p to the alleged Article 6.3 market phenomena.
2657  
We do not see any a priori reason—such as, that different subsid ies operate through distinct causal 
mechanisms—why cumulation would be precluded outright .  We are particularly hesitant to set out a 
rigid benchmark against which panels should test whether or not cumulation is appropriate based on 
the facts of this dispute or of EC and certain member States – Large Civil Aircraft .  Each of these 
disputes involved very particular duopolistic markets,  in which the market pa rticipants enjoyed some 
degree of market power in their product and pricing decisions.  In such markets, it may be that the 
"product" or "technology" effects of subsidies can be  examined separately from their "price" effects.  
We nevertheless question whether such a segmented analysis is capable of fully reflecting market 
dynamics and taking account of the scope for subsidies and their effects to interact in these types of 
markets.  Moreover, in many other markets, the structure of competition will be such that it will 
                                                      
2657Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1376. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 554 HSBI omitted, as indicated [[HSBI]]  
 
  simply be impossible meaningfully to conduct a separate analysis of, or distinguish between, 
"product" effects and "price" effects. 
1320.  We are of the view that the Panel should have, in  this dispute, considered whether the effects 
of the B&O tax rate reductions complemented and supplemented th e effects of the aeronautics R&D 
subsidies within the 200-300 seat LCA market, or, in other words, whether it would have been 
appropriate to cumulate their effects.  We do not  consider the mere fact that the two groups of 
subsidies operated through distinct causal mechanisms  could, alone, have resolved the questions of 
whether each group had effects relevant to the ser ious prejudice alleged and whether those effects 
were capable of being combined in the Panel's an alysis of serious prejudice because they contributed 
similarly to the relevant market phenomena.  This is since, as we have explained, for purposes of 
cumulating, the requisite genuine causal connection ca n be established even when the other subsidies 
do not operate along the same causal pathway as the subsidy found to be a genuine and substantial 
cause of Article 6.3 market phenomena, provided that those subsidies meaningfully contribute to the 
same market phenomena caused by the first subsidy.  When that is so, the e ffects of such subsidies 
complement and supplement, and should be cumula ted with, the effects of the subsidy that is a 
genuine and substantial cause of such phenomena.   
1321.  By closing its mind to such an approach, "owing  to the very different way" in which the two 
groups of subsidies operate and their "entirely distinct causal mechanisms"
2658, the Panel failed to give 
full consideration to the possibility of cumulating th e effects of these two groups of subsidies.  We 
therefore find that the Panel erred in failing to consider whether the price effects of the B&O tax rate 
reductions complement and supplement the technology  effects of the aeronautics R&D subsidies in 
causing significant lost sales and significant price suppression, and a threat of displacement and 
impedance, in the 200-300 seat LCA market.  The European Union does not request us to complete 
the analysis on this issue. 
                                                      
2658Panel Report, para. 7.1824.    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 555  
 
  (e) Whether the Panel erred in declini ng to assess collectively the effects 
of the tied tax subsidies and the effects of the remaining subsidies 
(i) Whether the Panel should have aggregated the remaining 
subsidies with the tied tax subsidies or cumulated the effects of these two groups of subsidies 
1322.  The European Union also requests us to reverse the Panel's finding that: 
… {in} assessing the effects on Boeing's LCA pricing of 
approximately $550 million in subsidi es, the receipt of which is not 
directly tied to the production or sale of particular LCA ... {the Panel was} not persuaded that subsidies of  this nature and of this amount 
have affected Boeing's prices in a manner that could be said to give 
rise to serious prejudice to the European Communities' interests.
2659 
1323.  According to the European Union, the Panel e rred in reaching this finding because it assessed 
the remaining subsidies in isolation, rather than aggregating them with the tied tax subsidies, or 
cumulating their effects with those of the tied tax s ubsidies.  Since, like the tied tax subsidies, the 
remaining subsidies had a nexus with the subs idized LCA and with Boeing's pricing, the 
European Union asserts that, either the Panel shoul d have conducted an a ggregated assessment of 
their effects, or, after determining that the tied ta x subsidies caused serious prejudice, it should have 
cumulated the effects of these two groups of subsidies.   The European Union st resses, in this regard, 
that the Appellate Body recognized, in US – Upland Cotton , that untied (non-price-contingent) 
subsidies can have price effects. 
1324.  The United States considers that the Panel did not err in declining to undertake a collective 
assessment of the remaining subsidies and the tied subsid ies in its analysis of adverse effects.  In the 
view of the United States, this ground of the European Union's appeal relies on an incorrect 
understanding of the panel reports in US – Upland Cotton and EC and certain member States – Large 
Civil Aircraft , and a flawed interpretation of Articles 5 and 6.3 of the SCM Agreement as requiring the 
collective assessment of " any and all subsidies benefiting the subsidised product in the market at 
issue."2660  The United States emphasizes that no suffi cient nexus between the remaining subsidies 
and the subsidized products was established.  The United States argues that there was virtually no 
evidence before the Panel as to how the remaining subsidies were used2661, and the Panel never agreed 
with the European Communities' contention that th e remaining subsidies confer the equivalent of 
                                                      
2659Panel Report, para. 7.1828. 
2660United States' appellee's submission, para. 219 (quoting European Union's appellant's submission, 
para. 205 (original emphasis)). 
2661United States' appellee's submission, para. 214 (quoting Panel Report, footnote 3786 to 
para. 7.1828, in turn referring to United States' comm ents on the European Communities' response to Panel 
Question 301, paras. 601 and 602). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 556 HSBI omitted, as indicated [[HSBI]]  
 
  additional cash flow or found that the remaining subs idies impact the same "effects-related variable" 
as the tied tax subsidies—namely, price.  For the Un ited States, the circumstances of this dispute are 
comparable to those in EC and certain member States – Large Civil Aircraft , where the Appellate 
Body found that the panel had erred in cumulating th e effects of the R&TD subsidies with the effects 
of the LA/MSF subsidies because "a general finding th at 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 'complemented and supplemented' the 
'product effect' of LA/MSF in enabling Airbus  to launch particular models of LCA."
2662  Thus, 
submits the United States, the approach taken by the Appellate Body in EC and certain member States 
– Large Civil Aircraft affirms that the Panel in this dispute was correct to decline to undertake any 
collective assessment of the tied tax subsidies a nd the remaining subsidies, or their effects. 
1325.  As indicated above, the Panel did not e xplicitly address the question of whether it should  have 
collectively assessed these two groups of subsidies and th eir effects.  This is surprising given that the 
European Communities had consistently argued that all of the subsidies had effects on Boeing's 
pricing, and that the Panel should have collectively assessed such effects.  Accordingly, we simply do 
not know whether the Panel did not collectively assess these two groups of subsidies or their effects 
because, as with the aeronautics R&D subsidies and the B&O tax rate reductions, it considered that 
the two groups of subsidies operated through "distinct causal mechanisms", or for some other reason.   
1326.  Although the absence of any reasoning by the Panel is problematic, we consider that there is 
support on the record for the view that the Panel did not act outside the scope of its discretion by not 
conducting an aggregated  analysis of these two groups of subsid ies.  Most importantly, the Panel's 
explanations of the operation of th e tied tax subsidies, on the one ha nd, and the remaining subsidies, 
on the other hand, strongly suggest that the Panel consid ered them to be different in nature.  The Panel 
explicitly drew a contrast between the two groups, expl aining that the remaining subsidies, "unlike the 
FSC/ETI subsidies and B&O tax {r ate reductions} ..., are not directly  related to Boeing's production 
or sale of LCA."2663  Furthermore, in its submissions to the Panel, the European Communities itself 
accepted that these subsidies were, at least to some extent, different in nature.2664  I n  a d d i t i o n ,  i n  
seeking to quantify the price effects of these two groups of subsidies, the European Communities 
drew a distinction between the extent of the effects on Boeing's prices that would flow from the tied 
                                                      
2662United States' appellee's submission, para. 218 (quoting Appellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 1407). 
2663Panel Report, para. 7.1827. 
2664The European Communities emphasized that, because they were contingent on the production and 
sale of LCA units, the tied tax subsidies reduced Boeing's marginal unit costs. (Panel Report, para. 7.1608)  In contrast, the European Communities accep ted that the remaining subsidies we re not tied to per-unit sales or 
production, but alleged that they increased Boeing's non-operating cash flow. ( Ibid., paras. 7.1609 and 7.1827)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 557  
 
  tax subsidies (which the European Communities cl aimed would be a dollar-for-dollar reduction per 
LCA produced or sold) as compared to the rema ining subsidies (which the European Communities 
claimed, based on the Cabral Report, would be some what less than that).  For these reasons, we are 
unable to accept the European Union's contentio n that the Panel erred in failing to conduct ex ante  an 
aggregated  analysis of these two groups of subsidies and their effects. 
1327.  We find more persuasive force in the European Union's alternative argument, namely, that the 
Panel erred in failing to make a cumulative  assessment of whether the remaining subsidies affected 
Boeing's prices in a way similar to the tied tax subsidies, such that they complemented and 
supplemented the effects of the tied tax subsidi es that the Panel had found to be a genuine and 
substantial cause of displacement and impedance,  significant lost sales, and significant price 
suppression in the 100-200 seat and 300-400 seat LCA markets.  The European Communities 
consistently maintained before the Panel that all of the subsidies—the tied tax subsidies, the 
remaining subsidies, and the aeronautics R&D subs idies—contributed to Boeing's ability to reduce, 
and to the actual reduction of, its LCA prices and th e consequent adverse effects on Airbus in the 
market.  As explained above, the Panel identifie d—albeit briefly—the reason why it did not assess the 
effects on Boeing's 787 prices alleged to have resulted from the aeronautics R&D subsidies
2665, and 
this aspect of the Panel's appro ach has not been appealed.   
1328.  The Panel undertook only a cursory analysis of the alleged effects of the remaining subsidies.  
The Panel acknowledged that a subsidy of the nature of the remaining subsidies could "affect the 
behaviour of the recipient of the subsidy in a manner that causes serious prejudice , depending upon 
the context in which it is used" even though the recei pt of such subsidy "is not directly tied to the 
production or sale of particular LCA".2666  After referring to the $550 million amount of the subsidies, 
however, the Panel stated that it was "not persuaded that subsidies of this nature and of this amount 
have affected Boeing's prices in a manner that could be said to give rise to serious prejudice  to the 
European Communities' interests".2667  The Panel, however, should not ha ve limited its analysis to the 
question of whether these subsidies constitute a ge nuine and substantial cause of serious prejudice on 
their own .  Instead, the Panel should have inquired as to whether the remaining subsidies had a 
genuine causal relationship with, that is, made a real or meaningful contribution to, the effects that it 
had found the tied tax subsidies to have on Boeing's LCA pricing, such  that the remaining subsidies 
could be said to complement and supplement those effects and, thereby, the serious prejudice caused 
                                                      
2665The Panel considered that, "{h}av ing analyzed the effects of the aeronautics R&D subsidies on the 
basis of their contribution to Boeing's development of technologies for the 787", "it would be over-counting to 
additionally analyze their effects based on a different unde rstanding of their operation, namely, as freeing up 
additional cash for Boeing to use to lower the pr ices of its LCA". (Panel Report, para. 7.1826) 
2666Panel Report, para. 7.1828. (emphasis added) 
2667Panel Report, para. 7.1828. (emphasis added) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 558 HSBI omitted, as indicated [[HSBI]]  
 
  to the interests of the European Communities.  Instead, having found that the tied tax subsidies were a 
genuine and substantial cause of Article 6.3 phe nomena, the Panel failed to ascertain whether a 
genuine causal relationship existed between these ph enomena and the remaining subsidies, and failed 
to consider whether the effects of the tied tax subs idies and those of the remaining subsidies could or 
should be cumulated. 
1329.  For these reasons, we find that the Panel erred in concluding, in paragraphs 7.1828 and 7.1855 
of the Panel Report, that the remaining subsidies had not been shown to have affected Boeing's prices 
in a manner giving rise to serious prejudice, without having considered whether those subsidies had a genuine relationship to, and effects on,  such prices.  Accordingly, we reverse that finding, which was 
reached without having given full consideration to the claim as presented by the European Communities.  
1330.  We emphasize that, in reaching this conclusion, we are not suggesting that the mere fact that 
the Panel had found the tied tax subsidies affected Boeing's prices and were a genuine and substantial 
cause of adverse effects means that the remain ing subsidies necessarily had similar effects.
2668  
Rather, we fault the Panel for failing to address this question at all, particularly given the 
European Communities' consistent  position that both groups of subsidies had similar effects on 
Boeing's pricing and contributed to the same market phenomena.   
(ii) The European Union's request fo r completion of the analysis  
1331.  The European Union requests us to complete the an alysis and find that, together with the tied 
tax subsidies, the remaining subsidies cause adverse effects.  The European Union requests that we 
conduct an aggregated assessment of these two groups of subsidies and find that they both provided 
Boeing with pricing advantages and caused the sa me market effects.  Alternatively, the 
European Union requests that we cumulate the effe cts of these two groups of subsidies or, in other 
                                                      
2668Similarly, in EC and certain member States – Large Civil Aircraft , the Appellate Body cautioned 
that "{t}he fact that LA/MSF measures enabled certai n product launches, and therefore were a genuine and 
substantial cause of displacement and lost sales during the reference period, does not in and of itself establish 
that non-LA/MSF subsidies had similar effects." (Appellate Body Report, EC and certain member States – 
Large Civil Aircraft , para. 1379)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 559  
 
  words, find that the effects of the remaining s ubsidies complemented and supplemented the price 
effects that the Panel found to have been caused by the tied tax subsidies.
2669   
1332.  In response, the United States emphasizes the differences between the facts of this dispute and 
those in EC and certain member States – Large Civil Aircraft .  The United States  argues that the 
European Union does not identify relevant factual find ings or undisputed facts th at would enable us to 
complete the analysis, and asserts that there are no such findings or undisputed facts on the record.   
1333.  We begin by considering whether we can or s hould seek to aggregate the remaining subsidies 
with the tied tax subsidies.  We recall the differenc es between these two groups of subsidies that were 
identified by the Panel2670 and, indeed, by the European Communities itself.2671  We further recall that 
we have already found that the Panel did not err in fa iling to undertake an aggregated analysis of these 
two groups of subsidies.2672  Accordingly, we do not consider that it would be appropriate to ourselves 
consider the same question again.   
1334.  We thus turn to the European Union's alternativ e request that we find that the effects of the 
remaining subsidies complemented and supplemented the effects of the tied tax subsidies on Boeing's 
prices, and the consequent adverse effects that the Panel found to have been caused.  We have 
                                                      
2669As with its arguments with respect to the Panel' s alleged error, the European Union's arguments 
shifted somewhat between its appellant's submission (submit ted before circulation of the Appellate Body report 
in EC and certain member States – Large Civil Aircraft ) and the arguments put forward in its appellee's 
submission and at the oral hearing.  In its appellant's submission, the European Union seeks completion of the 
analysis through application of the approach used in US – Upland Cotton , and focuses on the nexus between the 
subsidies and the product and between the subsidie s and the relevant market effect.  Although the 
European Union has not abandoned these arguments, its subsequent submissions focus more on the approach 
used in EC and certain member States – Large Civil Aircraft .  Relying upon the Appellate Body report in that 
dispute, the European Union requests that we find that, because the remaining subsidies have a genuine causal 
link with the same claimed effect (on prices), and because the Panel found that the tied tax subsidies caused, in and of themselves, serious prejudice, the remaining subsidies comple mented and supplemented the price effects 
of those tied tax subsidies. 
2670Supra , para. 1326. 
2671We recall that, before the Panel, the European  Communities distinguished between the way in 
which each group of subsidies affected  Boeing’s prices, and the extent to  which each group of subsidies was 
used by Boeing to reduce the prices of its LCA.   Although the European Communities ar gued that all of the 
subsidies, in both categories, led to Boeing pricing its LCA at a lower level than it otherwise would have, it 
characterized the tied tax subsidies as subsidies that dir ectly reduced Boeing's marginal  costs of production, and 
the remaining subsidies as subsidies that increased Boeing's non-operating cash flow.  With respect to the subsidies alleged directly to reduce Boeing's marginal  unit costs, the European Communities considered that 
these had "particularly strong price e ffects", namely, the effect of reduci ng Boeing's LCA prices on a "dollar-
for-dollar" basis.  In order to calculate the price-reduc ing effects of the subsidies alleged to increase Boeing's 
non-operating cash flow, the European Communities relied upon a model prepared by its economic expert, Luís 
Cabral, which estimated the price effects of such subsidies. (See European Communities' first written 
submission to the Panel, paras. 1302, 1370, 1477, and 1571;  Panel Report, Appendix VII.F.2 – The Cabral Model;  and Cabral Report). 
2672Supra , para. 1326. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 560 HSBI omitted, as indicated [[HSBI]]  
 
  reversed the Panel's findings regarding the effects of the tied tax subsidies.
2673  Furthermore, in 
completing the analysis of the European Union's cl aim, we have found that the FSC/ETI subsidies and 
the State of Washington B&O tax rate reduction we re, through their effects on Boeing's prices for 
its 737NG, a genuine and substantial cause of significant lost sales in the 100-200 seat LCA market.
2674  Accordingly, the question that we must a ddress is whether the effects of the remaining 
subsidies complemented and supplemented these effects.   
1335.  We recall that, in EC and certain member States – Large Civil Aircraft , the Appellate Body 
accepted that the effects of one group of subsidies ma y only be found to complement and supplement 
the effects of a second group of subsidies when that  first group of subsidi es is shown to have a 
genuine causal connection with the relevant effect s and market phenomena caused by the second 
group of subsidies.2675  This is because the fact that the first group of subsidies is not, in itself, a 
substantial cause of adverse effects does not exclude  that it had effects similar to those of another 
group of subsidies that was both a genuine and a substa ntial cause of those effects.  Cumulation of this 
sort does, however, require an affirmative showi ng that there is a genuine causal nexus between the 
first group of subsidies and the effects and mark et phenomena to which they are alleged to be 
contributing.   
1336.  It is undisputed that none of the remaini ng subsidies was contingent upon the production or 
sale of particular LCA.2676  The Panel noted that both parties ac cepted the proposition that the receipt 
of such subsidies "may still affect the behaviour of  the recipient of the subsidy in a manner that causes 
serious prejudice, depending upon the context in which it is used."2677  The Panel further observed that 
the European Communities had identified a number of elements as demonstrating that, in the context 
of this dispute, the remaining subsidies did affect  Boeing's pricing including:  "LCA market factors", 
"dynamics of production", and the "intense duopol y competition existing in the LCA markets".2678  
We considered several of these factors in completing the analysis of the Eur opean Union's claim that, 
through their price effects, the tied tax subsidies caused serious prejudice.2679  We accepted that the 
                                                      
2673Supra , paras. 1249 and 1274. 
2674Supra , para. 1274. 
2675Appellate Body Report, EC and certain member States – Large Civil Aircraft , paras. 1378 
and 1379. 
2676Panel Report, paras. 7.1827 and 7.1828.   
2677Panel Report, para. 7.1828.  The United States, howeve r, considered it "unlikely" that subsidies that 
are not tied to production of a particular product would affect production. ( Ibid., paras. 7.1827 and 7.1828)  We 
also recall that, with respect to the capability of an untied subsidy to affect price and output decisions, the 
Appellate Body stated in US – Upland Cotton  that it did not "not exclude the possibility that challenged 
subsidies that are not 'price-contingent' … could have some effect on production and exports and contribute to 
price suppression." (Appellate Body Report, US – Upland Cotton , footnote 589 to para. 450) 
2678Panel Report, para. 7.1827.   
2679See section X.D.4(d) of this Report.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 561  
 
  100-200 seat LCA market operates as a duopoly, in which Airbus and Boeing each possesses the 
ability, through its supply and pricing decisions, to influence the pricing of the other.  We further 
observed that price appears to have been a partic ularly important consideration in the 100-200 seat 
LCA market due to the relatively high degree of  substitutability between the A320 and the 737NG, 
and the fact that many customers within this product market are low-cost carriers, which are 
particularly price-sensitive.  We noted the Panel' s finding that, in late 2004 or early 2005, Boeing 
altered its overall pricing strategy and became more "aggressive" on price.
2680  Furthermore, we 
referred to the Panel's finding that certain LCA sal es campaigns are more competitive and more price-
sensitive than others.2681  Finally, based on our examination of the uncontested facts relating to the 
evidence of specific sales campaigns, we determined  that Boeing was under particular pressure to 
reduce its prices in order to secure 737NG sales  in the 2005 JAL and SALE campaigns, and we 
concluded that it used the FSC/ETI subsidies and th e State of Washington B&O tax rate reduction to 
do so.2682   
1337.  These findings are equally relevant to our analys is of whether the remaining subsidies had a 
genuine causal link to Boeing's pricing of its 7 37NG in those two campaigns because they establish 
Boeing's strong incentives to employ available means to lower its 737NG prices and secure those 
sales.  Accordingly, we consider that, in th e circumstances of those two sales campaigns, the 
necessary causal link will be established if there are uncontested facts or factual findings by the Panel 
linking the remaining subsidies, or any of them, to  the 737NG.  This will su ffice to establish that the 
benefits of such subsidies were among the mean s available to Boeing in those campaigns and, 
thereby, to demonstrate a genuine nexus between  such remaining subsidies and the 737NG.   
1338.  The remaining subsidies comprised eight measures provided in several different jurisdictions, 
at both the local and state level, and pursuant to sev eral different subsidy programmes.  Several of the 
financial contributions were in the form of tax credits or tax reductions2683, some were direct transfers 
                                                      
2680Panel Report, Appendix VII.F.2 – The Cabral Model, p. 777, para. 68 and footnote 4250 thereto.  
2681Panel Report, paras. 7.1694 and 7.1820. 
2682See supra , para. 1271.  
2683With respect to the Washington State tax meas ures, the subsidies are the B&O tax credits for 
preproduction development, computer software and hardwa re, and property taxes, as well as the sales and use 
tax exemptions for computer hardware, peripherals, and software.  As regards the Kansas State tax-related 
measures, the subsidy is the property and sales tax abatem ents arising from IRBs.  As for the Illinois State tax 
measures, the subsidies are a reduced income tax liabilit y due to certain tax credits  and partial property tax 
abatements. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 562 HSBI omitted, as indicated [[HSBI]]  
 
  of funds
2684, and still others were found to involve the provision of both goods and services.2685  The 
amount of the different subsidies ra nged from $0.5 million to $475.8 million.2686  As for the time 
periods over which they were received, most of  the measures involved financial contributions 
available on an annual basis over a defined period of time and were found to have been received 
annually for periods of up to 17 years2687, although one subsidy involved a one-off payment to retire a 
lease.2688   
1339.  The Panel observed that the amount of the remaining subsidies was "comparatively small, 
being approximately $550 million" a nd that none of the remaining subsidies was "directly related to 
Boeing's production or sale of LCA".2689  While we agree with these statements to some extent, we 
consider that they are overbroad.  For instance, as indicated above, the size of each subsidy varied 
considerably, from $0.5 million to $475.8 million.  Fu rthermore, the magnitude of the subsidy, while 
still a relevant consideration, is of somewhat less c onsequence when the issue is  whether the effects of 
the subsidy can be cumulated  with the effects of another group of subsidies that have been found to be 
a genuine and substantial cause of serious prejudice, rather than whether the subsidy itself caused  the 
serious prejudice.  In addition, the uncontested fact that the subsidies are not "tied" does not 
necessarily imply that none of them are "directly related to Boeing's production or sale of LCA".2690  
It is true, as the Panel appears to have recognized2691, that none of the remaining subsidies was "tied" 
to the production or sale of specific LCA, in the sense th at we have used that term in this Report.  In 
other words, receipt of the subsidy was not continge nt on the production or sale of a particular product 
                                                      
2684These subsidies are Illinois State's reimbursement of up to 50% of Boeing's relocation expenses, and 
the payment of $1 million to retire the lease of the previous tenant of Boeing's headquarters building. (Panel 
Report, para. 7.907) 
2685These subsidies are Washington State's Employment Resource Center and workforce development 
programme. (Panel Report, para. 7.588)  
2686The Panel determined that the benefit to Boeing's LCA division from the property tax abatements 
provided to Boeing pursuant to the IRBs issued by the State of Kansas and municipalities therein was the amount directly received by Boeing over the period 1989-2006, namely, $475.8 million. (Panel Report, 
para. 7.818)  The Panel also determined that the City of Chicago had paid $1 million to retire the lease of the 
previous tenant of Boeing's new head quarters building, and a llocated 50% of that $1 million amount to Boeing's 
LCA division. ( Ibid., paras. 7.902 and 7.932) 
2687The Panel found that the property and sales tax abatements provided pursuant to the IRBs issued by 
the State of Kansas and municipalitie s therein were received by Boeing 's LCA division over the period 
1989-2006. (Panel Report, para. 7.818) 
2688Panel Report, para. 7.902. 
2689Panel Report, para. 7.1827.  The Panel furt her referred to the European Communities' 
acknowledgement that the subsidies were not "explicitly targeted at lowering Boeing's costs of production of 
specific LCA models". ( Ibid., quoting European Communities' first written submission to the Panel, para. 1303) 
2690Panel Report, para. 7.1827.   
2691The Panel stated that the receipt of the remaining subsidies "is not directly tied to the production or 
sale of particular LCA". (Panel Report, para. 7.1828)    BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 563  
 
  on a per-unit basis.
2692  Yet all of the remaining subsidies ar e subsidies intended to cover some portion 
of the fixed costs that Boeing incurs, for ex ample, its costs for purchasing or improving 
manufacturing facilities for components, for purchasi ng computer hardware and software, for training 
workers, or for obtaining early access to its ne w corporate headquarters building in Chicago.  
Moreover, as explained further below, some of thes e subsidies are more directly related to Boeing's 
production of LCA and in particular to its production of the 737NG, than others.   
1340.  Indeed, before the Panel, the European Comm unities itself argued that certain of these 
subsidies were more closely linked to LCA produc tion than others, and in some instances to the 
production of particular LCA models.  The Eur opean Communities distinguished among subsidies 
that benefited the 787 only (category A);  subsidies that benefited multiple aircraft families, including 
the 737NG (category C);  and subsidies that  benefited Boeing's LCA business in general 
(category E).2693   
1341.  Importantly, the European Communities cla ssified the Washington State workforce 
development programme and Employ ment Resource Center as category A subsidies, that is, as 
subsidies benefitting only the 787.  Thus, the European Communities did not, in its first written 
submission to the Panel, contend that the Wash ington State workforce development programme and 
Employment Resource Center benefited Boeing's 737NG or affected the pricing of this Boeing 
model.2694  In addition, although the European Co mmunities initially asserted that all of the 
Washington State B&O tax credits were category C s ubsidies that benefited several aircraft families 
including the 737NG, in subsequently quantifying  the amount of the B&O tax credit for property 
                                                      
2692The Panel further noted that the European Communities did not use the word "tied" in this way.  
Rather, the European Communities used the concept "to denote the allocation of a subsidy amount to particular 
products, rather than to denote that a subsidy is 'tied' to a product in the sense that  its receipt is in some way 
contingent on production or sale of a particular product". (Panel Report, footnote 3783 to para. 7.1827; see also 
European Communities' response to Panel Question 374, paras. 297 and 298 and f ootnote 392 thereto)  The 
European Communities explained that it considered a subsidy to be "tied"" when it is "directed at specific 
products, such that the benefit of the subsidy may reasonably be deemed to flow to those products", and that, in 
the context of this dispute, it consider ed a subsidy to be "tied" when "it benefits  one or more particular aircraft 
families  – e.g., the City of Everett B&O tax reduction that benefits Boeing's 777 and 787, as well as its 747 and 
767, but not Boeing's 717, 737, or  757". (European Communities' respons e to Panel Question 374, para. 298 
(original emphasis)) 
2693European Communities' response to Panel Question 374, footnote 396 to para. 298;  International 
Trade Resources LLC, "Calculating on a Per-Aircraft Ba sis the Magnitude of the Subsidies Provided to US 
Large Civil Aircraft" (20 February 2007) (Panel Exhibit EC-13), para. 32 and Tables 7 and 10.  See also European Communities' first written submission to the Pa nel, paras. 1226-1278.  The European Communities 
referred to subsidies that benefited:  the 787 only (cat egory A);  all Boeing aircra ft families except the 787 
(Category B);  all aircraft families except the 717 (categ ory C);  all aircraft families except the 717, 737NG and 
757 (Category D);  and all aircraft families (category E).  (International Trade Resources LLC, "Calculating on a 
Per-Aircraft Basis the Magnitude of the Subsidies Provided to US Large Civil Aircraft" (20 February 2007) 
(Panel Exhibit EC-13), Table 10)  
2694See European Communities' first written submission to the Panel, Figure 41 – US Subsidies 
Benefiting Boeing 737NG LCA, at para. 1475. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 564 HSBI omitted, as indicated [[HSBI]]  
 
  taxes, the European Communities stat ed that the entire amount related to "new construction related to 
the 7E7 plane" at Boeing's Everett facility—that is, to production facilities for the 787.
2695  In other 
words, the European Communities' own submissions reveal that this B&O tax credit benefited only 
the 787.  For these reasons, we cannot now in quire whether the Washington State workforce 
development programme, the Employment Resource Center, or the Washington State B&O tax credit 
for property taxes benefited the production of the 737NG, or whether the effects of these three 
subsidies can be cumulated with those of the tie d tax subsidies in the 100-200 seat LCA market.   
1342.  The European Communities also categorized as  category E subsidies, benefiting Boeing's 
LCA business generally, the four subsidies that we re granted in connection with Boeing's relocation 
of its corporate headquarters to the State of Illinois.2696  The European Comm unities recognized that 
subsidies of this nature are "not directed at a pa rticular product, but rather at the entire company or 
business unit at issue", but contended that such su bsidies "may reasonably be deemed to benefit  
all of the company or business unit's products".2697  In our view, these arguments by the 
European Communities do not suffice to link clearly  these four measures with Boeing's production of 
the 737NG.  We also note that these subsidies we re received by The Boeing Company, and that the 
Panel allocated a percentage of the overall amount received to Boeing's LCA division.2698  For these 
reasons, we are not persuaded that these subsidies ha ve been shown to have meaningfully contributed 
to any lowering of Boeing's prices for its 737NG, or, in  other words, that there is a genuine causal link 
between these subsidies and the relevant market ef fects.  For this reason, we cannot cumulate the 
effects of these subsidies with those of the tie d tax subsidies in the 100-200 seat LCA market.   
1343.  The European Communities contended that the ot her remaining subsidies benefited particular 
families of aircraft, including the 737NG family.  Th ese subsidies, and their amounts, are as follows:  
(i) the Washington State B&O tax credits for prepro duction development, and for computer software 
                                                      
2695Panel Report, para. 7.217.   
2696These subsidies consisted of:  (i) the reimbursement of a portion of Boeing's relocation expenses by 
the State of Illinois;  (ii) the 15-year EDGE tax credits provided by the State of Illinois;  (iii) the abatement or 
refund of a portion of Boeing's property taxes provided by the State of Illinois;  and (iv) the payment to retire the lease of the previous tenant of Boeing 's new headquarters building in Chicago. 
2697European Communities' response to Panel Question 374, para. 298. 
2698The Panel accepted a 50% allocation to Boeing's LCA division of the total amounts paid. (Panel 
Report, para. 7.932)  The European Communities explained in its first written submission that it had allocated 
50% to Boeing's LCA division "because, over time, approxima tely 50% of Boeing's total sales have, on average, 
related to LCA". (European Communities first written submission to the Panel, para. 384)  The United States responded that, "{a}lthough the EC's fi fty percent allocation to large civil ai rcraft is not necessarily accurate, the 
United States accepts it only for the pu rposes of the Illinois State measures because the monetary values 
involved are small and a more accurate allocation, such as one based on revenue, would thus not necessarily 
result in a meaningful change in the figures." (United States first written submission to the Panel, footnote 852 
to para. 663)  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 565  
 
  and hardware ($41.3 million
2699);  (ii) the Washington State sales and use tax exemptions for 
computer hardware, peripherals , and software ($8.3 million2700);  and (iii) the property and sales tax 
abatements provided to Boeing pursuant to IRBs issued by the City of Wichita ($475.8 million2701).   
1344.  Boeing obtained Washington State B&O tax credits for certain preproduction development 
expenditures, that is, for expenditures on aeronau tics-related research, design, and engineering 
activities2702, as well as for certain expenditures on design and preproduction development computer 
software and hardware for the digital desi gn and development of commercial airplanes.2703  These tax 
credits were applied against Boeing's liability for B&O taxes which, as we have indicated, accrued in 
connection with the manufacture and sale of all Bo eing LCA produced in the State of Washington, 
including the 737NG.  However, we see no indicati on on the record that the B&O tax credits were 
received in connection with expenditures related to the 737NG.  Indeed, the limited information that 
there is on the record suggests that, if anything, th e expenditures generating the tax credits related to 
Boeing aircraft families other than the 737NG.2704   
1345.  Turning to the Washington State sales and use tax exemptions, we note that Boeing received 
sales and use tax exemptions in connection with its  purchases of computer hardware, peripherals, and 
software, when these were purchased for or used in  the development of commercial airplanes or their 
                                                      
2699Specifically, the Panel found that, through 2006, the amount of the B&O tax credit for 
preproduction development was $21.3 million, and the amount of the B&O tax credit for computer software and 
hardware was $20 million. (Panel Report, para. 7.257) 
2700Panel Report, paras. 7.258. 
2701Panel Report, para. 7.818. 
2702Panel Report, paras. 7.51 and 7.52, summarizing a nd reproducing relevant parts of section 7 of 
House Bill 2294. 
2703Panel Report, paras. 7.53 and 7.54, summarizing a nd reproducing relevant parts of section 8 of 
House Bill 2294. 
2704In calculating the amount of these two tax credits, the Panel relied mainly on a Fiscal Note from the 
Washington State Department of Revenue. (Panel Report, paras. 7.255-7.257 (referring to Washington State Department of Revenue, "Final HB 2294 Fiscal Note – 20-Year Spreadsheet: Commercial Airplane/Component 
Industry Tax Incentives" (Panel Exhib it US-184))  That spreadsheet refers to "Everett" and thus appears to 
suggest that the estimated amounts of Washington State B&O tax credits received for expenditures on 
preproduction development computer software and hard ware related to Boeing's facilities in Everett, 
Washington.  The City of Everett houses Boeing's facilitie s for the final assembly of its twin-aisle LCA families 
(during the reference period, Everett was the future site of the 787 assembly facilities, and the actual site of the 
facilities where final assembly of Boeing's 747, 767, and 777 families occurred).  In contrast, final assembly of 
Boeing's single-aisle 737NG takes place in Renton, Wa shington. (See European Communities' first written 
submission to the Panel, para. 46;  and United States' fi rst written submission to the Pa nel, para. 852)  We also 
note that, on their face, Sections 7 an d 8 of House Bill 2294 suggest that both of these tax credits relate to 
"preproduction" expenditures and that, during the reference period, the 737NG was already in production, 
whereas the 787 was still in the "preproduction" phase.  Section 7 allows a B&O tax credit "for preproduction 
development spending", and defines "preproduction development" as "research, design, and engineering 
activities performed in relation to the development of a pr oduct", while Section 8 refers to " a credit … for the 
investment related to design and preproduction devel opment computer software and hardware acquired … and 
used by an eligible person primarily for the digital design and development of commercial airplanes". (See 
Panel Report, paras. 7.52 and 7.54) WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 566 HSBI omitted, as indicated [[HSBI]]  
 
  components.
2705  Like the B&O tax credits discussed above, these tax exemptions formed part of the 
package of measures contained in House Bill 2294.  Although this package of measures was intended 
to provide incentives to Boeing to locate its 787 pro duction facilities in the City of Everett, the tax 
measures that it contained were, in principle, availa ble in respect of all Boeing aircraft manufactured 
in Washington State, and not only in respect of the 787.2706  Again, however, we see no indication on 
the record that the sales and use tax exemptions  were received or expected to be received in 
connection with expenditures related to the 73 7NG, and the limited information on the record 
suggests that, if anything, the sales and use tax exemptions were granted in connection with 
expenditures related to Boeing aircra ft families other than the 737NG.2707  
1346.  For these reasons, we consider that neither th e Panel's findings nor the uncontested facts on 
the record demonstrate a genuine link between Bo eing's 737NG and the B&O tax credits for certain 
preproduction development expenditures and for co mputer software and hardware, or between 
the 737NG and the sales and use tax exemptions for computer hardware, soft ware, and peripherals. 
1347.  Finally, we consider whether the City of Wich ita IRBs have a genuine connection to Boeing's 
737NG.  The Panel found that the IRB scheme was desi gned to assist in raising revenue to fund the 
purchase, construction, or improvement of i ndustrial property used for manufacturing purposes2708, 
including real property as well as commercial and industrial machinery and equipment.2709  The IRBs 
issued to Boeing were specifically aimed at, and were used for the purpose of, enhancing Boeing's 
                                                      
2705Panel Report, paras. 7.59 and 7.60, summarizing an d reproducing sections 9(1) and 10(1) of House 
Bill 2294. 
2706See Panel Report, footnote 1057 to para. 7.43.  
2707In calculating the amount of this subsidy, the Panel relied on a PowerPoint presentation submitted 
by the European Communities.  The amounts that th e Panel estimated Boeing would receive during the 
reference period ($8.3 million from 2004-2006) were derived from a chart projecting that, through 2024, Boeing 
would receive a net benefit of $56 million.  The sa me figure—$56 million—was listed earlier in the same 
presentation as the "Everett value" of the sales tax exemp tion for computer hardware, peripherals, and software.  
Given that, as we have indicated, Boei ng's assembly of the 737NG occurs in Renton, rather than in Everett, 
Washington, this could suggest that this sales and use tax exemption was linked to the production of Boeing models other than the 737NG. (See "Washington State and the Boeing Company: Working Together for the 
Boeing 7E7 Dreamliner, Continuing Support and Collaborative Actions", PowerPoint presentation, 
Greenville, SC (September 2003) (Panel Exhibit EC-65), p. 55 and Appendix thereto entitled "HB 2294 
(through FY2024) Superefficient Commercial Airplane Production in Washington State – Sales Tax Exemption 
for Computers")  Furthermore, the Panel observed that th e estimates contained in the presentation were "based 
upon an indication from Boeing of site needs for a 787 assembly facility ." (Panel Report, para. 7.142 (emphasis 
added))  Thus, we see no indication in that Panel Exhibit or in the Panel Report of any connection between 
Boeing's production of the 737NG and the benefits exp ected to accrue to Boeing from the sales and use tax 
exemption.  
2708Panel Report, paras. 7.651 and 7.652. 
2709Panel Report, para. 7.708.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 567  
 
  manufacturing facilities in Wichita.
2710  Those manufacturing facilities produced parts for Boeing 
LCA including, notably, the 737NG.2711  Indeed, in June 2005, Boeing's website identified its Wichita 
facilities as producing "75 percent of the airframe of th e 737, the best-selling jetliner in history.  For 
the Next-Generation 737-600/ -700/ -800/-900 and Boeing Business Jet models, Wichita joins the forward and aft fuselage assemblies into one unit prior to shipment by rail to its sister division in 
Renton, Wash., where final assembly and delivery takes place".
2712  In our view, these considerations 
reveal a close connection between the IRBs and Boeing's production of the 737NG. 
1348.  Like the Panel and, indeed, the participan ts, we have no difficulty accepting the general 
proposition that subsidies that are not di rectly contingent upon production or sale can nevertheless 
affect pricing decisions in some circumstances.2713  We have also explained above the basis for our 
view that the circumstances of the JAL and SALE ca mpaigns were such that we are satisfied that 
Boeing used the FSC/ETI subsidies and the State of Washington B&O tax rate reduction to lower 
its 737NG prices.2714  Within this product market and in the circumstances of those campaigns, we are 
further satisfied that Boeing would have used all available means to reduce its prices to the extent 
necessary to secure those sales, including subsidy bene fits directly linked to production of the 737NG.  
The IRBs cannot be considered trivial in terms of their overall magnitude or duration, and they have a 
genuine link to Boeing's production of the 737NG.  For these reasons, we consider that Boeing's IRB benefits enhanced the pricing flexibility that it en joyed by reason of the tied tax subsidies in the 
circumstances of those two sales campaigns.  Accordingly, we find that the effects of the City of 
Wichita IRBs complemented and supplemented the price effects of the FSC/ETI subsidies and the 
State of Washington B&O tax rate reduction, ther eby causing serious prejudice, in the form of 
significant lost sales, within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement , in the 
100-200 seat LCA market. 
                                                      
2710The Panel found that IRBs were "for the purpose of providing funds for the acquisition, 
construction, reconstruction and improvement of certain industrial and manufacturing facilities of Boeing 
Commercial Airplane s, Wichita Division ". (Panel Report, para. 7.815) 
2711The Panel explained that, over a period of 70 years, Boeing's manufacturing facility in Wichita 
produced parts for every Boeing LCA except the 717. (Panel Report, para. 7.857) 
2712Wichita Overview, "Boeing Commercial Airplanes, Wichita Division", printout dated 1 June 2005, 
from <http://www.boeing.com/commercial/wichita /commercial.htm> (Panel Exhibit EC-157). 
2713The Panel noted that both partie s appeared to accept the propositio n that, "where a subsidy is not 
tied to production of a particular product, the subsidy may still affect the behaviour of the recipient of the 
subsidy in a manner that causes serious prejudice, depending upon the context in which it is used." (Panel Report, para. 7.1828)   
2714See supra , para. 1271. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 568 HSBI omitted, as indicated [[HSBI]]  
 
  3. Conclusion 
1349.  In our consideration of the European Union's appeal, we have found  that the Panel erred in 
failing to consider whether the price effects of  the B&O tax rate reductions complemented and 
supplemented the technology effects of the aeronauti cs R&D subsidies in causing significant lost sales 
and significant price suppression, and a threat of displacement and impedance in the 200-300 seat 
LCA market.2715  We have further reversed the Panel's find ing, in paragraphs 7.1828 and 7.1855 of the 
Panel Report, that the remaining subsidies had not been shown to have affected Boeing's prices in a 
manner giving rise to serious prejudice, because the Panel reached that finding without having 
considered whether those subsidies had a genuine re lationship to, and effects on, those prices, such 
that they could be said to complement and supplement the price effects of the tied tax subsidies in the 
100-200 seat and 300-400 seat LCA markets.  Lastly, we completed the analysis and found that the 
effects of the City of Wichita IRBs complemented  and supplemented the price effects of the FSC/ETI 
subsidies and the State of Washington B&O tax rate  reduction, thereby causing serious prejudice, in 
the form of significant lost sales, within the meaning of Articles 5(c) and 6.3(c) of the 
SCM Agreement , in the 100-200 seat LCA market. 
                                                      
2715The European Union does not request that we complete the analysis and cumulate the technology 
effects of the aeronautics R&D subsidie s with the price effects of the B&O tax rate reductions in the 200-300 
seat LCA market.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 569  
 
  XI. Findings and Conclusions  
1350.  For the reasons set out in this Report, the Appellate Body: 
(a) with respect to the Panel's prelimin ary ruling regarding the absence of an 
information-gathering procedure under Annex V to the SCM Agreement in this 
dispute: 
(i) finds  that the Panel erred, and failed to  resolve adequately the legal  
issues presented, in denying the various requests made by the 
European Communities with respect  to an Annex V procedure; 
(ii) finds that, in accordance with paragraph 2 of Annex V to the 
SCM Agreement , the DSB's initiation of an information-gathering procedure 
in a serious prejudice dispute occurs auto matically when there is a request for 
initiation of such a procedure and the DSB establishes a panel;  and 
(iii) declines to find that all of the cond itions for the initiation of an Annex V 
procedure were fulfilled in this disput e, and makes no finding as to whether 
the United States failed to comply with its obligations under the first sentence 
of paragraph 1 of Annex V to the SCM Agreement , whether the 
European Communities was entitled to  present its serious prejudice case 
based on the evidence available to it,  whether the Panel was entitled to 
complete the record as necessary rely ing on best information otherwise 
available, or whether the Panel was entitled to draw adverse inferences; 
(b) with respect to the Panel's findings rega rding financial contri bution and benefit: 
(i) declares moot and of no legal eff ect the Panel's interpretation of 
Article 1.1(a)(1)(i) of the SCM Agreement  and its finding, in paragraph 7.970 
of the Panel Report, that "transactions properly characterized  as purchases of 
services" are excluded from the scope of that provision;  
(ii) in relation to the measures under the eight NASA R&D programmes at issue: 
(A) finds that the payments and access to facilities, equipment, and 
employees provided to Boeing pursuant to NASA procurement 
contracts constitute direct transfer s of funds and the provision of 
goods or services, and therefore financial contributions within the WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 570 HSBI omitted, as indicated [[HSBI]]  
 
  meaning of Article 1.1(a)(1)(i) and (iii) of the SCM Agreement , and 
finds that there is no basis to address the related claim of the 
United States under Article 11 of the DSU; 
(B) upholds, albeit for different re asons, the Panel's finding, in 
paragraph 7.1040 of the Panel Repor t, that the payments and access 
to facilities, equipment, and employees provided under the NASA 
procurement contracts conferred a benefit on Boeing within the 
meaning of Article 1.1(b) of the SCM Agreement ;  and 
(C) rejects the United States' claim that the Panel erred in estimating the 
amount of the subsidy provided to Boeing pursuant to the NASA 
contracts and agreements under the eight R&D programmes at issue 
and, consequently, upholds the Pane l's findings, in paragraphs 7.1081 
and 7.1109 of the Panel Report, that the estimated amount of 
payments to Boeing through the NASA procurement contracts was $1.05 billion;  and upholds the Pane l's finding, in pa ragraphs 7.1099 
and 7.1109 of the Panel Report, that  the estimated value of the free 
access to facilities, equipment, and employees provided to Boeing through NASA procurement cont racts and agreements was 
$1.55 billion; 
(iii) in relation to the measures under the 23 USDOD RDT&E programmes at 
issue: 
(A) finds that the payments and access to facilities provided to Boeing 
pursuant to USDOD assistance instrume nts constitute direct transfers 
of funds and the provision of go ods or services, and therefore 
financial contributions within th e meaning of Article 1.1(a)(1)(i) 
and (iii) of the SCM Agreement ; 
(B) upholds, albeit for different reasons , the Panel's finding, in the first 
sentence of paragraph 7.1187 of the Panel Report, that payments and 
access to facilities provided under the USDOD assistance 
instruments conferred a benefit on Boeing within the meaning of Article 1.1(b) of the SCM Agreement ;  and  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 571  
 
  (C) finds that the Panel did not act in consistently with Article 11 of the 
DSU when it stated, in paragraph 7. 1205 of the Panel Report, that it 
"{did} not consider it credible that less than 1 per cent of the 
$45 billion in aeronautics R&D funding that {US}DOD provided to Boeing over the period 1991-2005 ha d any potential relevance to 
LCA";  and 
(iv) in relation to the Washington State B&O tax rate reduction: 
(A) upholds the Panel's finding, in pa ragraph 7.133 of the Panel Report, 
that the reduction in the Washington State B&O tax rate applicable to 
commercial aircraft and component manufacturers constitutes the foregoing of revenue otherwise due, and therefore a financial 
contribution, within the meaning of Article 1.1(a)(1)(ii) of the 
SCM Agreement ; 
(c) with respect to the Panel's findings regarding specificity: 
(i) in relation to the allocation of patent  rights under contracts and agreements 
between NASA/USDOD and Boeing, a nd on the assumption that such 
allocation is a self-standing subsidy: 
(A) finds that such subsidy is not e xplicitly limited to certain enterprises 
within the meaning of Article 2.1(a) of the SCM Agreement ; 
(B) finds that the Panel erred by failing to examine the 
European Communities' arguments th at such allocation is "in fact" 
specific under Article 2.1(c) of the SCM Agreement  and, therefore, 
finds that the Panel's overall fi nding under Article 2.1 cannot be 
sustained;  and 
(C) declines to find that such allocati on is specific within the meaning of 
Article 2.1(c) of the SCM Agreement ;  and WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 572 HSBI omitted, as indicated [[HSBI]]  
 
  (ii) in relation to the Washington State B&O tax rate reduction and the IRB 
subsidies provided by the City of Wichita, Kansas: 
(A) upholds the Panel's finding, in pa ragraph 7.205 of the Panel Report, 
that the Washington State B&O tax ra te reduction is a subsidy that is 
specific within the meaning of Article 2.1(a) of the SCM Agreement ;  
and 
(B) upholds, albeit for different re asons, the Panel's finding, in 
paragraph 7.779 of the Panel Report, that the IRB subsidies provided 
by the City of Wichita to Boeing and Spirit are specific within the 
meaning of Article 2.1(c) of the SCM Agreement ;  and 
(d) with respect to the Panel's findings regarding adverse effects: 
(i) in relation to technology effects: 
(A) modifies and upholds the Panel's overall conclusion, in 
paragraphs 7.1797, 7.1854(a), and 8. 3(a)(i) of the Panel Report, that 
the aeronautics R&D subsidies caused serious prejudice to the 
interests of the European Comm unities within the meaning of 
Article 5(c) and Article 6.3(b) and (c) of the SCM Agreement with 
respect to the 200-300 seat LCA market;  and in particular: 
(1) finds that the Panel did not err by finding, in paragraph 
7.1773 of the Panel Report, that "the aeronautics R&D 
subsidies contributed in a ge nuine and substantial way to 
Boeing's development of technologies for the 787" in 2004; 
(2) finds that the Panel did not act inconsistently with Article 11 
of the DSU in making, or lack a factual basis for, its 
statement in paragraph 7.1772 of  the Panel Report that the 
"ability to define and manage the complex interaction of design processes, organization and tools so as to enable the robust development and manufact uring of an aircraft at 
minimum time and cost … is a challenge that Boeing can 
meet thanks in large part to NASA and {USDOD} funding";  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 573  
 
  (3) finds that the Panel did not e rr in its counterfactual analysis; 
(4) upholds the Panel's finding, in  paragraphs 7.1797, 7.1854(a), 
and 8.3(a)(i) of the Panel Report, that the effect of the 
aeronautics R&D subsidies is significant lost sales within the meaning of Article 6.3(c) of the SCM Agreement  with respect 
to the 200-300 seat LCA market; 
(5) reverses the Panel's finding, in paragraphs 7.1797, 7.1854(a), 
and 8.3(a)(i) of the Panel Report, to the extent that it relates 
to Kenya, Iceland, and Ethiopia (but not with respect to Australia), that the effect of the aeronautics R&D subsidies is a threat of displacement and impedance of EC exports in 
third-country markets within the meaning of Article 6.3(b) of 
the SCM Agreement  with respect to the 200-300 seat LCA 
market;  and 
(6) upholds the Panel's finding, in  paragraphs 7.1797, 7.1854(a), 
and 8.3(a)(i) of the Panel Report, that the effect of the 
aeronautics R&D subsidies is significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement  
with respect to the 200-300 seat LCA market; 
(ii) finds, with respect to the Panel's treatment of the effects of the USDOD 
RDT&E programmes, that the Panel acte d inconsistently with its obligation 
under Article 11 of the DSU to make an objective assessment of the matter before it in finding, in paragraph 7.170 1 of the Panel Report, that there was 
"insufficient evidence on the r ecord that {the 21 USDOD RDT&E 
programmes other than ManTech and DUS&T} funded predominantly 
assistance instruments, as opposed to proc urement contracts, or a mixture of 
assistance instruments and procurement contracts" without having exercised its authority to seek out relevant info rmation regarding the use of assistance 
instruments under all of the USDOD programmes; WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 574 HSBI omitted, as indicated [[HSBI]]  
 
  (iii) in relation to price effects: 
(A) reverses the Panel's findings, in paragraphs 7.1823, 7.1833,  
7.1854(b) and (c), and 8.3(a)(ii) and (iii) of the Panel Report, that the 
FSC/ETI subsidies and the B&O ta x rate reductions caused serious 
prejudice to the interests of the European Communities within the 
meaning of Article 5(c) and Article 6.3(b) and (c) of the 
SCM Agreement  with respect to the 100-200 seat and 300-400 seat 
LCA markets, and finds it unnecessary to rule on the United States' 
additional claim under Article 12.7 of the DSU;  and 
(B) completes the analysis and finds that the FSC/ETI subsidies and the 
Washington State B&O tax rate reduction caused serious prejudice 
within the meaning of Article 5(c) and Article 6.3(c) of the 
SCM Agreement  with respect to the 100-200 seat LCA market;  and 
in particular, finds that, in two sales campaigns, the FSC/ETI 
subsidies and the Washington State B&O tax rate reduction caused, 
through their effects on Boeing's prices for the 737NG, significant 
lost sales within the meaning of Article 6.3(c) of the SCM Agreement ;  and 
(iv) in relation to the collective assessment of the subsidies and their effects: 
(A) finds that the Panel erred in fa iling to consider whether the price 
effects of the B&O tax rate reduc tions complement and supplement 
the technology effects of the aeronautics R&D subsidies in causing significant lost sales and significant price suppression, and a threat of displacement and impedance, in the 200-300 seat LCA market; 
(B) reverses the Panel's finding, in paragraphs 7.1828 and 7.1855 of the 
Panel Report, that the remaining subsidies had not been shown to 
have affected Boeing's prices in a manner giving rise to serious 
prejudice with respect to the 100-200 seat and 300-400 seat LCA 
markets;  and  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 575  
 
  (C) completes the analysis and finds that the effects of the City of 
Wichita IRBs complemented and s upplemented the price effects of 
the FSC/ETI subsidies and the State of Washington B&O tax rate 
reduction, thereby causing serious prejudice, in the form of significant lost sales, within the meaning of Article 5(c) and Article 6.3(c) of the SCM Agreement , in the 100-200 seat LCA 
market. 
1351.  We realize that, after more than five years of panel proceedings and eleven months of 
appellate review, a number of issues remain unresolved in this dispute.  Some may consider that this 
is not an entirely satisfactory outcome.  Our ma ndate under Article 17 of the DSU does not permit us 
to engage in fact-finding.  However, wherever we ha ve found that there are sufficient factual findings 
by the Panel or undisputed facts to complete the an alysis, we have done so with a view to fostering 
the prompt settlement of this dispute in accordance with Article 3.3 of the DSU. 
1352.  The Appellate Body recommends that the DSB request the United States 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 obligations under that Agreement.  More 
specifically, having regard to the recommendation made  by the Panel in para graph 8.9 of its Report 
and the provisions of Article 7.8 of the SCM Agreement , the Appellate Body recommends that the 
United States take appropriate steps to remove th e adverse effects found to have been caused by its 
use of subsidies, or to withdraw those subsidies.2716 
 
 
                                                      
2716The Appellate Body notes the Panel's finding that, to the extent that the United States has not 
already withdrawn the FSC/ETI export subsidies to Boeing, the recommendation made by the panel in  
US – FSC  under Article 4.7 of the SCM Agreement  continues to be "operative". (Panel Report, para. 8.7 
(referring to Panel Report, US – FSC (Article 21.5 – EC II) , para. 8.2;  and to Appellate Body Report, US – FSC 
(Article 21.5 – EC II) ))  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 577  
 
  ANNEX I 
 
WORLD TRADE  
ORGANIZATION   
WT/DS353/8 
4 April 2011 
 (11-1662) 
 Original:   English 
 
UNITED STATES – MEASURES AFFECTING TRADE  
IN LARGE CIVIL AIRCRAFT  
(SECOND COMPLAINT) 
 
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  
 
 The following notification, dated 1 April 2011, from the Delegation of the European Union, is being circulated to Members.  
_______________ 
 
 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 
United States – Measures Affecting Trade in  Large Civil Aircraft (Second Complaint)  (WT/DS353).  
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. 
 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 in terpretations contained in the Pane l Report, and where indicated to 
complete the analysis
1: 
I. Preliminary Issue:  SCM Agreement  Annex V Procedure 
 
1. The Panel erred in its interp retation and application of the SCM Agreement , Article 7.4 and 
Annex V, paragraphs 1, 2 and/or 6 to 9, and/or failed to make an objective assessment pursuant to 
Article 11 of the DSU , and/or falsely exercised judicial economy, when it rejected the EU claims and 
arguments to the effect that an Annex V proce dure is initiated by negative consensus, that the 
conditions for such a procedure were fulfilled in this case, and that non-cooperation by the 
United States entailed the consequences in  paragraphs 6 to 9 of Annex V of the SCM Agreement .2  
The European Union requests the Appella te Body to complete the analysis. 
                                                      
1Pursuant to Rule 20(2)(d)(iii) of the Working Procedures for Appellate Review  this Notice of Appeal 
includes an indicative list of the paragraphs of the Panel Report containing the alleged errors, without prejudice to the ability of the European Union to refer to other para graphs of the Panel Report in the context of its appeal. 
2Panel Report, paras. 7.19-7.22, particularly 7.22, first and final sentences.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 578 HSBI omitted, as indicated [[HSBI]]  
 
  II. Subsidies 
 
2. The Panel erred in its interpretation and application of Article 2.1 of the SCM Agreement  
when it found that the European Union had not de monstrated that any subsidy involved in the 
allocation of patent rights under NASA and DOD R& D contracts and agreements with Boeing is 
specific within the meaning of Article 2 of the SCM Agreement .
3 
 3. The Panel erred in its interpre tation of Article 1.1(a)(1) of the SCM Agreement  when it found 
that transactions properly characterized as purchases of services are excluded from the scope of Article 1.1(a)(1) of the SCM Agreement .
4 
 
III. Subsidies Contingent/Conditional in Fact upon Export 
 
4. The Panel erred in its interp retation and application of Article  3.1(a) and footnote 4 of the 
SCM Agreement , and/or failed to make an objective assessment, including an objective assessment of 
the facts, pursuant to Article 11 of the DSU , when it found that the European Union had not 
demonstrated that HB 2994 and the B&O tax rate re ductions and instances of application are subsidies 
contingent/conditional in fact upon export.5  The European Union requ ests the Appellate Body to 
complete the analysis.  
IV. Adverse Effects 
 
5. The Panel erred in its interpretation a nd application of Articles 5 and 6.3 of the 
SCM Agreement  when it found that it was not appropriate to aggregate the effects of the B&O tax 
subsidies and the effects of the aeronautics R&D s ubsidies in assessing whether serious prejudice was 
caused to the European Union in the 200-300 seat LCA market.
6 
 
6. The Panel erred in its interpretation a nd application of Articles 5 and 6.3 of the 
SCM Agreement  when it failed to analyse the effects of  the US aeronautics R&D subsidies, the 
FSC/ETI subsidies, the B&O tax subsidies and the remaining subsidies  on an aggregate basis, but 
rather assessed the remaining subsidies  separately, concluding that they have not affected Boeing's 
market behaviour and/or prices in a manner giving rise to serious prejudice to the interests of the 
European Union.7 
 7. The Panel acted inconsistently with the princi ple of due process, the principle that reasonable 
inferences can and should be drawn from inst ances of non-cooperation, Article 11 of the DSU  and 
paragraphs 6 to 9 of Annex V of the SCM Agreement  when, without providing the Parties with a 
further opportunity to comment, without putting further questions to the United States pursuant to 
Article 13 of the DSU  or otherwise, and without drawing appropriate inferences from US 
non-cooperation, it excluded fro m its assessment of adverse effects the effects of assistance 
instruments funded through the RDT&E programmes other than in relation to the ManTech and 
DUS&T programmes.
8 
                                                      
3Panel Report, paras. 7.1276-7.1294, particularly para. 7.1294. 
4Panel Report, paras. 7.953-7.970 and para. 7.1136, particularly para. 7.970, final sentence. 
5Panel Report, paras. 7.1513-7.1590, particularly pa ras. 7.1543, 7.1583, 7.1589, 7.1590, and 8.2(b). 
6Panel Report, para. 7.1824, final sentence. 
7Panel Report, paras. 7.1825-7.1828, particularly  para. 7.1828, penultimate and final sentences. 
8Panel Report, para. 7.1701, particularly sixth and ninth to eleventh sentences.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 579  
 
  ANNEX II 
 
WORLD TRADE  
ORGANIZATION   
WT/DS353/10 
29 April 2011 
 (11-2233) 
 Original:   English 
 
UNITED STATES – MEASURES AFFECTING TRADE  
IN LARGE CIVIL AIRCRAFT  
(SECOND COMPLAINT) 
 
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 28 April 2011, from the Delegation of the United States, is being circulated to Members.  
_______________ 
 
 Pursuant to Rule 23(1) of the Working Procedures for Appellate Review , the United States 
hereby notifies its decision to appeal to the Appella te Body certain issues of law covered in the report 
of the Panel in United States – Measures Affecting Trade in  Large Civil Aircraft (Second Complaint) 
(WT/DS353/R) ("Panel Report") and certain legal in terpretations developed by the Panel in this 
dispute.  
1. The United States seeks review by the Appella te Body of the Panel's finding that payments 
made by the U.S. National Aeronautics and Sp ace Administration ("NASA") to The Boeing Company 
("Boeing") under contracts for the performance of ae ronautics research were a financial contribution.
1  
This finding is in error and is  based on erroneous findings on issues of law and related legal 
interpretations, including an incorrect inte rpretation of Article 1.1(a)(1)(i) of the Agreement on 
Subsidies and Countervailing Measures  ("SCM Agreement").  The United States also requests the 
Appellate Body to find that the Panel failed to ma ke "an objective assessment of the matter before it, 
including an objective assessment of the facts of th e case and the applicability of and conformity with 
the relevant covered agreements" as required by Article 11 of the Understanding on Rules and 
Procedures Governing the Settlement of Disputes  ("DSU") by disregarding evidence that research 
under the NASA-Boeing contracts was of benefit and use to the U.S. government and unrelated third 
parties.2  The United States also requests the Appella te Body to modify the Panel's erroneous 
approach to the legal issue of the scope of the term "services".3 
2. The United States seeks review by the Appella te Body of the Panel's finding that access to 
NASA facilities, equipment, and employees provided to Boeing through research contracts and 
agreements at issue constituted a provision of goods a nd services.  This finding is in error and is based 
on erroneous findings on issues of law and relate d legal interpretations, including an incorrect 
                                                      
1Panel Report, para. 7.981. 
2Panel Report, paras. 7.1027 and 8.3. 
3Panel Report, para. 7.978. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 580 HSBI omitted, as indicated [[HSBI]]  
 
  interpretation of Article 1.1(a)(1)(iii) of the SC M Agreement.  The United States also requests the 
Appellate Body to find that the Panel failed to "set out the findings of fact, the applicability of 
relevant provisions and the basi c rationale behind any findings and recommendations that it makes" as 
required by Article 12.7 of the DSU by providing no explanation for the findings referenced in this 
paragraph.
4   
3. The United States seeks review by the Appella te Body of the Panel's finding that payments 
made by NASA to Boeing under contracts for the performance of aeronautics research and facilities, 
equipment, and employees provided to Boeing through research contracts and agreements at issue conferred a benefit.  This finding is in error and is based on err oneous findings on issues of law and 
related legal interpretations, in cluding an incorrect interpretation of Article 1.1(b) of the 
SCM Agreement.
5   
4. The United States seeks review by the Appella te Body of the Panel's finding that payments 
made by the U.S. Department of Defense ("Do D") under certain agreemen ts were a financial 
contribution.  This finding is in error and is b ased on erroneous findings on issues of law and related 
legal interpretations, including an incorrect interpretation of Article 1.1(a)(1)(i) of the 
SCM Agreement.6   
5. The United States seeks review by the Appella te Body of the Panel's finding that access to 
DoD facilities provided to Boeing under certain ag reements constitutes a provision of goods or 
services.  This finding is in error and is based on e rroneous findings on issues of law and related legal 
interpretations, including an incorrect interpretati on of Article 1.1(a)(1)(iii) of the SCM Agreement.7 
6. The United States seeks review by the Appella te Body of the Panel's finding that payments 
and access to facilities under certain ag reements provided a benefit.  Th is finding is in error and is 
based on erroneous findings on issues of law and re lated legal interpretations, including an incorrect 
interpretation of Article 1. 1(b) of the SCM Agreement.8  The United States also requests the Appellate 
Body to find that the Panel failed to make "an obj ective assessment of the matter before it, including 
an objective assessment of the f acts of the case and the applicability of and conformity with the 
relevant covered agreements" as re quired by Article 11 of the DSU by concluding, without a basis in 
the evidence contained in the panel record, it "does not consider it cred ible that less than 1 per cent of 
the $45 billion in aeronautics R&D funding that DOD provided to Boeing over the period 1991-2005 had any potential relevance to LCA."
9 
7. The United States seeks review by the Appellate  Body of the Panel's finding that reductions 
by the state of Washington in the rates of busin ess and occupancy tax ("B&O tax") applicable to the 
manufacture or making of sales, at retail or wholesale, of commercial aircraft were a financial 
contribution.  This finding is in error and is b ased on erroneous findings on issues of law and related 
legal interpretations, including an incorrect in terpretation of Article 1.1(a)(1)(ii) of the 
SCM Agreement.10 
                                                      
4Panel Report, paras. 7.1027 and 8.3. 
5Panel Report, paras. 7.1037-7.1040 and 8.3. 
6Panel Report, paras. 7.1171 and 8.3. 
7Panel Report, paras. 7.1171 and 8.3. 
8Panel Report, paras. 7.1185, 7.1187, and 8.3. 
9Panel Report, para. 7.1205.   
10Panel Report, paras. 7.133, 7.138, and 8.3.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 581  
 
  8. The United States seeks review by the Appellate  Body of the Panel's finding that the B&O tax 
reductions granted to the aerospace industry by the stat e of Washington was specific.  This finding is 
in error and is based on erroneous findings on issues of law and related legal interpretations, including 
an incorrect interpretation of Article 2.1(a) of the SCM Agreement.
11 
9. The United States seeks review by the Appellate  Body of the Panel's finding that Boeing and 
Spirit Aero Systems were granted a disproportion ately large amount of tax abatements available 
through industrial revenue bonds issued by the City of  Wichita.  This finding is in error and is based 
on erroneous findings on issues of law and relate d legal interpretations, including an incorrect 
interpretation of Article 2.1(c) of the SCM Agreement.12 
10. The United States seeks review by the Appellate Body of the Panel's finding that the effect of 
the aeronautics research and development subsidies conferred by NASA and DoD, as described in the 
Panel Report, is a threat of displacement or impedance of exports of the European Union ("EU")13 
from third country markets, significant lost sales , and price suppression with respect to the 200-300 
seat wide-body large civil aircraft product market.14  In particular, the Panel erroneously found that an 
effect of the aeronautics research and development subsidies is: 
(a) significant lost sales within the meaning of Article 6.3(c) of the A330 at Qantas, 
Ethiopian Airlines, Icelandair, and Kenya Airways15; 
(b) displacement or impedance within the m eaning of Article 6.3(b) of the A330 from the 
markets of Australia, Ethiopia, Iceland, and Kenya16; 
(c) significant lost sales within the meaning of Article 6.3(c) of the Original A350 at 
Ethiopian Airlines, Icelandair, and Kenya Airways17; 
(d) displacement or impedance within the mean ing of Article 6.3(b) of the Original A350 
from the markets of Ethiopia, Iceland, and Kenya18; 
(e) significant price suppression with regard to the A330 in the world market19; 
(f) significant price suppression with regard to the Original A350 in the world market20; 
and 
(g) significant price suppression with regard to Airbus 200-300 seat large civil aircraft in 
the world market.21 
                                                      
11Panel Report, para. 7.205 and 8.3. 
12Panel Report, paras. 7.770, 7.779, and 8.3. 
13In this proceeding, the United States treats the term "European Union" as synonymous with the term 
"European Communities". 
14Panel Report, para. 7.1797. 
15Panel Report, paras. 7.1787 and 7.1794. 
16Panel Report, para. 7.1791. 
17Panel Report, paras. 7.1787-7.1788. 
18Panel Report, para. 7.1791. 
19Panel Report, para. 7.1792. 
20Panel Report, para. 7.1792. 
21Panel Report, para. 7.1797 and 7.1799. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 582 HSBI omitted, as indicated [[HSBI]]  
 
  These findings are in error and is based on errone ous findings on issues of law and related legal 
interpretations, including an incorrect interpreta tion of Articles 5(c) and 6.3(b) and (c) of the 
SCM Agreement.
22  The United States also requests the Appellate Body to find that the Panel failed to 
make "an objective assessment of the matter before it, including an objective assessment of the facts 
of the case and the applicability of and conformity with the relevant covere d agreements" as required 
by Article 11 of the DSU by concluding, without a ba sis in the evidence contained in the panel record, 
that"{t}he ability to define and manage the comple x interaction of design processes, organization and 
tools so as to enable the robust development and manufacturing of an aircraft at minimum time and 
cost … is a challenge that Boeing can meet th anks in large part to NASA and DOD funding and 
support".23 
11. The United States seeks review by the Appellate Body of the Panel's findings:  
(a) that the effect of the Foreign Sales Cor poration/Extraterritorial Income subsidies and 
the Washington state B&O tax subsidies in  the 100-200 seat large civil aircraft 
product market were (i) to significantly suppress Airbus' prices and to cause Airbus to lose significant sales;  and (ii) to displa ce and impede EU exports from third country 
markets; 
(b) that the effect of the Foreign Sales Corpor ation/Extraterritorial Income subsidies, the 
Washington state B&O tax subsidies, and the City of Everett B&O tax subsidies in the 300-400 seat large civil aircraft product ma rket were (i) to significantly suppress 
Airbus' prices and to cause Airbus to lose significant sales;  and (ii) to displace and 
impede EU exports from third country markets. 
These findings are in error and are based on errone ous findings on issues of law and related legal 
interpretations, including an incorrect interpreta tion of Articles 5(c) and 6.3(b) and (c) of the 
SCM Agreement.
24  The United States also requests the Appellate Body to find that the Panel failed to 
"set out the findings of fact, the applicability of re levant provisions and the basic rationale behind any 
findings and recommendations that it makes" as required by Article 12.7 of the DSU by issuing 
generic findings of displacement or impedance "f rom third country markets" and "significant lost 
sales", without stating which country markets or which sales.25 
 
                                                      
22Panel Report, paras. 7.1773, 7.1780, 7.1785-7.1788, 7.1791-7.1797, and 8.3. 
23Panel Report, para. 7.1772. 
24Panel Report, paras. 7.1823, 7.1854(b)-(c), and 8.3. 
25Panel Report, paras. 7.1817-7.1818 and 7.1822-7.1823.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 583  
 
  ANNEX III 
 
15 April 2011 
 
United States – Measures Affecting Trade in Large Civil Aircraft  
(Second Complaint) 
 
AB-2011-3 
 
Procedural Ruling 
 1. On 1 April 2011, the Director of the Appellate Body Secretariat received a letter from the European Union requesting that the Appellate Body Division hearing this appeal adopt a procedural 
ruling on confidentiality and inte rim additional protection for sens itive business information in the 
appeal in United States – Measures Affecting Trade in  Large Civil Aircraft (Second Complaint) 
(WT/DS353) (" US – Large Civil Aircraft (2
nd complaint) ").  In its letter, the European Union referred 
to the additional procedures adopt ed by the Appellate Body in European Communities and certain 
member States – Measures Affecting Trade in Large Civil Aircraft  (WT/DS316) (" EC and certain 
member States – Large Civil Aircraft ").  The European Union noted that the circumstances of the 
present case are very similar to those in EC and certain member Stat es – Large Civil Aircraft , and 
requested a procedural ruling in substantially the same terms and for the same reasons.  The 
European Union argued that, inter alia , disclosure of certain sensitive information on the record of the 
Panel proceedings could be "severely prejudicial" to th e originators of the information, that is, to the 
large civil aircraft manufacturers, and possibly to the manufacturers' customers and suppliers. 
 2. On the same day, the Division hearing this appeal invited the United States and the third 
participants to comment in writing on the European Union's request;  in particular, to comment on the 
specific arrangements proposed by the European Union.  3. Pending a final decision on the European Union's request, the Division decided to provide interim additional protection to all BCI and HSBI tr ansmitted 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 in the Panel record pending a final decision on the European Union's 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 Secretaria t staff assigned to work on this appeal 
all necessary precautions will be taken to protect the confidentiality of the BCI.  
(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) Neither BCI nor HSBI shall be transmitted electronically, whether by e-mail, 
facsimile, or any other means. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 584 HSBI omitted, as indicated [[HSBI]]  
 
  4. On Wednesday, 6 April 2011, we received  written comments from the United States.  The 
United States expressed its general support for the re quest of the European Union and said it shared 
the European Union's view that the Procedural Ruling of the Appellate Body in EC and certain 
member States – Large Civil Aircraft  would serve as an appropriate basis for a procedural ruling on 
additional protection of sensitive information in this  appeal, with certain modifications made in the 
light of experience under the operation of the procedural ruling in that dispute. 
 5. On the same day, the European Union i ndicated via e-mail communication that it did not 
disagree with the United States' comments regardi ng the modifications that could be made to the 
Procedural Ruling adopted by the Appellate Body in  EC and certain member States – Large Civil 
Aircraft .  On Tuesday, 12 April 2011, Australia, Br azil, Canada, China, and Japan submitted 
comments in response to the request of the European  Union and the comments of the United States.  
Australia, Brazil, Canada, China, and Japan generally agreed that the Appellate Body should adopt 
BCI/HSBI procedures based on those adopted in EC and certain member States – Large Civil 
Aircraft , given the similarities between both appeals.  Au stralia, Brazil, Canada, and Japan also agreed 
with the proposal to add a provision concerning amen dments to the lists of persons authorized to 
access sensitive information.  More particularly , Australia submitted that a specific provision on 
amendments to the list of authorized persons will prov ide additional certainty and clarity.  For its part, 
Brazil requested that each third participant be able  to designate up to eight individuals as "Third 
Participant BCI-Approved Persons" instead of the six provided for in the procedures adopted in the 
EC and certain member States – Large Civil Aircraft  appeal.  However, should there be concerns as to 
the number of persons attending the oral hearing,  Brazil proposed to limit the number of persons 
allowed to be present at the hearing to six at one time for each third participant.  Canada requested 
that any additional procedures for the amendment of the lists of Third Participant BCI-Approved 
Persons do not affect third participants' ability to make amendments as long as each third participant 
be allowed no more than six individuals on their li st at any given time.  Japan requested that the 
number of individuals that each third participan t may designate as a Third Participant BCI-Approved 
Person be increased from six to seven .  In addition, Japan submitted th at the designation of persons in 
the initial lists, as well as in amended lists, should be  subject to the same standard when it comes to 
objections.  Thus, it proposed changes to the United States' proposal for the sake of greater clarity 
regarding objections to a new d esignation in a third participant's amended list.  China expressed no 
views with respect to the issues raised in the European Union's request, but requested that the 
Appellate Body ensure that China's thir d participant rights are fully protected. 
 6. We consider it necessary that a ruling is made  by us on the request of the European Union 
without delay.  Accordingly, we make the followi ng ruling having carefully considered the arguments 
made by the European Union in support of its  request, and the comments received from the 
United States and the third participants.  These reasons  may be further elaborated in the report of the 
Appellate Body in this appeal.   7. We recall that the Appellate Body adopted additional procedures to protect the confidentiality 
of sensitive information in the appellate proceedings in EC and certain member States – Large Civil 
Aircraft .  In this appeal, the participants agree that th e circumstances of the case are very similar, and 
the European Union has requested a procedural ru ling in substantially the same terms and for the 
same reasons.  We further note that the participants  and the third participants involved in this case are 
the same as those involved in EC and certain member States – Large Civil Aircraft .  In the Procedural 
Ruling adopted in EC and certain member States – Large Civil Aircraft , the Appellate Body 
explained the considerations relevant to a deci sion on whether to provide additional protection to 
certain sensitive information.  We believe that tho se considerations are also relevant to our evaluation 
of the request of the European Union in this app eal and we briefly recall them before addressing the 
specific points raised in the request and in the comments of the United States and the third 
participants.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 585  
 
  8. The confidentiality requirements set out in the Understanding on Rules and Procedures 
Governing the Settlement of Disputes (the "DSU") and in the Rules of Cond uct for the Understanding 
on Rules and Procedures Governing the Settlement of Disputes
  (the "Rules of Conduct")1 are stated at 
a high level of generality that may need to be partic ularized 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.  To  the extent that the arrangements elaborate on 
the confidentiality requirements of the DSU, the ad option of such arrangements 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 DS U, the other covered agreements, 
and the Working Procedures themselves.  9. 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,  the other covered agreements, or the Working 
Procedures .  Furthermore, a relationshi p of proportionality must exist between the risks associated 
with disclosure and the measures adopted.  Particip ants requesting particular ized arrangements have 
the burden of justifying that such arrangements are necessary in a given case adequately to protect 
certain information, taking into account the rights an d duties recognized in the DSU, the other covered 
agreements, and the Working Procedures .  This burden 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. 
 
10. Additional confidentiality protection implicates the authority of the Appellate Body, and the 
rights and duties of the participants, third par ticipants, and the membership at large.  In EC and 
certain member States – Large Civil Aircraft , the Appellate Body adopted additional procedures that 
it considered struck an appropriate balance between the risks of disclo sure of sensitive information, on 
the one hand, and the adjudicative authority of th e Appellate Body and the rights and duties of the 
participants, third participants and the WTO membership  at large.  We believe that the balance struck 
by the Appellate Body in EC and certain member States – Large Civil Aircraft  is also appropriate in 
this case.  The European Union, the United States, and the third partic ipants concur that the additional 
procedures adopted in EC and certain member States – Large Civil Aircraft  provide an appropriate 
framework and ask that we apply the same practic es in this case, with minor modifications.  
 
11. It is not for the parties to determine whether additional protection is calle d 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 decisi on to adopt additional protection.  As in EC and certain 
member States – Large Civil Aircraft , we are concerned about the manner in which the parties 
designated and the Panel treated the sensitive inform ation.  There does 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.  However, neither participant has appealed the Panel's decisions on the protection of 
                                                      
1The 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/DS353/AB/R BCI deleted, as indicated [***] 
Page 586 HSBI omitted, as indicated [[HSBI]]  
 
  this information and there are also issues of practi cality to consider.  We will therefore proceed on the 
basis of how the information was treated before the Panel.  Nevertheless, we do not exclude revisiting 
whether a particular piece of information meets the objective criteria justifying 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.   
 12. We further note that there appear to be certain  arrangements that the participants have jointly 
imposed on themselves and that do not appear to aff ect the Appellate Body's ability to adjudicate the 
dispute, the rights of the third participants, or the rights and interests of the WTO membership at 
large.
2  This includes, for example, the arrangements allowing each participant to have access to the 
most sensitive information provided by the other partic ipant.  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. 
 13. Having reaffirmed the relevant considerations that guide our decision, we turn to the specific 
modifications requested by the par ticipants and third participants. 
 
14. The European Union suggests that provision shoul d be made in any procedural ruling in this 
dispute for the amendment of lists of persons  that are BCI-Approved Persons and HSBI-Approved 
Persons.  The United States agrees.  The United States argues that, in EC and certain member States – 
Large Civil Aircraft , the absence of any provision for amendi ng BCI/HSBI lists in the procedural 
ruling left unclear whether amendment of BCI/HSB I lists was permissible and, if so, what the 
procedures were for amending such lists.  Accordi ng to the United States, "additional certainty and 
clarity would be of benefit to the participants and th ird participants in this appeal".  We have made 
certain changes to the additional procedures in order to allow amendments to the lists of 
BCI-Approved Persons, HSBI-Approve d Persons, and Third Particip ant BCI-Approved Persons in 
this appeal.  As with the initial lists, objections will be permitted where the amendment refers to the 
designation of outside advisors.   
 
15. The European Union points out that the Procedural Ruling of the Appellate Body in EC and 
certain member States – Large Civil Aircraft  provides for participants to comment on the inclusion of 
BCI and HSBI in the Appellate Body report and states that comments are to be allowed "within a time period to be specified by the Division".  The European Union argues that the appropriate time period 
should be a function of the length and content of th e report, and therefore that no further precision is 
required at this stage.  The European Union adds that  it is content to leave this matter to the discretion 
of the Appellate Body.  The European Union consid ers that a short period of review would suffice, 
but indicates that it would be more effec tive if review were conducted in capital.   The United States 
says it appreciates the Appellate Body's willingness in EC and certain member States – Large Civil 
Aircraft  to permit the participants to review the Appe llate Body report for inadvertent inclusion of 
BCI/HSBI prior to circulation and public release,  and requests the Appellate Body to permit such 
review in the US – Large Civil Aircraft (2
nd complaint)  appeal as well, as it believes "that additional 
clarity and certainty with respect to the procedur es for such review would be of benefit to the 
participants in terms of planning and allocating resources for the review".  The United States further 
agrees with the European Union that "the length of time necessary for review will depend on the 
length and content of the Appellate Body report, and that review in capital would be preferable if the 
                                                      
2See Additional Working Procedures for DS353 – Procedures for the Protection of Business 
Confidential Information and Highly Sensitive Business Information, Panel Report in US – Large Civil Aircraft 
(2nd complaint) , Annex D.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 587  
 
  period for review is short."  While recognizing that it  may not be possible at this point to foresee the 
time that will be required for such review, the Unite d States requests the Appellate Body to indicate in 
its procedural ruling that further guidance will be pr ovided to the participants later in the proceedings 
in order to allow them time to plan and allocate resources.    
16. As in EC and certain member States , we will make every effort to draft our report without 
including sensitive information.  The additional pr ocedures that we adopt below foresee that the 
participants will be provided in advance with a copy of the Appellate Body report intended for 
circulation to WTO Members and will have an oppor tunity to request the removal of any sensitive 
information that is inadvertently included in the repor t.  If we were to consider it necessary to include 
sensitive information in the reasoning in our report, the participants will be given an opportunity to 
comment.  We reiterate that the participants will have a timely opportunity to comment as to the 
inclusion of any sensitive information in the report;  we will provide further guidance at a later point 
of these proceedings as to the details of such a procedure.    
17. The European Union and the United States recal l that the Appellate Body provided in its 
Procedural Ruling in EC and certain member States – Large Civil Aircraft  that it would "indefinitely" 
retain BCI and HSBI on the record of the appeal.  Although the participants opposed such measures in 
that case, they consider that the Appellate B ody should treat information in the two disputes 
identically.  We have taken note of this comment by the participants but consider that retaining one 
hard copy and one electronic version of all docum ents containing BCI and HSBI as part of the 
appellate record is useful in the eventuality of  a compliance proceeding under Article 21.5 of the 
DSU.  The Appellate Body is an adjudicative body of  record and thus it is imperative that a copy of 
the record be kept as part of the adjudication.  18. Brazil and Japan have requested a small increase in the maximum number of Third 
Participant BCI-Approved Persons that may be designa ted by each third participant.  We recognize 
that the limitation on the number of representatives that may have access to sensitive information can 
make it difficult for third participants to partic ipate fully in these proceed ings.  Thus, we have 
increased the maximum number of persons that may be designated by each third participant to eight, 
and we do not believe that this small adjustment wi ll increase the risk of unauthorized disclosure of 
sensitive information.   
 
19. For the reasons set out above, we have decided 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.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 588 HSBI omitted, as indicated [[HSBI]]  
 
  (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. 
(vi) BCI shall be stored in locked cabinets when not in use. 
(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 for 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.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 589  
 
  (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 for in paragraph (xii), all doc uments and electronic files containing BCI 
and HSBI shall be destroyed or deleted when the Appellate 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 combination 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 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 sh all be accepted.  In coming to a decision on 
the need to include BCI or HSBI to ensure that  the final report is understandable, the Division 
will strike an appropriate balance between th e rights of the WTO membership at large to 
obtain a report that gives a sufficient expos ition of its reasoning and findings, on the one 
hand, and the legitimate concerns of the partic ipants 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 noon on Tuesday, 19 April 2011, and shall be ser ved on the other participant and the third 
participants.  Any objections to the designation of an outside advisor as a BCI-Approved 
Person or HSBI-Approved Person mu st be filed with the Appellate Body Secretariat and 
served on the other participant by Wednesday, 20 April 2011, 5 p.m.  Participants may submit 
amendments to their lists of BCI-Approved Pers ons or HSBI-Approved Persons by filing an 
amended list with the Appellate Body Secretar iat and serving it on the other participant and 
the third participants.  A participant may object  to the designation on the amended list of an 
outside advisor by another participant.  Any obj ections must be filed with the Appellate Body 
Secretariat within two days and simultaneously served on the other participant and the third 
participants.  The Division will reject a request  for designation of an outside advisor as a BCI-
Approved Person or an HSBI-A pproved Person only upon a show ing of compelling reasons, 
having regard to, inter alia , the relevant principles reflected in the Rules of Conduct  and the 
illustrative list in Annex 2 thereto.  BCI-Appr oved Persons and HSBI-A pproved Persons shall 
not disclose BCI or HSBI, or allow either to be disclosed, except to the Appellate Body, WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 590 HSBI omitted, as indicated [[HSBI]]  
 
  assigned Appellate Body Secretariat staff, other BCI-Approved Persons and HSBI-Approved 
Persons, and Third Partic ipant 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, the version of the submission that includes the HSBI 
appendix shall be transmitted only to HSBI-A pproved Persons.  The HSBI appendix shall not 
be transmitted via e-mail.  Each participant sha ll simultaneously provide a redacted version of 
its submissions to the other participant, which sha ll 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 par ticipant and the third participants, unless the 
participant making the submission agrees to rem ove the information that was subject to the 
objection.  If there are no objections, the redact ed version shall be transmitted the following 
day to the third participants. 
Third Participants 
 
(xvi) Third participants may designate up to eight 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 noon, on Tuesday, 19 April 
2011.  A copy of the list of Third Participan t BCI-Approved Persons shall be served on each 
participant and on each other third participant.  The participants may object to the designation 
of an outside advisor as a Third Participant BC I-Approved Person.  Objections must be filed 
with the Appellate Body Secretariat by Wednesd ay, 20 April 2011, 5 p.m.  Third participants 
may submit amendments to their lists of BCI-Approved Persons or HSBI-Approved Persons 
by filing an amended list to the Appellate Body  Secretariat and serving it on the participants 
and the other third participants.  A participan t may object to the designation in an amended 
list of an outside advisor by a third particip ant.  Any objections must be filed with the 
Appellate Body Secretariat within two da ys and simultaneously served on the other 
participant and the third participants.  The Division will reject the designation of an outside advisor as a Third Participant BCI-Approved Person only 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-Approved Persons , and other Third Participant BCI-Approved 
Persons. 
(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.  Upon request, each third participant shall be 
provided with one copy of the Panel Report as circulated to WTO Members and of the 
redacted version of the submissions for use in the reading room.  Third Participant BCI-
Approved Persons may take handw ritten notes on the provided copies of the circulated Panel 
Report and redacted version of the submissions  and they may take these copies with them.  
These documents shall be printed on coloured wa termarked 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 sh all state that any handwritten BCI added to the  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 591  
 
  document shall only be discussed or shared with other Third Participant BCI-Approved 
Persons.  The content of any handwritten notes sha ll not be incorporated, electronically or in 
handwritten form, into any other copy of the Panel Report or of the submissions.  These 
documents and any other handwritten notes ta ken by the Third Participant BCI-Approved 
Persons in the reading room shall be locked in  a secure container when not in use.  These 
documents and handwritten notes must be returned to the Appellate 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. 
 WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 592 HSBI omitted, as indicated [[HSBI]]  
 
  ANNEX IV 
 
26 July 2011 
 
United States – Measures Affecting Trade in Large Civil Aircraft 
(Second Complaint) 
 
AB-2011-3 
 
Procedural Ruling 
 
Introduction 
 1. On 1 April 2011, the Director of the Appellate Body Secretariat received a letter from the European Union requesting that the Appellate Body Division hearing this appeal adopt a procedural 
ruling on confidentiality and inte rim additional protection for sens itive business information in the 
above appeal.  After receiving comments on the Eu ropean Union's request from the United States and 
the third participants, the Division issued a Pro cedural Ruling on 15 Apr il 2011 adopting additional 
procedures to protect sensitive information on the r ecord of this appeal.  Paragraph 19(xx) of the 
Procedural Ruling states that appropriate procedures  shall be adopted to protect sensitive information 
from unauthorized disclosure during any oral hearing in this appeal. 
 
2. On 11 July 2011, the Division received a jo int request from the European Union and the 
United States proposing additional procedures to pr otect Business Confidential Information (BCI) and 
Highly Sensitive Business Information (HSBI) during the two sessions of the oral hearing in this 
appeal and to open both sessions of the oral hearing to the public.   
 
3. Specifically, the participants propose that, w ith respect to the oral hearing, the Appellate 
Body adopt the same additional procedures that it adopted in European Communities and Certain 
Member States – Measures Affecting Trade in Large Civil Aircraft  ("EC and certain member States – 
Large Civil Aircraft ")
1, pursuant to the Procedural Ruling date d 27 October 2010 in that appeal.  The 
participants stated that their reasons for this re quest and proposal are substantially the same as the 
reasons that were given in their joint letter of 5 October 2010 requesting such  additional procedures in 
the appeal in EC and certain member States – Large Civil Aircraft , which are summarized as follows. 
 
 Only BCI-Approved Persons are authorized to  access BCI, and both participants and third 
participants have designated a limited number of persons as BCI-approved.  Only 
HSBI-Approved Persons are authorized to access HS BI, and the participants have designated 
a limited number of persons as HSBI-approved.   Third participants may not designate 
HSBI-approved persons. 
 As regards BCI that might be uttered during a hearing, the participants recall that each of 
them is precluded from disclosing informa tion designated as BCI by the other to 
non-BCI-approved persons.  Similarly, as rega rds HSBI that might be uttered during a 
hearing, the participants recall that each of  them is precluded from disclosing information 
designated as HSBI by the other to non-HSBI-a pproved persons.  Third participants are 
precluded from disclosing BCI to non-BCI-approved persons. 
 Accordingly, the participants consider that, as provided for in the Procedural Ruling dated 
15 April 2011, the Division can and should adopt a further Procedural Ruling pursuant to 
                                                      
1WT/DS316/AB/R, adopted 1 June 2011.  The Additiona l Procedures with respect to the oral hearing 
are set out in Annex IV to that report.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 593  
 
  Rule 16(1) of the Working Procedures for Appellate Review  (the " Working Procedures ")
2 
regulating these matters for both sessions of the or al hearing.  This will involve striking a 
balance between the systemic interest in pr otecting sensitive information and the systemic 
interest in transparency similar to that struck in the Procedural Ruling dated 15 April 2011 in 
this case and the Procedural Ruling dated 27 October 2010 in EC and certain member States 
– Large Civil Aircraft .  The participants recall, in this re gard, that the Procedural Ruling dated 
15 April 2011 records the fact that the third pa rticipants are content with the access provided 
to them, and have not objected to not being given access to HSBI.  
 According to the participants, there appear to be two options with respect to HSBI. The first 
option is that if, during the hearing, one of the participants or a Member of the Division 
wishes to refer to HSBI, the hearing would be temporarily suspended and third participants, 
as well as members of the participants' delega tions who are not HSBI-approved, would be 
asked to leave the room temporarily.  The second option is that the hearing be divided into two parts. The first part would deal with a ll matters to the greatest extent possible, and 
without uttering HSBI.  The second part would complete the discussion, to the extent 
necessary, by addressing HSBI.  While acknowledging  that neither of these options is ideal in 
all respects, the participants, on balance, propo se the second option.  The participants believe 
that this would limit unnecessary disruption during th e hearing.  The participants also believe 
that careful conduct of the first part of the h earing (such as only participants and the Members 
of the Division having a document before them and discussing it without uttering HSBI) could obviate the need for a second HSBI part of  the hearing.  In the event that a second 
closed part of the hearing would be necessary, it could be organized at the end of each day.  
The participants note that the Appellate Body  followed this second approach during the 
proceedings in EC and certain member States – Large Civil Aircraft , and that it appears to 
have been effective. 
 The participants further suggest that the A ppellate Body establish rules regarding a public 
segment of the hearing.  The participants r ecall that, to date, a participant's or third 
participant's oral statements and oral answers to  questions have been made in public segment 
only if the participant or third participant so ag reed.  In the absence of such agreement, it has 
proved operationally possible and effective to divide the hearing into an open segment  (for Members who wish to make their statements public) and a closed segment (for Members who do not wish to make their statements public ).  The European Union and the United States 
are of the view that as much of the hearing as possible should be open to the public.  
However, they recognize that, in the light of the volume of BCI in this dispute, and its centrality to many of the issues, it may not be feasible to separate the Appellate Body questions and participant answers into public and BCI segments in the same way as the oral 
statements.  For this reason, the European Un ion and the United States propose that the same 
approach be adopted in this appeal  as was adopted in the appeal in EC and certain member 
States – Large Civil Aircraft .   
 Thus, with regard to the public segment of th e hearing, the participants propose that the 
participants and third participants (subject to th eir agreement) deliver opening statements that 
do not contain BCI or HSBI.  These would be videotaped, reviewed if necessary by the participants for confirmation that neither BCI nor HSBI has been uttered (with any 
disagreements to be settled by the Appellate B ody), and then transmitted to the public at a 
later date.  The participants also propose that su ch an approach could be used for the closing 
statements, or at least that part of them that does not refer to BCI or HSBI.   
                                                      
2WT/AB/WP/6, 16 August 2010.  WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 594 HSBI omitted, as indicated [[HSBI]]  
 
  4. On 12 July 2011, the Division invited the third participants to comment, if they so wished, on 
the European Union's and the United States' request for public observation of the oral hearing and on the specific modalities proposed.    5. Canada and China submitted comments on the participants' request.  Canada expresses its 
agreement with the joint proposal by the European Union  and the United States th at the Appellate 
Body adopt the same additional procedure s that it ad opted in EC and certain member States – Large 
Civil Aircraft .  China also expresses general agreement with  this proposal, and states its view that, 
under Article 17.10 of the DSU, participants and third participants in an appeal each have the right to 
determine whether or not to allow their statements at  the oral hearing to be open to public observation.  
China encourages the Appellate B ody to follow the practice in EC and certain member States – Large 
Civil Aircraft  that allowed each third participant to re quest confidential treatment for its oral 
statement.  No comments were received fro m Australia, Brazil, Japan, or Korea. 
 6. The request of the European Union and the United States raises issues similar to those that 
were before the Appellate Body in EC and certain member States – Large Civil Aircraft .  In this 
appeal, we have already adopted additional proce dures for the protection of sensitive information.  
Given the amount of information that was treated as BCI or HSBI during the Panel proceedings, we 
believe that it would be difficult to conduct the oral hearing in these appellate proceedings without 
referring to sensitive information.  In carrying out  our adjudicative function, it will be necessary to 
conduct the oral hearing in a manner that allows us to explore issues that involve sensitive 
information, while ensuring that this sensitive info rmation is not improperly disclosed.  Accordingly, 
and for reasons similar to those espoused by the Appellate Body in EC and certain member States – 
Large Civil Aircraft , we have decided to provide additiona l confidentiality protection for certain 
sensitive information during the oral hearing to be held  in this appeal on the terms set out below.  We 
also authorize the public observation of certain se gments of the oral hearing as further indicated 
below.   
 Request for Additional Procedures to Protect Sensitive Information during the Oral Hearing 
 7. We are of the view that the Additional Procedures adopted in EC and certain member States – 
Large Civil Aircraft  provided adequate protection for sens itive information, while allowing the 
Appellate Body to perform its adjudicative function and the third participants to exercise their rights 
under the DSU and the Working Procedures .  The participants share this view and expressly request 
us to adopt similar procedures in this appeal.  This  is also the view of those third participants who 
submitted comments on the participants' request.  Thus, as in EC and certain member States – Large 
Civil Aircraft , we consider it appropriate to adopt the following arrangements to protect sensitive 
information during the oral hearing: 
 
 The participants have indicated that they intend to abstain from mentioning BCI or HSBI in 
their opening statements, and suggest that thir d participants may also agree not to mention 
BCI in their opening statements.  No third par ticipant has indicated an intention to refer to 
BCI in its opening statement.  In such circum stances, it is unlikely that sensitive information 
will be uttered in this segment of the oral hearing.  
 Accordingly, all members of the participants' and third participants' delegations may attend 
this initial segment of the oral hearing. 
 Similarly, to the extent that it is confirmed by  the participants—and also the third participants 
indicate—that no sensitive information will be referred to in the closing statements, all 
members of the participants' and third particip ants' delegations may attend this final segment 
of the oral hearing.   BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 595  
 
   In accordance with paragraphs 19(xiv) and 19(xvi) of our Proce dural Ruling of 15 April 2011, 
the participants and the third participants have each designated BCI-Approved Persons, and 
the participants have desi gnated HSBI-Approved Persons. 
 Only members of the participants' and thir d participants' delega tions who have been 
authorized to have access to BCI are invited to attend the segments of the oral hearing in 
which BCI may be discussed.   
 Only HSBI-Approved Persons of the participants  are invited to attend segments of the oral 
hearing in which HSBI will be discussed. 
 Third participants will have access to the BCI vers ion of the submissions filed in this appeal 
and the BCI version of the Panel Report in the hearing room during the BCI segments.  Third 
participants will be provided with a single copy of these documents, individually 
watermarked.  Access to these documents will be limited to Third Participant BCI-Approved 
Persons.  These documents may not be  removed from the hearing room. 
8. The participants have propo sed two options for addressing HSBI during the oral hearings.  
The first involves interrupting the BCI segments of th e oral hearing each time reference will be made 
to HSBI, the second option involves having dedicated  segments to discuss HSBI.  We believe it is 
important that any additional procedures to protect  sensitive information shoul d interfere as little as 
possible with the regular conduct of the oral hearing and allow the Division to structure its questioning by topic.  Therefore, to the extent possible, we prefer to focus on HSBI in dedicated 
segments in order to avoid interrupting the regular flow  of the oral hearing.  It may be, however, that 
the full exploration of an issue will not allow fo r deferral of the discussion of HSBI.  If such 
circumstances arise, we may decide to interrupt th e BCI segment of the oral hearing to discuss HSBI 
with the persons approved to have access to it.   Request for Public Observation of the Oral Hearing 
 
9. Turning to the participants' request to authorize observation by the public of the opening 
segment of the oral hearing, we recall that request s to allow public observation of the oral hearing 
have been made, and have been author ized, in seven appellate proceedings.3  In its rulings, the 
Appellate Body has held that it has the power to au thorize such requests by the participants, provided 
that this does not affect the confidentiality in the relationship between the third participants and the 
Appellate Body, or impair the in tegrity of the appellate process. 
 
10. 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.  
                                                      
3These 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);  Australia – Measures Affecting 
the Importation of Apples from New Zealand  (WT/DS367/AB/R);  and European Communities and Certain 
Member States – Measures Affecting Trade in Large Civil Aircraft  (WT/DS316/AB/R). WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 596 HSBI omitted, as indicated [[HSBI]]  
 
  11. Particular issues arise in this appeal, as they did in EC and certain member States – Large 
Civil Aircraft , in relation to the public observation of the or al hearing because of the need to avoid the 
disclosure of BCI and HSBI.  We believe that th e Additional Procedures adopted by the Appellate 
Body in EC and certain member States – Large Civil Aircraft  provide an appropriate means to allow 
public observation of the oral hearing, while pr otecting sensitive information and safeguarding the 
Appellate Body's adjudicative function and th e interests of the third participants.   
 12. Therefore, and subject to the qualificati on in paragraph 13 below, we authorize public 
observation of only the opening statements.  We will authorize public observation of the closing 
statements upon indication from the participants and third participants that their closing statements 
will not include any referen ce to sensitive information. 
 13. We authorize observation by the public of the opening statements of only those third participants who have not indicat ed any objection to such observation.  The confidentiality of the 
closing statements by third participants who do no t wish to make their statements public will be 
preserved. 
 14. In this appeal, the participants have proposed  that public observation take place by making a 
videotape of the relevant segments of the oral  hearing and showing it to the public after the 
participants have had an opportunity to review th e videotape for any inadvertent utterance of sensitive 
information.  A similar procedure was used in EC and certain member States – Large Civil Aircraft .  
We agree with the participants that deferred transm ission to the public by videotape will minimize the 
risk of inadvertent disclosure of sensitive information and we will give the participants an opportunity 
to request review of the videotape for this purpos e before it is shown to the public.  In case of 
disagreement between the participants regarding the sensitive nature of certain information referred to 
during the opening or closing statements, such info rmation will not be subject to public observation. 
 
15. For the reasons set out above, we adopt th e following additional procedures for the purposes 
of this appeal:  
Additional Procedures on the Conduct of the Oral Hearing 
 
Protection of Sensitive Informa tion during the Oral Hearing  
 
(i) These additional procedures shall apply to all sessions  of the oral hearing to be held in this 
appeal and, in particular, to any information that  is referred to in the oral hearing 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 r ecord.  These additional procedures complement 
the additional procedures for the protection of sensitive information that  we adopted in our 
Procedural Ruling of 15 April 2011. 
(ii) To the extent that information on the record is presented at the oral hearing 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.   
(iii) Appellate Body Members, Secretariat staff assi gned by the Appellate Body to work on this 
appeal, and interpreters and court reporters reta ined for this appeal may be present throughout 
the oral hearing, including segments dedi cated to the discussion of BCI and HSBI.  BCI deleted, as indicated [***] WT/DS353/AB/R 
 HSBI omitted, as indicated [[HSBI]] Page 597  
 
  (iv) In addition to the persons indicated in subpara graph (iii) above, BCI shall be disclosed during 
the oral hearing only to BCI-Approved Persons of the participants and Third Participant 
BCI-Approved Persons.
4 
(v) In addition to the persons indicated in subpara graph (iii) above, HSBI shall be disclosed 
during the oral hearing only to HSBI-A pproved Persons of the participants.5 
(vi) The oral hearing segment dedicated to the openi ng 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-Approved Persons are invited to attend the segments 
dedicated to questions and answers.   
(viii) Segments of the oral hearing may be reser ved for questioning on issues that may  
require reference to HSBI.  In order to pr otect HSBI from unauthorized disclosure, only 
HSBI-Approved Persons of the participants  are invited to attend these segments. 
(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 w ill be invited to attend the closing segment of the oral 
hearing.   
(x) If necessary, the Division hearing this appeal may interrupt a BCI segment and hold a 
segment dedicated to HSBI. 
(xi) During the segments of the oral hearing that address BCI, the BCI version of the Panel Report 
and the BCI version of the submissions filed in  this appeal, which have been printed and 
individually watermarked pursuant to paragr aph 19(xvii) of our Procedural Ruling of 
15 April 2011, shall be made available to each third participant.  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 segment addressing BCI.  
(xii) The parts of the transcript of the oral hearing containing BCI and HSBI shall become part of 
the appellate record and shall be kept in accordance with the additional procedures for the 
protection of sensitive information set out in s ubparagraphs 19(vi), (vii), and (ix)-(xii) of our 
Procedural Ruling of 15 April 2011.   
Public Observation of the Oral Hearing 
 
(xiii) The first segment of the oral hearing, which will consist of the opening statements by the 
participants and third participants, shall be open to public observation, subject to 
subparagraph (xv) below.  The fi nal segment of the oral hearing, which will be reserved for 
closing statements, shall be open to public obser vation to the extent that the participants and 
                                                      
4BCI-Approved Persons and Third Participant BCI-Approved Persons are those persons designated as 
such under paragraphs 19(xiv) and 19(xvi) of our Procedural Ruling of 15 April 2011. 
5HSBI-Approved Persons are those persons designated as such under paragraph 19(xiv) of our 
Procedural Ruling of 15 April 2011. WT/DS353/AB/R BCI deleted, as indicated [***] 
Page 598 HSBI omitted, as indicated [[HSBI]]  
 
  third participants indicate that their closi ng statements will not refer to any sensitive 
information and subject to subparagraph (xv) below.  
(xiv) The segments open to public observation shall be videotaped.  Within two days of the 
completion of each session of the oral hearing, either participant may request to review the 
videotapes to verify that BCI or HSBI has not  been included inadvertently or otherwise.  
Upon such request, staff of the Appellate B ody 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 
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 that has not already done so ma y 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 Wednesday, 10 August 2011.  
(xvi) Notice of the oral hearing will be provided to the general public through the WTO website.  
Members of the general public wishing to ob serve the oral hearing will be required to 
register in advance with the WTO Secretariat.  The videotape, or if applicable the redacted 
version of the videotape, shall be screened to  WTO delegates and members of the public who 
have registered to observe the oral hear ing once the review process referred to in 
subparagraph (xiv) above has, if requested, been  completed.  The time and location of the 
videotape screening shall be announced in due c ourse.  WTO delegates are invited to indicate 
to the Appellate Body Secretariat, no later than 5 p.m. Geneva time on Wednesday,  
10 August 2011, whether they wish to have a reserved seat in the room where the videotape 
will be screened.  
 
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 HSBI omitted, as indicated [[HSBI]] Page 599  
 
  ANNEX V 
 
HSBI Annex 
  
[[HSBI]] 
 
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